Document de référence. English version

Transcription

1 Document de référence English version 2006

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3 MAROC TELECOM Société Anonyme de droit marocain au capital de dirhams Head Office: Avenue Annakhil Hay Riad Rabat Morocco RCS Rabat REGISTRATION DOCUMENT This Registration Document in English is a translation of the French «Document de référence» for information purposes. This translation is qualified in its entirety by reference to the «Document de référence». Pursuant to Article , of the Financial Market Authority s Regulation this Registration Document was filed on May 9, 2007 under No. R It may not be used in support of a financial transaction unless it is accompanied by a transaction note endorsed by the Financial Market Authority. This Registration Document was drawn up by the issuer and engages the responsibility of its signatories. This registration in compliance with Article L I of the Monetary and Financial Code, was carried out after examination of the relevance and consistency on the information provided on the company s situation and does not imply authentication by the AMF of the accounting and financial elements presented. In application of Article 28 of European Commission Regulation 809/2004/EC, the following information is included by reference in this Registration Document: the 2004 Consolidated financial statements and the corresponding Statutory Auditors report are presented on pages 83 and following and page 105 of the Registration Document filed with the AMF on March 30, 2005 under No. R ; the 2004 Company financial statements and the corresponding Statutory Auditors reports on pages 106 and following and page 116 of the Registration Document registered with the AMF on March 30, 2005 under No. R ; the 2005 Consolidated financial statements and the corresponding Statutory Auditors report are presented on pages 88 and following and page 160 of the Registration Document filed with the AMF on March 23, 2006 under No. R ; the 2005 Company financial statements and the corresponding Statutory Auditors reports on pages 129 and following and page 159 of the Registration Document filed with the AMF on March 23, 2006 under No. R Des exemplaires du présent document sont disponibles sans frais auprès de Maroc Telecom, Avenue Annakhil - Hay Riad - Rabat, Maroc sur le site Internet de Maroc Telecom : et sur le site Internet de l Autorité des Marchés Financiers

4 TAbLE OF CONTENTS 2006 HIGHLIGHTS 4 KEY FIGURES 6 1 PERSONS RESPONSAbLE FOR THE REGISTRATION DOCUMENT AND AUDIT OF THE FINANCIAL STATEMENTS Person responsible for the Registration Document Certification of the Registration Document Persons responsible for the audit of the financial statements Statutory auditor Information policy Person responsible for the information Financial communication calendar Shareholders information 9 2 INFORMATION RELATING TO THE TRANSACTION 10 3 GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL General information Corporate name Head Office Legal form Legislation Commitments of the Company to the market authorities in France Registration Duration of the Company Corporate purpose Legal documents available for viewing Fiscal year Allocation of profits General shareholders meetings Management of the Company Statutory auditors Trading of shares Statutory thresholds Public bids General information relating to the company s share capital Share capital Form of shares Rights and duties attached to shares Acquisition by the Company of its own shares Changes in the Company s share capital since its incorporation Trading of the company s shares Places of listing Maroc Telecom share price Dividends and dividend policy Dividend paid out over the past five fiscal years Dividend policy Tax treatment relating to dividends Breakdown of share capital and voting rights Ownership of share capital and voting rights in the Company Authorized share capital Changes in the shareholding structure of the Company over last three fiscal years Employee stock ownership Shareholders Agreement Asset pledges 41 4 INFORMATION CONCERNING COMPANY business ACTIVITIES History General presentation Organization Description of operations ISO Certification Maroc Telecom s business strategy Business activities Mobile business Fixed-line and Internet business Shareholdings Distribution Marketing, communication and sponsorship Competition Mobile telecommunications Fixed-line telecommunications Data transmission Internet Research and development Seasonality Regulatory environment and possible dependencies General presentation of the legal environment with respect to telecommunications in Morocco The legal environment with respect to telecommunications in Morocco Dispute settlement Dependencies 91 2

5 TABLE OF CONTENTS 4.9 Human resources Modernization of human resources management Staff Staff turnover rate Changes in the number of employees Staff of the Vivendi group Training Evolution of staff compensation Labor relations Agreements and negotiations Employee benefits Real property Intellectual property Insurance Legal and arbitration proceedings Risk factors Risks relating to the company s business Risks relating to the regulatory environment Tax risk Risks relating to the interests held by major shareholders in Maroc Telecom Market risks FINANCIAL REPORT Consolidated financial data for years ended December 31, 2004, 2005 and Financial data in Moroccan dirhams Financial data in euros General overview General presentation Market trends and other factors affecting earnings Scope of consolidation Significant accounting policies and estimates Consolidated income statement Comparison of 2006, 2005 and Comparison of business segment results Cash and cash equivalents Contractual obligations and commercial commitments Disclosure of qualitative and quantitative information about market risks Transition from individual financial statements to consolidated financial statements Consolidated financial statements Individual financial statements Report of the Management Board CORPORATE GOVERNANCE Management and supervisory boards Composition and functioning of the Management board Composition and roles of the Supervisory board Corporate governance Audit Committee Code of Ethics Interests of the corporate executives Compensation of the Management and Supervisory boards Participation of Management structures and Supervisory board in the Company s share capital Conflict of interests Interests of corporate executives in significant customers and suppliers of the Company Service contracts Stock options Loans and guarantees granted to corporate executives Related party transactions Management Services Agreement Management Services Agreement with Mauritel Agreement with Casanet Agreement with GSM Al-Maghrib (GAM) Costs relating to stock options and restricted stock Sale of property to a member of the Management board Agreement with Al Akhawayn University Contract with Media Overseas Medi-1-Sat current account advance Mobisud current account advance RECENT DEVELOPMENTS AND OUTLOOK Recent developments Shareholders Meeting held April 12, Acquisition of Gabon Telecom Phony 7.2 Market outlook Objectives 224 TAbLE OF CONCORDANCE ANNUAL INFORMATION DOCUMENT 228 STATUTORY AUDITORS FEES 229 APPENDICES 230 Maroc Telecom s ordinary general meeting, april 12, Glossary 233 3

6 2006 HIGHLIGHTS January Maroc Telecom adopted a new visual identity increasing visibility and simplicity. February 2006 The CMC holding company, which is 80% owned by Maroc Telecom, acquired an additional 0.527% of the shares in Mauritel SA. March Maroc Telecom implemented the new fixed-line numbering plan, simplifying it to two zones instead of four. Maroc Telecom disposed of its 35% stake in GSM Al-Maghrib. Maroc Telecom reduced its VPN and secure optical access tariffs. April Maroc Telecom s Supervisory board appointed Mr. Arnaud Castille as member of the Management board, replacing Mr Mikael Tiano. The Company paid out an ordinary dividend of MAD6.96 per share, representing a total payout of MAD6,119 million. Maroc Telecom participated in Medi-1-Sat s capital increase of MAD10 million, increasing its stake from 24.7% to 26.8%. May The ANRT launched an invitation to tender to grant three 3G mobile licenses. Maroc Telecom reduced its tariffs for several services including Menara, ADSL and international leased lines for call centers. June Maroc Telecom launched television via ADSL. This is the first time this service has been made available in Morocco, Africa and the Arabic world. Maroc Telecom started laying a fiber optic submarine cable between Morocco (Asilah) and France (Marseille) called Atlas Offshore, in an aim to meet international capacity requirements for offshoring activities in Morocco and Internet driven by ADSL broadband access. The ANRT set the agenda for implementing number portability at December 31, 2006 for Mobiles and March 31, 2007 for Fixed-lines. Maroc Telecom offered football fans a unique occasion to watch all the 2006 World Cup matches for free, setting up more than forty large screens connected to TV via ADSL in public places in the Kingdom s main cities. Maroc Telecom cut its international leased line tariffs and introduced 155 Mbps bandwidth. Maroc Telecom launched a new voluntary redundancy plan to be completed in 2007 for a total cost of MAD300 million. Restructuring costs at Mauritel SA totalled MAD29 million and concerned 192 employees. Maroc Telecom reduced its share capital by MAD3,516 million and paid shareholders MAD4 per share in cash. 4

7 2006 HIGHLIGHTS July Maroc Telecom s Supervisory board appointed Mrs. Janie Letrot as member of the Management board, replacing Mr. François Lucas. Maroc Telecom modified its internal organisation to be able to seize the opportunities made available by convergence and to be in a position to propose global offers at the best prices while maintaining high quality service. Fixed-line & Internet and Mobile segments were grouped together in a single department called Services. Regional sales teams have been set up to strengthen links with Maroc Telecom s clients and partners at both provincial and prefectoral levels. The ANRT granted three 3G licenses in July to Maroc Telecom, Medi Telecom and Maroc Connect for MAD360 million (incl. VAT) per license. Maroc Telecom belgium was created with share capital of 62,000, wholly-owned by Maroc Telecom. August The Maroc Telecom foundation rewarded the Kingdom s best students. September Maroc Telecom continued to break new ground on the market with its new services Internet Mobile ( Mobimail ) and push-to-talk ( Mobitalkie ). To build customer loyalty and attract new customers, Maroc Telecom launched a series of unlimited fixed-line offers called Phony, allowing customers to make unlimited fixed-line local and national calls to all Maroc Telecom numbers. November Maroc Telecom purchased a 66% stake in SFR6 for MAD74 million. The other shareholders in this is company, which has been renamed Mobisud, are SAHAM (18%) and SFR (16%). December Maroc Telecom launched Mobisud, a new operator on the French Mobile market. Maroc Telecom belgium carried out a share capital increase of MAD16.8 million. Maroc Telecom signed an investment agreement with the Moroccan government. After privatization by means of an international invitation to tender, Maroc Telecom acquired 51% of Onatel, Office National des Telecommunications, burkina Faso s incumbent operator. Maroc Telecom introduced ADSL+ with bandwidth of up to 20 Mo and reduced ADSL 4 Mo tariffs, and tariffs for international leased lines. 5

8 KEY FIGURES Var Number of employees* 12,204 11,178 11, % Fixed-line customers* (in thousands) 1,309 1,341 1,266 (5.6%) Mobile customers* (in thousands) 6,361 8,237 10, % Internet customers* (in thousands) % IFRS (in millions MAD) Consolidated revenues 17,408 20,542 22, %. Mobile 9,684 12,772 14, %. Fixed-line and Internet 11,133 11,949 12, % EBITDA 10,451 11,664 13, %. Mobile 5,099 6,808 8, %. Fixed-line and Internet 5,352 4,856 4,713 (2.9%) Operating income (EFO) 7,597 8,678 10, %. Mobile** 3,806 5,394 6, %. Fixed-line and Internet 3,791 3,284 3,139 (4.4%) Consolidated net income (group share) 5,171 5,809 6, % Capital expenditure 2,488 3,210 3, %. Mobile** 1,122 1,771 2, %. Fixed-line and Internet 1,366 1,439 1, % * Excluding Mauritel ** Including Mobisud in

9 KEY FIGURES Quartely data in thousands Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Number of Fixed-lines 1,254 1,312 1,299 1,309 1,335 1,349 1,345 1,341 1,336 1,310 1,267 1,266 Internet Access ADSL Number of Mobile customers 5,353 5,519 6,034 6,361 6,709 7,188 8,041 8,237 8,576 8,924 10,496 10,707 Prepaid 5,129 5,283 5,790 6,105 6,428 6,875 7,717 7,908 8,228 8,553 10,108 10,297 Postpaid IFRS (in millions MAD) Consolidated revenues 4,068 4,164 4,697 4,479 4,712 5,039 5,527 5,264 5,276 5,612 6,195 5,532 Mobile (gross) 2,213 2,295 2,709 2,467 2,839 3,139 3,553 3,241 3,279 3,678 4,164 3,563 Maroc Telecom 2,213 2,295 2,591 2,351 2,709 2,999 3,403 3,088 3,118 3,507 3,991 3,381 Mauritel Fixed-line and Internet (gross) 2,660 2,682 2,904 2,887 2,860 2,925 3,073 3,091 3,084 3,060 3,270 3,198 Maroc Telecom 2,660 2,682 2,827 2,780 2,779 2,843 2,991 3,003 3,004 2,981 3,196 3,121 Mauritel Elimination of inter-segment transactions (805) (813) (916) (875) (987) (1,025) (1,099) (1,068) (1,087) (1,126) (1,239) (1,229) Consolidated operating income 1,786 1,729 2,209 1,873 2,073 1,844 2,537 2,224 2,326 2,165 3,106 2,446 7

10 1 PERSONS RESPONSIbLE FOR THE REGISTRATION DOCUMENT AND FOR THE AUDIT OF THE FINANCIAL STATEMENTS In this Registration Document, "Maroc Telecom" or the Company refers to the company Itissalat Al-Maghrib, and the group refers to the group constituted by the Company and all direct and indirect subsidiaries, as described in Chapter PERSON RESPONSIbLE FOR THE REGISTRATION DOCUMENT Mr. Abdeslam Ahizoune Chairman of the Management board 1.2 CERTIFICATION OF THE REGISTRATION DOCUMENT I attest, after having taken all reasonable steps for this purpose, that the information contained in this Registration Document is, to my knowledge, in conformity with reality and does not comprise any omission likely to deteriorate its range. I obtained a letter of work-end from statutory auditors, in which they indicate that they have verified the information related to the financial standing and the accounts given in this Registration Document and the overall reading of the Registration Document. Historical financial information presented in the Registration Document was the subject of Statutory Auditors reports, which appear on pages 175 and 198 of the present Registration Document, pages 167 and 197 of the 2005 Registration Document filed with the French Autorité des Marchés Financiers (AMF) on April 11, 2006 under the number R , on pages 157 and 186 of the 2004 Registration Document filed with the French Autorité des Marchés Financiers (AMF) on April 8, 2005 under the number R , and on page 292 and 330 of Document de base filed with French Autorité des Marchés Financiers (AMF) on November 8, 2004 under the number I , which contain observations. Rabat, May 4, 2007 Mr. Abdeslam Ahizoune Chairman of the Management board 1.3 PERSONS RESPONSIbLE FOR THE AUDIT OF THE FINANCIAL STATEMENTS Statutory Auditors Mr. Samir Agoumi Representative of Salustro Reydel in Morocco 100 boulevard Abdelmoumen Casablanca, Morocco First appointed in 2001 for a three fiscal year term by the general shareholders meeting. This mandate will expire at the end of the general shareholders meeting held to approve the financial statements for the fiscal year ended December 31, The renewal of this mandate has not been included in the agenda of the general shareholders meeting on April 12, The appointment of KPMG representing Mr Fouad Lahgazi will be proposed to the shareholders at the general meeting. Mr. Abdelaziz Almechatt Representative of Coopers & Lybrand in Morocco 101 boulevard Massira Al Khadra Casablanca, Morocco First appointed in 1998 by statutes, the current mandate, of a three fiscal year term, was renewed by the shareholders meeting held April 8, 2005 and will expire at the end of the shareholders meeting held to approve the financial statements for the fiscal year ended December 31,

11 1.PERSONS RESPONSIBLE FOR THE REGISTRATION DOCUMENT AND FOR THE AUDIT OF THE FINANCIAL STATEMENTS INFORMATION POLICY 1.4 INFORMATION POLICY Person responsible for information Mr. Arnaud Castille Chief Financial Officer Maroc Telecom Avenue Annakhil Hay Riad Rabat, Morocco Telephone: (0) E mail: [email protected] Financial communication calendar All the financial information issued by Maroc Telecom (press releases, presentations, annual reports) is available on its website The following is an indicative calendar of Maroc Telecom s financial communication for 2007: Date* Event Format Monday January 22, 2007 Q and 2006 revenues Press release Friday March 2, 2007 Q and 2006 results Press release Press conference Analysts and Investors conference Thursday April 12, 2007 Shareholders Meeting Friday May 11, 2007 Q revenues and results Press release Monday July 23, 2007 Q2 and H revenues Press release Thursday August 30, 2007 Q2 and H revenues Press release Press conference Analysts and Investors conference Monday November 5, 2007 Q revenues and results Press release * before the market Shareholders information The social, accounting and legal documents, whose communication is ruled by the Moroccan and French laws and the statutes in favour of the shareholders and third parties can be consulted at the head office of the Company. Registration Documents, updating of Registration Documents filed with the Autorité des marchés financiers (AMF), presentations for investors and financial analysts made by the Company, as well as the various press releases are available on Maroc Telecom s website: In accordance with the provisions of the Transparency Directive, which has been applicable since January 20, 2007, all regulated information is available and stored on Maroc Telecom s website: 9

12 2 INFORMATION RELATING TO THE TRANSACTION NOT APPLICAbLE 10

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14 3 GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL The significant information for investors, relating to the Company and its share capital have been set forth in the Articles of Association effective on the date of the present document subject to the specific provisions of the Shareholders Agreement (See section "Shareholders Agreement"). 3.1 GENERAL INFORMATION Corporate name The Company s corporate name is: Itissalat Al-Maghrib. It also operates under the trade names IAM and Maroc Telecom Head Office The Company s Head office is located on Avenue Annakhil (Hay Riad), Rabat, Morocco. Telephone: Legal form Maroc Telecom is a Moroccan corporation with a Management board and Supervisory board, governed by Chapter II of Act relating to corporations Legislation The Company is governed by Moroccan law, including in particular Act relating to corporations, and by its Articles of Association. The French law governing commercial companies is not applicable to it. As the Company is listed on a regulated market in Morocco, the provisions of various Moroccan rules, regulations, orders, decrees and circulars will be applicable, including in particular: The Decree , dated September 21, 1993, relating to the Securities Exchange, as amended and extended by Acts 34-96, and 52-01; The General Regulation of the Stock Exchange approved by Order of the Minister of the Economy and Finance, dated July 27, 1998, and amended by Order of the Minister of the Economy, Finance, Privatization and Tourism dated October 30, 2001 and by Order of the Minister of Finance and Privatization dated November 22, 2004; The Decree , dated September 21, 1993, relating to the Ethics Council for Securities (CDVM) and the information required of legal entities issuing securities to the public, as amended and extended by Act 23-01; The Decree relating to the creation of the central depositary and establishment of a general accounting system for certain securities as amended and extended by Act 43-02; The General Regulation of the central depositary approved by Order of the Minister of the Economy and Finance, dated April 16, 1998, and amended by Order of the Minister of the Economy, Finance, Privatization and Tourism, dated October 30, 2001; The Decree relating to the Postal Service and Telecommunications, dated August 7, 1997, as amended by 12

15 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY Act 79-99, dated June 22, 2001, and by Act 55-01, dated November 4, 2004; The Decree , dated April 21, 2004, enacting Act relating to public offers on the Moroccan stock market; The Circular of the Ethics Council for Securities (CDVM), dated June 8, 2004, relating to the thresholds for ownership of shares or voting rights of listed companies; The Circular of the Ethics Council for Securities (CDVM), dated March 18, 2005, relating to the ethical frame information within listed companies; The Circular of the Ethics Council for Securities (CDVM), dated October 3, 2005, relating to publication of important information by legal entities issuing securities to the public; and The Circular of the Ethics Council for Securities (CDVM), dated October 13, 2005, relating to publication and distribution of financial information by legal entities issuing securities to the public Commitments of the Company to the market authorities in France As the Company is also listed on the primary market of Euronext Paris, some provisions of French stock law are applicable to it. Indeed, under the current legislation, rules concerning foreign issuers provided by AMF Regulation are applicable to the Company. In addition, organization and general rules of Euronext Paris are applicable to the Company. AMF rules may also apply to public bids for the shares of the Company, except provisions concerning Compulsory standing offer procedure, the mandatory submission of a public tender offer and compulsory buyout. Other rules of French stock exchange law do not apply to the Company. This is the case of threshold rules. With regards to French law, a foreign issuer has to take the necessary steps to allow the shareholders to manage their investments, and implement their rights. Since Company securities are listed in the primary market of Euronext Paris, and pursuant to AMF Regulation and in compliance with provisions of the European Transparency Directive transposed by the Monetary and Financial Code and applicable since January 20, 2007, the Company is required to: inform the AMF of any changes in its share capital compared with previously disclosed information, particularly the crossing of thresholds which Maroc Telecom would have received; publish interim financial reports including condensed financial statements, an interim management report, the Statutory Auditors reports on the limited review of the above mentioned financial statements and a statement from the persons responsible for the half-yearly financial report within two months of the end of the first half of the Company s fiscal year; publish an annual financial report including the accounts, a management report, the Statutory Auditors report and a statement from the persons responsible for the report within four months of the end of the fiscal year; publish quarterly statements including net revenues by business segment for the past quarter, a general description of the Company s results and financial position and that of companies it controls, and the significant transactions and events which occurred during the quarter and their impact on the Company s financial position, within 45 days from the end of the first and the third quarters; publish a press release specifying the fees paid to the Statutory Auditors, to be presented on the AMF and Maroc Telecom websites within four months of the end of the fiscal year; publish monthly statements on the total number of voting rights and shares comprising the Company s share capital; publish, as early as possible, any information on new facts that may significantly affect the share price and inform the AMF; inform the French public about changes in the business of the Company or its management; make the necessary provisions for allowing the persons who hold their securities through Euroclear France to exercise their rights, particularly by informing them about any annual ordinary shareholders meeting and by allowing them to exercise their voting rights; inform the persons who hold their securities through Euroclear France about dividend payments, new share issues, allocation, subscription, renunciation and conversion; update names and details of the person in charge of the issuer information in France; provide the AMF with any information it may require in accordance with its mission and the laws and regulations applicable to the Company; 13

16 comply with AMF Regulation relating to the obligation to inform the public; comply with the provisions of the AMF s General Regulation on disclosures; make all regulated information available on Maroc Telecom s website and store such information for at least five years; inform the AMF about any draft amendment of its bylaws. The Company will have to inform the AMF about any general shareholders meeting resolution authorizing the Company to trade in its own shares and send the AMF periodic reports of purchases or sales of shares made by the Company by virtue of the authorization. The Company will have to ensure in France, in a simultaneous way, identical information to the one that it will give abroad, particularly in Morocco. Any publication and information to the public related to in this chapter will be made by any mean particularly by a notice or press release inserted in a national financial daily newspaper distributed in France. The information intended for the public in France is written in French. The Company establishes, like French issuers, a Registration Document, supplying legal and financial information relating to the issuer (shareholding structure, activities, management, financial information) without containing however any information relating to an issue of specific shares. In practice, the annual report of the Company can be used as the Registration Document, to the condition that it contains all the required information. The Registration Document will then have to be filed with the AMF and distributed to the public once registered. The annual and the interim reports in French will be available for public in France at the office of the financial intermediary in charge of financial service in France (currently: CACEIS). In addition, the Company has the intention to lead an active policy towards all shareholders, including those holding their shares through Euroclear France, doing the best to allow them to participate to any public offer which would, if applicable, be made on the international markets. However, because of the constraints related to operations on international markets and in order to be able to benefit from the best existing conditions on these markets, in the interest of the Company and of all its shareholders, the Company cannot guarantee to the persons holding their shares through Euroclear France such a participation in all operations which would, if applicable, be made Registration The Company was founded in Rabat by a deed dated February 3, The Company was registered with the Rabat Registry of Commerce on February 10, 1998, under number Duration of the Company The term of the Company is 99 years from the date of its registration with the Registry of Commerce, subject to early dissolution or extension as provided for by law or the Articles of Association. 14

17 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY Corporate purpose The Company s corporate purpose, in accordance with its contract specifications as an operator and pursuant to the statutory and regulatory rules in force, is: to provide universal service, in the manner provided for under the statutory and regulatory rules in force; and; to establish and/or operate telecommunication infrastructure, networks and services of any kind; For the purposes of the activities so defined, it may: acquire, own and operate any real or personal property that is necessary or appropriate for its operations, in particularly those whose transfer or availability in its favour is provided for by the applicable law; market and, on an accessory basis, assemble and manufacture, any telecommunications devices, products and items; create, acquire, license and make use of any patents, processes or trade names; take part in any financial syndicate, concern or company, existing or currently being created, having a purpose similar or related to its own, by any lawful means; and more generally, carry out any transactions of a commercial, financial or, if necessary, industrial nature relating to real or personal property directly related to any part of the Company s corporate purpose and which could advance its growth and development Legal documents available for viewing The corporate, accounting and legal documents required to be disclosed by law or the bylaws to the shareholders and third parties may be viewed at the Company s Head Office in avenue Annakhil (Hay Riad), Rabat, Morocco Fiscal year The Company s fiscal year begins on January 1 and ends on December Allocation of profits At the close of each fiscal year, the Management board draws up a statement of the various corporate assets and liabilities as of such date and draws up the annual financial statements and the annual report to be submitted to the shareholders meeting, in accordance with applicable law. The net profit generated by the Company, after deduction of any earlier net loss, shall be subject to a withholding of 5% to fund the statutory reserve; such withholding shall no longer be required once the amount of the statutory reserve exceeds one tenth of the share capital. The distributable profit shall consist of the net profit for the fiscal year, after funding the statutory reserve and allocation of earlier net profit or loss carried forward. Against such profit, the shareholders meeting may charge such amounts as it shall see fit in order to fund any optional, ordinary or exceptional reserve funds, or to carry forward, to the extent of a maximum aggregate amount of half the distributable profit, subject to an exception granted by a 75 percent majority of the members of the Supervisory board present or represented. The balance shall be paid out to the shareholders by way of a dividend, the aggregate amount of which shall not be less than half the distributable profit, subject to an exception granted by a 75 percent majority of the members of the Supervisory board present or represented. Within the limits set forth by law, the shareholders meeting may resolve, on an exceptional basis, to pay out amounts 15

18 charged against the optional reserves at its disposal (see also section 3.4 Dividends and dividend policy ). Dividend payments The ordinary shareholders meeting, or absent an agreement, the Management board, shall determine the terms of payment of the dividends voted. Such payment shall be made within nine months after the close of the fiscal year, subject to extension of that period by an order of the President of the Court, acting in summary proceedings upon a petition from the Supervisory board. If the Company holds shares of its own stock, the related dividend entitlement shall be cancelled. Dividends not collected within five years after the date of payment thereof shall be forfeited to the Company. Amounts not collected and not forfeited shall constitute a claim of the owners against the Company, not bearing interest, unless they are converted into loans on mutually agreed terms. If the shares are subject to a life interest, the dividends shall be payable to the life tenant. The proceeds of the distribution of reserves, other than the carry-forward, shall, however, be allocated to the bare owner General shareholders meetings Shareholders meetings The shareholders collective resolutions shall be made at meetings, which shall be ordinary or extraordinary according to the nature of the decisions that they are called upon to make. A duly convened general meeting shall be deemed to represent all the shareholders; its decisions shall be binding on all, including those who are absent, not sui juris, dissenting or deprived of voting rights. Calling of meetings Meetings shall be called by the Supervisory board. An ordinary shareholders meeting may also be called: by the Statutory Auditor or Auditors, who may do so only after requesting the Supervisory board to call it and the Supervisory board fails to do so; by an agent appointed by a Court order, upon the application of any interested party in an emergency or of one or more shareholders holding at least one tenth of the share capital; or by the liquidator or liquidators in the event of the Company s dissolution, during the liquidation period. Shareholders meetings shall be called and carried out in the manner provided for by law. The Company shall, at least 30 days before the shareholders meeting is convened, publish in a newspaper chosen among those contained in the list determined by the Minister of Finance and in the Official Journal, a notice containing the information required by law and the draft resolutions to be submitted to the meeting by the Management board. The Company shall be required to publish, in a newspaper authorized to carry legal advertisements and in the Official Journal, at the same time as the notice of the annual ordinary shareholders meeting, the summary financial statements relating to the previous fiscal year, drawn up in accordance with applicable law (which shall include the balance sheet, statement of income, statement of cash flows and Statement of changes in financial position), and the report of the Statutory Auditor(s) relating to such financial statements. Any amendment to such documents shall be published by the Company in a newspaper authorized to carry legal advertisements within 20 days after the annual ordinary shareholders meeting. Meetings shall be held at the registered office or at any other location specified in the notice. Agenda The agenda of a shareholders meeting shall be determined by the author of the notice. One or several shareholders holding at least 2% of the share capital may, however, call for one or several draft resolutions to be tabled on the agenda. Regardless of the number of shares held, all shareholders shall be entitled, upon providing evidence of identity, to take part in shareholders meetings subject: for holders of registered shares, to an entry by name in the Company s records; 16

19 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY for holders of bearer shares, to deposit, at the locations mentioned in the notice, of the bearer shares or of a certificate of deposit issued by the establishment having custody of such shares; and if applicable, to provide to the Company, in accordance with applicable law, of any evidence allowing his or her identification. Such formalities shall be completed no later than five days before the date of the meeting, subject to any shorter period provided for in the notice or mandatory statutory rules reducing such period. Participation in meetings The shareholders meeting concern all shareholders, regardless of the number of shares they hold. Corporate shareholders shall be represented by a specially appointed agent, who need not personally to be a shareholder. A shareholder may be represented by another shareholder, or by his or her guardian, spouse or an ascendant or descendant, who need not to be a shareholder in his or her personal capacities. Multiple holders of undivided interests in shares shall be represented at shareholders meetings by one of them or by a single agent. A shareholder having pledged his or her shares shall retain the right to attend shareholders meetings. Officers - Attendance sheet Officers The shareholders meeting shall be chaired by the Chairman of the Supervisory board or the Vice Chairman of the Supervisory board. Failing this, the meeting shall appoint its own Chairman. The Chairman of the meeting shall be assisted by the holders of the two largest interests, either personally or as agents, present and accepting such office, who shall serve as scribes. The officers so appointed shall appoint the Secretary, who need not be a shareholder. Attendance sheet An attendance sheet shall be kept at each meeting, specifying the names and addresses of the shareholders, and, if applicable, those of their proxies, and the numbers of shares and voting rights they hold. Such attendance sheet shall be signed by all shareholders present and by the proxies of absent shareholders; it shall then be certified by the officers of the meeting. Voting rights Each member of the meeting shall have as many voting rights as he or she owns or represents, in particular as a result of voting proxies or other powers of attorney. The voting rights attached to a share shall belong to the life tenant at ordinary shareholders meetings and to the bare owner at extraordinary shareholders meetings. If the shares are pledged, the voting rights shall be exercised by the owner. The Company may not vote shares that it has acquired or accepted as security. Minutes The minutes of meetings shall be entered in a special register kept at the Head Office, the pages of which shall be numbered and initialed by the Registrar of the Court at the location of the Company s registered office. Copies of/or extracts from the minutes shall be certified by the Chairman of the Supervisory board alone, or by the Vice Chairman of the Supervisory board signing jointly with the Secretary. Ordinary shareholders meetings Powers The ordinary shareholders meeting shall act upon all matters of an administrative nature exceeding the powers of the Supervisory board and Management board, and which are not reserved for the extraordinary shareholders meeting. An ordinary shareholders meeting shall be held each year, within the first six months after the end of the company s fiscal year. Such meeting shall hear in particular the report from the governing body and the report from the Statutory Auditor or Auditors; it shall consider, amend and approve or refuse the financial statements; and it shall apportion and allocate profit. It shall appoint members of the Supervisory board and it shall appoint the Statutory Auditor(s). Quorum and majority The ordinary shareholders meeting shall be duly convened and may validly act only if the shareholders present or represented hold at least 25 percent of the voting rights, exclusive of shares acquired or accepted as security by the Company; if such quorum is not obtained, a further meeting shall be called, for which no quorum shall be required. At an ordinary shareholders meeting, resolutions shall be passed by a majority of votes of the shareholders present or represented. 17

20 Extraordinary shareholders meetings Powers Extraordinary shareholders meetings shall have sole authority to amend any provisions of the bylaws. They may dismiss the members of the Supervisory board. They may not, however, change the Company s nationality or increase the shareholders liabilities. They may decide upon the conversion of the Company into a company in any other form, subject to compliance with the applicable statutory rules. Quorum and majority Extraordinary shareholders meetings shall be duly convened and may act validly only if the shareholders present or represented hold at least, upon a first call, half, and upon a second call, 25 percent, of the voting rights, exclusive of shares acquired or accepted as security by the Company. If the 25 percent quorum is not satisfied, such second meeting may be postponed to a date no later than two months after the date for which it had been called, and may be validly held with the presence or representation of shareholders holding at least 25 percent of the share capital. At an extraordinary shareholders meeting, resolutions shall be passed by a two-third majority of votes of the shareholders present or represented Management of the Company Management board Membership The Management board shall administer and manage the Company, under the supervision of a Supervisory board. The Management board shall consist of five members. The members of the Management board must be individuals. All members of the Management board shall be employees of the Company and/or present in Morocco more than 183 days per year, subject to exceptions granted by the Supervisory board acting by a 75 percent majority of the members present or represented. In the event of termination of the office of a member of the Management board during its term, the board shall appoint his or her substitute in the manner provided for by law and the Company s bylaws. Appointment and dismissal of members of the Management board The members of the Management board are appointed by the Supervisory board, acting by a majority of the members present or represented. The Supervisory board shall appoint one of them to act as Chairman. They may be dismissed only by the ordinary meeting of shareholders, upon the motion of the Supervisory board acting by a 75 percent qualified majority. If the dismissal is decided upon without due cause, it may give rise to liability in damages. Termination of office on the Management board shall not entail termination of the contract of employment between the person concerned and the Company. Term of office The members of the Management board shall be appointed for terms of two years, subject to extension. In the event of termination of office of a member of the Management board during its term, his or her substitute shall be appointed for the remaining duration of such term until the renewal of Management board. All members of the Management board shall be eligible for further office. Operation The Management board shall manage the Company collectively. The members of the Management board may, subject to the Supervisory board s consent, allocate among themselves the tasks of management. Such allocation may in no event, however, deprive the Management board of its collegiate character as the Company s management body. Meetings of the Management board may be held outside the principal office. Resolutions shall be passed by a majority of members present or represented in office, each of whom shall have one vote. 18

21 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY Minutes of resolutions of the Management board, if any are drawn up, shall be entered in a special register and signed by the Chairman of the Management board and another member. Copies of or extracts from such minutes shall be certified by the Chairman of the Management board or by a General Manager. Powers The Management board shall have full powers to act in all circumstances in the name of the Company, within the limitations of the corporate purpose and subject to those powers expressly conferred by law and the Company s bylaws on the Supervisory board under Articles to of the bylaws. In relation to third parties, the Company shall be bound even by an action of the Management board that is not consistent with the corporate purpose and bylaws, unless it proves that the third party was aware that the action exceeded such purpose and/or the bylaws, or could not be unaware thereof in the circumstances. The provisions of the bylaws restricting the Management board s powers shall not be binding on third parties. The Chairman of the Management board shall represent the Company in its dealings with third parties. The Management board may, however, confer the same representation power on one or more members of the Management board, who shall have the title of Executive officer. The provisions of the Articles of Association restricting the Chairman s, or, if applicable, the General Managers powers to represent the Company shall not be binding on third parties. The Chairman of the Management board and the Executive officer may grant powers of attorney to third parties. The powers thereby concerned shall, however, be limited and relate to one or more specific purpose or purposes. In relation to third parties, any action binding the Company shall be validly taken by the Chairman of the Management board or any other member appointed by the Management board as an Executive Officer. Disclosure duties The Supervisory board may require the Management board to submit a report relating to its management and to current transactions at any time. Such report may be supplemented, at the Supervisory board s request, by a provisional accounting statement for the Company. To the extent necessary, the Management board shall forward to the Supervisory board a report detailing the application or implementation, if applicable, of the points to be adopted by the Supervisory board in accordance with Articles to of the bylaws. At least once a quarter, the Management board shall submit to the Supervisory board a report on the Company s operations. Within three months after the close of each fiscal year, the Management board shall draw up the Company s annual financial statements (balance sheet, statement of income and notes) and provide them to the Supervisory board, in order to enable it to perform its supervisory function. The Management board shall also provide the Supervisory board with the report to be submitted to the ordinary meeting of shareholders called to act upon the financial statements for the previous fiscal year. Compensation The Supervisory board shall determine, in the appointing resolution, the nature and amount of compensation paid to each member of the Management board. Liability Without prejudice to any specific liability arising out of the Company s receivership or bankruptcy proceedings, the members of the Management board shall be liable, personally or jointly as the case may be, to the Company and to third parties, for offenses against the statutory or regulatory rules applicable to corporations, for breaches of the bylaws, or for misconduct in their management. Supervisory board Membership The Supervisory board shall consist of not less than eight and not more than 12 members, which may be increased to 15 members if the Company s shares are admitted to listing on the Casablanca stock exchange. Each member of the Supervisory board shall hold at least one share of the Company throughout the term of office. The members of the Supervisory board shall be appointed by the ordinary shareholders meeting. If, on the date of his or her appointment, a member of the Supervisory board does not hold at least one share of the Company or, during his or her term of office, ceases to hold at least one share, he or she shall be deemed to have resigned if the situation is not fixed within three months. Such shares shall be assigned in undivided manner to the potential liability of members of the Supervisory board, collectively or individually, in connection with management of the Company, or of their personal action. Such qualifying shares must be registered shares; they may not be transferred. Such restriction shall be recorded in the Company s transfer register. 19

22 A member of the Supervisory board who no longer holds office, or his or her heirs or assigns, shall recover unrestricted disposal of the qualifying shares as a result only of approval by the ordinary shareholders meeting of the financial statements for the last fiscal year relating to his or her office. The statutory auditor(s) shall, under his/their sole responsibility, secure compliance with the provisions of Article 10.1 of the bylaws, and shall report any breach thereof in their report to the annual shareholders meeting. Term of office The members of the Supervisory board shall be appointed for a six-year term. The office of a member of the Supervisory board shall terminate upon adjournment of the ordinary shareholders meeting that has acted upon the financial statements for the previous fiscal year and was held during the year of expiry of the office of such member. They shall always be eligible for further office. They may be dismissed at any time by the extraordinary shareholders meeting. No member of the Supervisory board may be a member of the Management board. If a member of the Supervisory board is appointed to the Management board, his or her term of office as member of the Supervisory board shall terminate upon his or her assumption of office. A legal entity may be appointed to the Supervisory board. At the time of appointment, it shall be required to appoint a permanent representative who shall be subject to the same conditions and obligations, and shall incur the same civil and criminal liability, as a member of the Supervisory board in a personal capacity, without prejudice to the joint liability of the legal entity that he or she represents. When the legal entity dismisses its representative, it shall be required to appoint a substitute concomitantly. It shall immediately notify its decisions to the Company. It shall act likewise in the event of the permanent representative s death or resignation. Vacancy and appointment In the event of vacancy, as a result of death or resignation or any other inability to act, of the holder of one or several seats on the Supervisory board, the Supervisory board may, between two shareholders meetings, make temporary appointments. If the number of members of the Supervisory board falls below eight, the Supervisory board shall be bound to make temporary appointments to restore its membership within three months of the date of vacancy. Temporary appointments by the Supervisory board shall be subject to ratification by the next subsequent ordinary shareholders meetings; the member appointed to replace another shall remain in office only for the remaining duration of his or her predecessor s term. Even it the temporary appointments are not approved, the resolutions made and actions taken previously by the Supervisory board shall remain valid. If the number of members of the Supervisory board falls below three, the Management board shall be required to call, within 30 days after the date of the vacancy, an ordinary shareholders meeting to supplement the Supervisory board s membership. Chairman The Supervisory board shall appoint from among its members a Chairman and Vice Chairman who shall call meetings of the Supervisory board and direct its proceedings, and who shall hold office during the term of office of the Supervisory board. The Chairman and Vice Chairman must be individuals. The Supervisory board may appoint a Secretary for each meeting, who could not be a member of the board. Notice of meeting and proceedings The Supervisory board shall meet, upon a notice given by its Chairman or Vice Chairman, as frequently as required by the Company s interests, at the Head Office or any other location specified in the notice. Such notice may be given by electronic message or by fax, in both cases followed by confirmation by ordinary mail, or by registered mail return receipt requested, or by letter delivered personally against a receipt, 15 days before the date of the meeting, unless such period is reduced upon the consent of all the members of the Supervisory board. The Supervisory board shall act validly only if at least half the members of the Supervisory board are present. Subject to the provisions of Articles to of the bylaws described below, resolutions of the Supervisory board are passed in accordance with the Moroccan law relating to corporations (as amended or extended), by a majority. In addition to transactions subject by law to the Supervisory board s consent pursuant to article of the bylaws, the following resolutions require prior consent from the Supervisory board acting by a majority of members present or represented : Review, approval and revision of the business Plan, drawn up according to the same strategic criteria and requirements in terms of productivity, profitability and competitiveness as the best international operators; Review and approval of the budget drawn up, according to 20

23 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY the same criteria and strategic, productivity, profitability and competitive requirements as the best international operators; Policy with respect to labour, compensation, training and management of human resources and creation of profit sharing schemes for the Company s managers or employees; Appointment of members of the Management board; and Approval of the draft resolutions to be submitted to the general meeting of the Company s shareholders with respect to the allocation of the earnings of the Company and its subsidiaries (pay-out of dividends, reserves, etc.) in the manner provided for under Articles 16 and (x) of the bylaws. However, by way of exception from the provisions of Article of the bylaws described above and in accordance with Article of the bylaws, the following resolutions shall be matters for the Supervisory board and require approval by a majority of at least 75 percent of the members of the Supervisory board present or represented: Any significant change in accounting methods; Repeal, abandon, transfer of licenses or concession of major operating facilities not provided for under the annual budget; Any decision related to the implementation or initiation of judicial, administrative or arbitral actions or proceedings involving the Company or its subsidiaries, for which the amount of the claim in principal against or at the initiative of the Company or its subsidiaries, whether this concerns an initial claim or a counter-claim, for each of these actions or proceedings, amounts to a unitary amount of more than MAD100 million or requires judicial enforcement by the Company or its subsidiaries, as well as any decisions with the aim of obliging the Company and/or its subsidiaries to reach a settlement for such actions or proceedings involving amounts owed or due to the Company for an amount of more than MAD25 million; Any decision concerning the conclusion, amendment and/or termination of any service provision agreement or any other agreement other than the agreements concerning day-today transactions entered into under normal conditions between the Company and (i) any shareholder holding more than 30% of the capital and/or voting rights of the Company and/or (ii) the subsidiaries whatsoever of such shareholder, for which the management and/or direction are effectively directly or indirectly controlled by the latter or by its parent company, whether through a holding in the share capital, through contractual agreements or in concert with a third party (hereinafter the Reference Shareholder ); Any decision related to a merger, under any form whatsoever, between the business of the Company and any businesses over which the Reference Shareholder has control which are in competition with the Company over the sectors of Fixed, Mobile, Internet and Data exchange telecommunications (and more generally all businesses connected to or arising from the Company s corporate purpose); Any decision related to the exemption of the obligation for a member of the Management board to be an employee of the Company and/or to be present for more than 183 days a year in Morocco; Investments or divestments and borrowings and loans exceeding more than 30% of the corresponding amounts shown in the budget; Any creation of a subsidiary with an initial share capital or shareholders equity of more than MAD100 million, and any takeover(s) or assignment(s) of a holding or interest in any group or entity exceeding 20% of the Company s net assets; Any resolution relating to a proposed merger, spin-off, contribution of assets or management lease relating to all or part of the business of the Company or one of its subsidiaries, and any resolution relating to dissolution, liquidation or discontinuation of any substantial operation of the Company or one of its subsidiaries; Any exceptions from the obligation provided for under Article 16 of the bylaws to pay out dividends of at least half the distributable profit; and Amendment of the internal regulations of the Company s audit committee. In addition, in accordance with the provisions of Article of the bylaws described below, the Supervisory board may not submit the following resolutions to the meeting of shareholders unless they have been made by at least 75 percent of the members of the Supervisory board present of represented: A motion for amendment of the Company s bylaws (including in particular a reduction or increase in the Company s share capital or changes in the fiscal year); A motion for issuance of new securities of the Company or its subsidiaries; a motion for amendment of the corporate purpose and/or principal business of the Company or its subsidiaries; A motion for amendment of the rights and duties relating to shares of the Company or its subsidiaries; A motion for amendment of the first or last day of the fiscal year of the Company or its subsidiaries; A motion for the choice of the statutory auditors of the Company and its subsidiaries; A motion for the nomination of one or more members of the Supervisory board; A motion for dismissal of the members of the Management board; and A settlement of differences between the Management board and the Supervisory board. 21

24 Assignment and powers of the Supervisory board The Supervisory board shall exercise permanent supervision over the Company s management by the Management board. At any time, it shall perform such inspections as it shall see fit, and may obtain disclosure of such documents as it considers being appropriate for the performance of its assignment. The members of the Supervisory board may obtain disclosure of any information or data relating to the Company s operation. The Supervisory board may, within the limits that it shall determine and subject to the provisions of Article 10.5 of the bylaws, allow the Management board to sell real estate assets, sell all or part of investments, and issue warranties, endorsements or security in the name of the Company. It shall submit to the annual shareholders meeting its observations on the report from the Management board and on the financial statements for the fiscal year. The Supervisory board may create from among its members, and if it so deems necessary, with the assistance of third parties who need not be shareholders, technical committees in charge of reviewing matters that it shall submit to them for an opinion. Such committees shall have advisory powers and act subject to the authority of the Supervisory board, of which they are agencies and to which they shall report. The members of committees shall be appointed by the Supervisory board. Unless otherwise resolved by the Supervisory board, the duration of committee members terms of office shall be that of their terms as members of the Supervisory board. Each committee shall draw up its own internal regulations, which shall require approval by the Supervisory board. Compensation The shareholders meeting may allocate to the members of the Supervisory board, as compensation for their duties, a fixed annual amount in attendance fees. The Supervisory board may also allocate exceptional compensation with respect to assignments or duties entrusted to its members. Liability Members of the Supervisory board shall be liable, personally or jointly as the case may be, to the Company and to third parties, for offences against the statutory or regulatory rules relating to corporations, for breaches of the bylaws or for misconduct in their management. If several members of the Supervisory board have cooperated in the same action, the Court shall apportion liability among them in terms of payment of damages Statutory auditors The Company shall be audited by at least two Statutory Auditors, who shall be appointed and shall perform their duties in accordance with the law. Appointment, removal from office and incompatibility of offices During the term of the Company, the Statutory Auditors shall be appointed for three fiscal years by the ordinary shareholders meeting. The Statutory Auditors offices shall expire upon adjournment of the ordinary shareholders meeting acting upon the financial statements for the third fiscal year. The Statutory Auditors shall be eligible for further office. A Statutory Auditor appointed by the shareholders meeting to replace another shall remain in office only for the remaining duration of his or her predecessor s term. If, upon expiry of a Statutory Auditor s term of office, a motion is submitted to the shareholders meeting against extension of his or her term, the Statutory Auditors may address the meeting, if he or she so requests. One or more shareholders holding at least one tenth of the share capital may apply to the president of the commercial court acting in summary proceedings for one or more Statutory Auditors appointed by the shareholders meeting to be barred from office, and apply for appointment of one or more auditors to perform their offices in their stead. Under penalty of inadmissibility, the referral to the president of the commercial court shall be entered by a reasoned application made within 30 days after the challenged appointment. If the application is granted, the Statutory Auditor or Auditors appointed by the president of the commercial court shall remain in office until appointment of the new Statutory Auditor or auditors by the meeting of shareholders. If it becomes necessary to appoint one or more statutory auditors and the meeting of shareholders fails to do so, any shareholder may apply to the president of the commercial court, acting in summary proceedings, for appointment of a statutory auditor. The Statutory Auditor(s) appointed by the president of the court shall remain in office until appointment of the new Statutory Auditor or Auditors by the shareholders meeting. 22

25 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY The appointments of Statutory Auditors shall comply with the rules relating to incompatibility of offices laid down by law. Duties of the Statutory Auditors The Statutory Auditor(s) shall have a permanent assignment, exclusive of any interference in the management of the Company, of inspecting the Company s assets, books and accounting documents, and ascertaining the compliance of its financial statements with applicable rules. They shall also review the fairness and consistency relative to the summary statements of the information provided in the annual report from the Management board and in the documents sent to the shareholders with respect to the Company s assets and liabilities, its financial position and its earnings. The Statutory Auditor(s) shall ensure that equal treatment among the shareholders has been observed. The Statutory Auditor(s) shall be invited to attend the meeting of the Management board closing the financial statements for the previous fiscal year, and all shareholders meetings. At any time of the year, the Statutory Auditor(s) shall perform such inspections as they shall consider being desirable, and may obtain disclosure on the spot of any document they consider necessary for the performance of their assignment, including without limitation any contracts, records, accounting documents and minute books. The Management board s annual report and summary statements shall be made available to the Statutory Auditor(s) at least 60 days before notice of the annual shareholders meeting is given Trading of shares Sales of shares shall be carried out in the manner provided for by law Statutory thresholds Any individual or legal entity, acting alone or in concert with others, that becomes the owner, directly or indirectly, of a number of shares representing more than one twentieth (5%), one tenth (10%), one fifth (20%), one third (33.33%), half (50%) or two thirds (66.66%) of the Company s share capital or voting rights must notify the Company, the CDVM (Moroccan securities regulator) and the Casablanca Stock Exchange, within five working days of the date it crosses such threshold of the total number of the Company s shares that he, she or it holds, and of the related number of voting rights. The date of crossing of the threshold shall be the date of execution of the reporting party s order on the exchange. In the event of failure to comply with the reporting obligation above, the shares in excess of the portion that ought to have been reported shall be deprived of voting rights at any meeting of shareholders until the end of a two-year period following the breach. In addition to the statutory obligation mentioned above to inform the Company of the crossing of thresholds, any individual or legal entity, acting alone or in concert with another, that becomes the owner directly or indirectly of a number of shares representing more than 3%, 5%, 8%, 10%, or any threshold that is a multiple of 5% in excess of 10%, of the share capital or voting rights of the Company, must notify the Company, by registered mail with return receipt the total number of shares or voting rights that he, she or it holds, within five trading days after the date of acquisition. The notice above is also to be given if the interest in the capital falls below the thresholds provided for above. In each aforementioned report, the reporting party shall certify that the report includes all shares or voting rights held or owned. The reporting party shall also specify the date or dates of acquisition or sale of his, her or its shares. Any individual or legal entity, acting alone or in concert with another, that becomes the owner, directly or indirectly, of a number of shares representing more than one tenth (10%) or one fifth (20%) of the Company s share capital or voting rights must notify the Company, the CDVM and the Casablanca Stock Exchange, within five working days from the time when any such threshold is crossed, of his, her or its intended objectives within the 12 months after such threshold is crossed, specifying whether he, she or it is acting alone or in concert with another, whether he, she or it intends to discontinue or proceed with acquisition and his, her or its intention to submit the appointment of members of the corporate governing bodies and to acquire control over the Company or not. The date of crossing of the threshold referred in the previous paragraph shall be the date of execution of the reporting party s order on the exchange. 23

26 Without prejudice to and within the limits of mandatory statutory rules, in the event of failure to comply with the reporting obligations above, the shares in excess of the portion that ought to have been reported shall be deprived of voting rights at any shareholders meeting held until expiry of two-year period after the date of the breach. Holders of shares may also be subject to the reporting obligations provided for under statutory Decree enacting Act relating to public bids on the stock market dated April 21, 2004, and Circular 01/04, dated June 8, 2004, relating to the crossing of thresholds of interest in the share capital or votes of listed companies. Holders of shares or other securities of the Company are advised to consult their legal counsel in order to ascertain whether the reporting obligations are applicable to them Public bids Under Moroccan law, public bids are governed by Act 26-03, dated April 21, 2004, which became effective on May 6, A public bid is defined as the procedure whereby an individual or legal entity, acting alone or in concerted fashion (the bidder ), discloses publicly an intention to acquire, exchange or sell all or part of the securities entailing access to the share capital or votes of a listed company. As in French law, public bids can be voluntary or obligatory when certain conditions are met. Voluntary public bids Any individual or legal entity, acting alone or in concerted fashion and wishing to report publicly that he, she or it wishes to acquire or sell shares listed on the securities exchange, may file a proposed public bid for acquisition or sale of the shares. Unlike the French law which provides the intervention of presenters establishments, under Moroccan law, a public bid is to be filed by the bidder with the Moroccan securities regulator (CDVM), and must include: the bidder s objectives and intentions; the number and nature of the company s securities; the date and terms on which the purchase thereof has been or may be made; the price or exchange ratio at which the bidder is offering to acquire or sell the securities, the information on which these are based and the terms of payment, settlement or exchange planned; the number of shares to which the proposed public bid relates; and if applicable, the percentage of votes below which the bidder reserves the option not to carry out the bid. The proposed public bid must be accompanied by an information document. The contents and performance of the offers contained in the proposed bid shall be warranted by the bidder, and if applicable, by any person acting as guarantor. The proposed public bid filed with the CDVM shall be accompanied by the prior permit or permits from the competent authorities. Absent such permit, the proposed bid is not admissible. Upon filing of the proposed public bid, the CDVM shall issue a notice of filing of the proposed public bid in a newspaper authorized to carry legal advertisements, which shall report the main provisions of such proposal. That publication shall be the starting point for the bid period. The CDVM shall forward the main features of the proposed public bid to the public authorities, which shall be allowed two working days from the date of such transmission to rule upon admissibility of the proposal having regard to national strategic interests. If no decision is taken within two working days, the authorities shall be deemed not to wish to comment. As soon as the proposed public bid has been filed, the CDVM shall request the company managing the stock market to suspend the listing of the shares of the company to which the public bid relates. The suspension notice shall be published. The CDVM shall be allowed a period of ten working days from the publication, to review the proposed bid s admissibility and may require the bidder to provide any evidence or information required for its evaluation. Under the French legislation, it is a period of five trading days following the publication of the deposit of the bid project. As in French law, the bidder is required to modify the proposal in order to comply with the CDVM s recommendations if the latter considers that the proposal is inconsistent with the principles of equal treatment among shareholders, full disclosure, integrity of the market or fairness of transactions and competition. In all cases, the CDVM also has authority to require from the bidder any additional warranties and to demand the deposit of security in cash or in securities. Grounds shall be stated for any ruling denying admissibility. If a public bid is ruled to be admissible, the CDVM shall notify its ruling to the bidder and publish a notice of admissibility in a newspaper authorized to carry legal advertisements. 24

27 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY Concurrently, the CDVM requests the company managing the securities exchange to resume listing. Any proposed public bid shall be accompanied by the information documents which may be drafted jointly by the bidder and the target company if the latter concurs in the bidder s objectives and intentions. If not, the target company may draft separately and file with the CDVM its own information document within five trading days after approval of the bidder s information document. In such case, the bidder is bound to file a copy of his, her or its information document and proposed public bid with the target company on the day of filing of his, her or its bid proposal with the CDVM. The contents of the information document(s) shall be determined by the CDVM, which shall be allowed a maximum period of 25 working days to approve the information document(s) after the date of filing thereof. Such period may be extended by ten working days, if the CDVM considers that additional evidence or information is required. Upon expiry of such period, the CDVM shall grant or deny approval, and shall provide a justification for any denial. In French law, the AMF has a period of five trading days following the filing of the information notice to deliver its visa. During this period, the AMF can ask for any explanations or for justifications necessary for instruction of information notice s project. The period is then suspended until reception of the required elements. If the information notice fills the required conditions, the AMF affixes its visa that can be matched with a warning. When the information notice is established by the targeted company, the AMF shall deliver its visa within three trading days following the filing. The bidder and, if applicable, the targeted company, have to each publish, what concerns him, her or it, the information documents in a newspaper authorized to carry legal advertisements within a maximal period of five workdays after obtaining the visa. Under French law, the information notice must be published in a daily newspaper with a national distribution, notified free of charge to the public by the bidder or the targeted company and published as a summary or a press release. The publication has to occur before the offer s opening and at latest the second trading day following the AMF s visa. The managing company shall centralize the acquisition, sale or exchange orders and notify the results to the CDVM, which shall issue a notice relating to the outcome of the bid in a newspaper authorized to carry legal advertisements. Compulsory public bids Cash take-over bids Under Article 18 of Moroccan Act relating to public bids, the filing of a cash take-over bid is compulsory when an individual or legal entity, acting alone or in concerted fashion, holds, directly or indirectly, a forthy percent of votes in a company listed on the Securities Exchange. An order of the Minister of Finance and Privatization n dated Ramadan 11, 1425 (October 25, 2004) has fixed at 40% the percentage of voting rights imposing on his holder to proceed in cash take-over bid. Any individual or legal entity is required, within three working days after the 40% voting rights threshold is crossed, to file with the CDVM any proposed take-over bid. Failing this, such person and those acting in concert shall lose the voting and financial rights attached to their capacity as shareholders. Such rights shall be recovered only after a proposed cash take-over bid is filed. The CDVM may grant an exception from the filing of a compulsory cash take-over bid when: crossing of the threshold of 40% does not affect control over the relevant company concerned, in particular as a result of a capital reduction or transfer of shares among companies affiliated to the same group; the voting rights arise out of a direct transfer, an apportionment of assets by a legal entity in proportion of shareholders rights as a result of a merger or contribution of assets, or a subscription to a capital increase in a company in financial difficulties. The application for an exception shall be filed with the CDVM within three working days after the voting rights threshold of 40% is crossed. It shall include covenants by that party to the CDVM not to initiate any action intended to obtain control over such company during a specific period, or to implement a plan for recovery of the company concerned when it is in financial difficulties. If the CDVM grants the exception applied for, its ruling shall be published in a newspaper authorized to carry legal advertisements. Compulsory buy-out bids According to the article 20 of Moroccan law relating to public bids, the filing of a compulsory buy-out bid is mandatory when one or more individual or corporate shareholders of a listed company hold, alone or in concert, a specific percentage of voting rights in such company. An Order of the Minister of Finance and Privatization n dated Ramadan 11, 1425 (October 25, 2004) has fixed at 95% the percentage of voting rights imposing on his holder to proceed in a compulsory buy-out bid. The parties entering such bid are required, within three working days after the percentage of 95% threshold is crossed, to file with the CDVM a proposed compulsory buyout bid. Failing this, they shall automatically forfeit all the 25

28 voting rights. Such voting rights shall be recovered only after the filing of a proposed compulsory buyout bid. Filing of a proposed compulsory buy-out bid may also be required by the CDVM of the individual or individuals, or legal entity or entities, holding, alone or in concert, a majority of the share capital listed on the securities exchange, when certain requirements are met, including the requirement of holding 66% of the votes concurrently (Order of the Minister of Finance and privatisation n dated Ramadan, 11, 1425). Standing offer procedure Under French law, when an individual or legal entity, acting alone or in concert, acquires or has agreed to acquire a block of shares conferring on him, her or it, the majority, with regard to the shares or voting rights which he, she or it already holds, that party is required to file an offer for a compulsory buy-out and to agree to acquire on the market, during a minimum of ten trading days, all securities tendered for sale at the price at which the securities have been or are to be sold. Such a procedure does not exist under Moroccan law. Competing bids and improved public bids One or more competing public bids, or improved public bids, may be launched. A competing public bid is a procedure whereby any individual or legal entity, acting alone or in concert, may, from the time of initiation of a public bid, and no later than five trading days before its closing date, file with the CDVM a competing bid relating to shares of the company to which the initial bid refers. Improved bidding is a procedure whereby the bidder under the initial public bid improves the terms of the initial bid, either at their own initiative or after a competing public bid, by modifying the price or the nature or quantity of securities or the terms of payment. A bidder wishing to improve the bid files with the CDVM the changes made to the initial public bid no later than five trading days before the date of close of the initial bid. The CDVM shall determine whether the improved bid is admissible within five trading days after the filing of such proposal. The bidder shall draw up and submit to the CDVM a supplementary information document. When more than ten weeks have elapsed since the publication of an initiation of a public bid, the CDVM may, in order to expedite the competition between bids, set a deadline for the filing of successive improved bids or competing public bids. In the event of a competing bid, the initial or earlier bidder must, within ten days before the close of such bid, inform the CDVM of his, her or its intentions. His bid may be maintained, withdrawn or modified by an improved bid. Under French law, the price of a competing bid or an improved public bid must be at least 2% above the price stipulated in the initial bid. It can also be declared compliant if it contains a significant improvement of the terms conditions proposed to securities holders. Finally, it can also be declared compliant if, without modifying the terms stipulated in the previous bid, it withdraws the threshold below which the initiator would not have followed up with the bid. Rules relating to target companies and public bidders During the term of a public bid, the bidder and the parties with which he, she or it is acting in concert may not, in the case of a mixed public bid, trade in the securities of the target company or the shares of the company, the shares of which are tendered in exchange. In the event of a voluntary take over bid, the bidder may withdraw the bid within five trading days after publication of the notice of admissibility of a competing or improved bid. The bidder shall inform the CDVM of the decision to withdraw, which shall be published by the latter in a newspaper authorized to carry legal advertisements. This option is also permitted under French law. During the term of the public bid, the target company and parties acting in concert with it, if applicable, may not intervene directly or indirectly on the shares of the target company. If payment for the public bid is to be made solely in cash, the target company may, however, proceed with performance of a share buy-back program if the resolution of the meeting of shareholders having permitted such program has expressly so provided. During the term of the public bid, the target company and the bidder, individuals or legal entities holding directly or indirectly at least 5% of the share capital or voting rights of the target company, and any other individuals or legal entities acting in concerted fashion with the foregoing, are required to report to the CDVM after each trading day the purchases and sales that they have carried out with respect to the shares concerned by the bid, and any transaction resulting in an immediate or future transfer of title to the shares or votes of the target company. Any delegation of authority to increase the share capital granted by the target company s extraordinary shareholders meeting shall be held in abeyance during the term of the cash or stock take over bid relating to such company s shares, and the target company may not increase its holdings of its own stock. During the term of the bid, the appropriate agencies of the target company shall give the CDVM prior notice of any proposed resolution within their powers that would prevent performance of the public bid or of a competing bid. Under French law, the initiator of a public bid and parties 26

29 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION REGARDING THE COMPANY acting in concert with him, her or it, can, subject to exceptions, purchase the securities of the target company, according to price s conditions. Those rules are also applicable to any agent or advisor acting on its behalf or on behalf of the initiator or of the target company. AMF regulations also impose disclosure obligations on the purchases and sales with respect to the shares concerned by the bid. CDVM s supervision and penalties Public bidders, target companies and parties acting in concert with them are subject to the supervision of the CDVM, which shall ensure that such bids are carried out in orderly fashion in investors and market s interests. The CDVM may impose civil and criminal penalties. 27

30 3.2 GENERAL INFORMATION RELATING TO THE COMPANY S SHARE CAPITAL Share capital The share capital of Itissalat Al-Maghrib is MAD5,274,572,040 divided into 879,095,340 shares with a par value of MAD6 each, in a single class and fully paid in. The shares par value may be increased or decreased as provided by the applicable law. The share capital may be increased, decreased or redeemed by a resolution of the appropriate shareholders meeting in the manner provided for by the applicable law Form of shares The shares shall be in registered or bearer form at the shareholders option. The Company shall keep at the registered office a register known as the transfer register in which are recorded, in chronological order, subscriptions for and transfers of registered shares. The pages of such register are to be numbered and it shall be initialed by the President of the Court. Any holder of a registered share issued by the Company is entitled to obtain a copy thereof certified as true by the Chairman of the Management board. If the register is lost, copies shall constitute conclusive evidence. The Company may decide not to issue shares in physical form. In accordance with the statutory rules relating to the book entries of securities, the Company s shares must be evidenced by book entries with the central depositary. Indivisibility of shares Shares shall be indivisible in relation to the Company, which shall recognize only one owner for each share. Joint holders of undivided interests shall be bound to appoint a joint representative in respect of their relations with the Company in order to exercise their rights as shareholders; absent an agreement, the agent shall be appointed by the President of the Court, acting in summary proceedings upon a petition from any of the holders of undivided interests. The right to obtain disclosure of the documents provided for by law shall nonetheless be held by each of the holders of interests in undivided shares, and by each life tenant and bare owner Rights and duties attached to shares Each share shall carry a right, proportional to the portion of the share capital that it represents, in the profits or corporate assets, at the time of distribution thereof during the term of the Company or upon its liquidation. Any shareholder shall be entitled to information relating to the Company s operation and to obtain disclosure of certain corporate documents at the times and in the manner provided for by law and the bylaws. Shareholders shall be liable for corporate debts only to the extent of the par value of the shares that they own; no additional assessment shall be permitted. The rights and duties attached to a share shall be transferred to any owner thereof. Title to a share shall entail, as of right, acceptance of the Company s bylaws and resolutions of shareholders meetings and of the Supervisory board and Management board acting upon delegations of authority from the shareholders meetings. Heirs, creditors, assigns or other representatives of a shareholder may not, on any grounds whatsoever, call for the affixing of seals on the assets and valuables of the Company, or call for a division or sale by auction thereof, or interfere in any manner whatsoever in the actions of its administration; for the exercise of their rights, they shall be bound by the statements of corporate assets and liabilities and resolutions of the shareholders meetings. Whenever it is necessary to hold a given number of shares in order to exercise any right, shareholders who do not hold the required number of shares must make their own arrangements to form a group or to purchase or sell the requisite number of shares. 28

31 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL GENERAL INFORMATION RELATING TO THE COMPANY S SHARE CAPITAL Acquisition by the Company of its own shares Moroccan legislation In accordance with Moroccan legislation and its bylaws, the Company may acquire its own shares which are fully paid in, up to 10% of the total of its own shares and/or of a specific class. Pursuant to the CDVM s circular 02/03, dated May 23, 2003, implementing Decree , dated February 24, 2003, any corporation (société anonyme), the shares of which are listed on the Securities Exchange and wishing to acquire its own shares in order to adjust the share price, shall be required to issue an information notice, which shall require approval from the CDVM prior to the holding of the shareholders meeting called to consider the action. The Company s purchases of its own shares in order to adjust the price shall not interfere with the proper operation of the market. A Company trading its own shares shall inform the CDVM, no later than the fifth working day after the close of the relevant month, of the number of shares acquired and shares sold, if applicable. If the Company does not trade its own shares during a particular month, it shall so inform the CDVM within the same period. During the buy-back program, any change relating to the number of shares to be acquired, the maximum purchase price and minimum selling price, or the period during which the acquisition is to be performed shall be promptly notified to the public by means of a notice published in one of the newspapers authorized to carry legal advertisements. Such changes shall remain within the bounds of the authorization granted by the shareholders meeting. French legislation From the listing of its shares on a regulated market in France, the Company shall be subject to the legislation summarized below. Pursuant to AMF Regulation, a company s acquisition of its own shares shall be contingent, in principle, upon the filing of an information notice subject to approval by the Autorité des marchés financiers. Pursuant to AMF Regulation and European Commission regulation n 2273/2003 of December 22, 2003 a company may not carry out transactions relating to its own shares in order to manipulate the market. After buying back its own shares, a company must publish the details of its transactions by the end of the seventh trading day after their date of execution, and to file with the Autorité des marchés financiers monthly reports containing specific information relating to the transactions performed. As of the date of registration of this Registration Document, Maroc Telecom holds none of its own shares. However, in the eighth resolution of the extraordinary and ordinary shareholders meeting on March 30, 2006 the shareholders meeting authorized the company to initiate a share buy-back program. The Company reserves the right to implement such a program in compliance with applicable laws. 29

32 3.2.5 Changes in the Company s share capital since incorporation The table below sets out the main actions the Company has taken with respect to its share capital since its incorporation in 1998: Date Actions Amount Premium Number Total Par value Share of shares number (in MAD) capital issued of shares (in MAD) 25/02/1998 Incorporation 100,000,000-1,000,000 1,000, ,000,000 25/03/1999 Capital increase 8,765,953,400-87,659,534 88,659, ,865,953,400 4/06/1999 Capital reduction* 75,000,000 - (750,000) 87,909, ,790,953,400 28/10/2004 Change in par value** ,185, ,095, ,790,953,400 12/06/2006 Capital reduction by par value reduction *** 3,516,381, ,095, ,274,572,040 * At the time of incorporation, only one quarter of the initial share capital was paid in. As a result of this capital reduction, the share capital was fully paid in. ** by compulsory exchange of 10 new share with a 10 dirhams par value against one former share with a 100 dirhams par value. *** The extraordinary and ordinary shareholders meeting on March 30, 2006 authorized Maroc Telecom s reduction in capital, not justified by losses, by reducing the par value of each share from MAD10 to MAD6. 30

33 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL TRADING OF THE COMPANY S SHARES 3.3 TRADING OF THE COMPANY S SHARES Places of listing Since December 13, 2004, Maroc Telecom has been listed on both the Casablanca Stock Exchange and Euronext Maroc Telecom share price Casablanca Stock Exchange Main market, Code (in MAD) Average Price* High Low Transactions ** number of shares Trade value (in thousands) (in millions MAD) January , February , ,087.6 March , April , May , ,235.2 June , July , August , September , ,289.8 October , November , December , January , February , * The average price is calculated by dividing trade value by number of shares. ** Not including block market transactions. Source: Casablanca Stock Exchange. Changes in Maroc Telecom s share price on the Casablanca Stock Exchange since December I AM-Casablanca ( dirham) VS MASI IAM MASI Dec/04 March/05 June/05 Sept/05 Dec/05 March/06 June/06 Sept/06 Dec/06 In May 2006, 70% of free float was traded on the Casablanca Stock Exchange. 31

34 Euronext Paris Eurolist-Foreign securities, Code MA , Eligible to SRD (in Euro) Average Price* High Low Transactions ** number of shares Trade value (in thousands) (in millions Euro) January , February , March , April , May , June , July , August , September , October , November , December , January , February , * The average price is calculated by dividing trade value by number of shares ** Not including off-system transactions Source: Euronext Paris Changes in Maroc Telecom s share price on Euronext since December ,5 IAM-Paris (euro) VS Euronext ,0 IAM 12,5 12,0 11,5 11,0 10,5 10,0 9,5 9,0 8,5 Euronext 100 8,0 7,5 7,0 Dec./04 March/05 June/05 Sept/05 Dec/05 March/06 June/06 Sept/06 Dec/06 In May 2006, 30% of free float was traded on Euronext Paris. 32

35 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL DIVIDENDS AND DIVIDEND POLICY 3.4 DIVIDENDS AND DIVIDEND POLICY Dividend paid out over the past five fiscal years The table below sets out the amount of dividends (in millions of Moroccan dirhams) paid by the Company in respect of fiscal years 2001 to Fiscal year Payment year Dividends , ,750 Exceptional dividend , , ,119 Exceptional distribution , ,927* * Amount proposed at the general shareholders meeting of April 12, As of December 31, 2006, the Company s reserves amounted to MAD4,247 million (excluding results at the end of December 2006), out of which MAD971,371 are available reserves. (See section Significant accounting policies and estimates ) Dividend policy Maroc Telecom aims to demonstrate its concern for satisfactory compensation to its shareholders while securing the resources needed for the Company s development. Accordingly, Maroc Telecom intends to establish a policy of regular and significant dividend payment, according to the economic environment and the Company s profits and funding requirements. The total amount of dividends paid shall be determined taking into account the Company s funding requirements, return on capital and the Company s current and future profitability. The Company cannot guarantee shareholders an identical payment every year. This target is accordingly not a commitment of the Company. The bylaws (article 16) contain an obligation to distribute annually, in the form of dividend, at least half of the Company s distributable profit, unless exempted by the Supervisory board by a 75 percent majority. In addition, the final provisions of Article 331 of Act provide that a fixed dividend may not be covenanted in favor of the shareholders; any clause to the contrary shall be null and void, unless the State warrants the shares a minimum dividend. Moroccan company law requires all corporations, including Maroc Telecom, to fund their statutory reserve with 5% of annual profits until the reserve amounts to 10% of the share capital. In 2004, Maroc Telecom had reached the statutory reserve, and may accordingly, since fiscal year 2005, pay out its entire distributable profit, if this is considered desirable. 33

36 3.4.3 Tax treatment relating to dividends Moroccan tax treatment Investors should be aware that the summary of tax rules applicable in Morocco set out below is for illustrative purposes only and does not constitute a complete discussion of all potential tax situations applicable to each investor. Accordingly, investors should obtain advice from their usual tax advisors as to the tax treatment applicable to their specific situation and in particular the consequences of the acquisition, holding or transfer of ordinary shares. The tax rules applicable in Morocco with respect to dividend pay-outs are governed by Act no on corporate income tax for companies and Act no on the General Income Tax for individuals. The proceeds of shares (dividends) collected by individuals or companies resident in Morocco or not, are subject to a 10% withholding tax. Companies involved in the payment of such proceeds shall be responsible for payment of the withholding tax to the Treasury. Companies having their registered offices in Morocco are exempt from this withholding tax, provided that they deliver to the paying agent attestations of title to the shares, including the reference of the tax applicable in Morocco. It should be noted that dividends paid to residents of countries with which Morocco has entered into tax treaties can benefit from a rate of less than 10% if these treaties provide for such a rate. Further, such persons are usually entitled to credit the tax paid in Morocco with the tax authorities in their own countries according to the procedures eliminating double taxation. Moroccan exchange control legislation permits foreign shareholders to transfer dividends abroad. French tax treatment Investors should note that the French tax treatment presented below is provided for information only, and does not constitute a complete discussion of all the tax situations that may apply to each investor. Accordingly, investors should obtain advice from their usual tax advisers regarding the tax treatment applicable to their specific situation and in particular to the acquisition, holding or transfer of shares of the Company. Individuals holding shares as part of their personal assets and not performing stock exchange transactions on a regular basis Dividends paid out by the Company are subject to income tax at progressive rates in France. Shareholders are allowed a tax credit (which, unlike the avoir fiscal eliminated as of January 1, 2005, will continue to apply) chargeable against the amount of French income tax relating to such income, in accordance with Article 25-2 of the Convention signed on May 29, 1970 between the French Republic and the Kingdom of Morocco (the Convention ). The tax credit amount is set by Article 25-3 of the Convention at 25% of the amount of dividends paid out. According to information from the Director of Tax Legislation, the tax credit amounted to 33.33% of the net amount of dividends collected (after deduction of the withholding tax charged in Morocco). The net dividends collected, plus the attached tax credit, shall be taken into account to determine the taxpayer s overall income in the class of proceeds from securities and shall be subject to income tax on a progressive scale, to which are added the dividends collected on or after January 1, However, dividends paid out by the Company pursuant to a valid resolution of the Company and collected on or after January 1, 2005 shall be taken into account for the purposes of computation of income tax, to the extent of 50% of their amount. In addition, they shall be eligible for an annual allowance of 2,440 for married couples taxed jointly and for partners taxed jointly starting with the taxation of income for the year of the third anniversary of registration of a PACS agreement defined under Article of the French Civil Code, and of 1,220 for taxpayers who are single, widowed, divorced or married and taxed separately. The 50% allowance shall apply before the allowance of 1,220 or 2,440. In addition, taxpayers resident in France for tax purposes, as defined under Article 4 b of the French Tax Code, may be eligible in respect of such dividends for a tax credit of 50% of the amount of taxable dividends before the allowance. Such credit shall be allowed to the extent of 230 annually for married couples taxed jointly and for partners taxed jointly starting with the taxation of income for the year of the third anniversary of registration of a PACS agreement defined under Article of the French Civil Code, and of 115 for taxpayers who are single, widowed, divorced or married and taxed separately. 34

37 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL DIVIDENDS AND DIVIDEND POLICY Investors should note that dividends denominated in Moroccan dirhams shall be converted, for the purposes of taxation in France, into euros by applying the exchange rate in Paris on the date of collection of such dividends. If there is no listing on that day, the average trading price applied at a sufficiently close date is to be used. Companies liable to pay corporate income tax The dividends paid out by the Company shall be subject to corporate income tax in France. In accordance with Article 25-2 of the Convention, the shareholder is granted a tax credit chargeable against French corporate income tax. The tax credit amount is set by Article 25-3 of the Convention at 25% of the dividends paid out. According to information from the Director of Tax Legislation, the amount of such tax credit equals 33.33% of the net amount of dividends collected (after deduction of the withholding tax charged in Morocco). Such tax credit may not, however, exceed the amount of French corporate income tax relating to such dividends. No surplus tax credit may be used against the French taxes payable in respect of other sources of income, or be refunded or carried forward. The dividends collected, plus the related tax credit, shall be included in the income subject to corporate income tax at a rate of 33.33%. An additional contribution of 3% of the gross amount of corporate income tax and a welfare contribution of 3.3% of the gross amount of corporate income tax in excess of 763,000 per 12-month period, shall be added thereto. However, for companies with revenues of less than 7,630,000 and the share capital of which, fully paid in, has been held uninterruptedly for the duration of the fiscal year concerned to the extent of 75% at least by individuals or by a company meeting all such requirements, the rate of corporate income tax is set, to the extent of 38,120 of taxable profit per 12-month period, at 15%. Such companies are in addition exempt from the 3.3% welfare contribution mentioned above. Companies eligible for parent companies exemption regimes Companies meeting the requirements of Articles 145 and 216 of the French Tax Code are, if they chose to, eligible to an exemption for dividends collected pursuant to the parent company exemption regime. Article 216 I of the French Tax Code, however, provides for the taxation in the taxable income of the legal entity receiving the dividends, of a portion of costs and expenses set at a fixed rate of 5% of the amount of dividends collected, including the traditional tax credit granted under a tax treaty. For each taxable period, however, such portion may not exceed the total amount of costs and expenses of all kinds incurred by the company collecting the dividends during the same period. Pursuant to the parent company exemption regime, the traditional tax credit attached to the dividends collected may not be used against the amount of corporate income tax. Investors should note that dividends denominated in Moroccan dirhams shall be converted, for the purposes of taxation in France, into euros by applying the exchange rate in Paris on the date of collection of such dividends. If there is no listing on that day, the average trading price applied at a sufficiently close date is to be used. 35

38 3.5 breakdown OF SHARE CAPITAL AND VOTING RIGHTS Ownership of share capital and voting rights in the Company As of December 31, 2006, the share capital and voting rights of the Company were held as follows: Shareholders Number of shares % of capital / voting rights Vivendi Group* 448,338, % Kingdom of Morocco 298,892, % Members of Supervisory and Management Board 157, % Employees 1,590, % Public 130,115, % Total 879,095, % * Through its 100% subsidiary (Société de Participation dans les Télécommunications) Authorized share capital As of the date of this Registration Document, the Company had not issued any securities other than the ordinary shares carrying direct or indirect rights, at present or in the future, to the Company s share capital. Likewise, no stock option or subscription plan has been established in favor of the employees. However the general shareholders meeting of March 30, 2006 authorized the Management board to set up stock option and subscription plans in compliance with applicable laws. This authorization is valid for 36 months from the date of the abovementioned general shareholders meeting, and may be used once or several times. At present it has not yet been used Changes in the shareholding structure of the Company over last three fiscal years Since December 13, 2004, Maroc Telecom share is listed simultaneously in Casablanca Stock Exchange and Paris Stock Exchange after transfer by public bid for sale of 14.9% of Maroc Telecom share capital by Kingdom of Morocco. On November 18, 2004 the Kingdom of Morocco and Vivendi concluded an agreement regarding the acquisition by Vivendi of 16% of Maroc Telecom s share capital. On January 4, 2005, this agreement allowed Vivendi to increase its stake from 35% to 51% by the acquisition of 140,655,260 Maroc Telecom shares. During 2006, the Moroccan State disposed of 0.10% of Maroc Telecom s share capital, reducing its stake to 34%. The share capital and voting rights of the Company for the last 3 years were held as follows: 36

39 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL breakdown OF SHARE CAPITAL AND VOTING RIGHTS December 31, 2006 December 31, 2005 December 31, 2004 Shareholders Number % of capital/ Number % of capital/ Number % of capital/ of shares voting rights of shares voting rights of shares voting rights Kingdom of Morocco 298,892, % 299,771, % 440,426, % Vivendi Group* 448,338, % 448,338, % 307,683, % Members of Supervisory and Management Boards 157, % 161, % % Employees 1,590, % 2,084, % 4,250, % Public 130,115, % 128,739, % 126,734, % Total 879,095, % 879,095, % 879,095, % * Through its 100% subsidiary (Vivendi Telecom International at December 31, 2004 ; Société de Participation dans les Télécommunications at December 31, 2005 and 2006) Employee stock ownership Maroc Telecom allowed its employees to take part in the Initial Public Offering with privileged conditions namely a 15% discount on the subscription price, provided that they kept the shares acquired for 3 years, that is to say until December 3, At December 31, 2006, the shares held by employees amounted to 0.18% of the authorized capital and the voting rights Shareholders Agreement The amended Shareholders Agreement between the Kingdom of Morocco and Vivendi by an amendment dated November 18, 2004 Vivendi and the Government of the Kingdom of Morocco modified the amended shareholders agreement. In accordance with this amendment, principal provisions governing relations between the Kingdom of Morocco and Vivendi are as follows: Organization of powers within Maroc Telecom s management bodies Supervisory Board The amended Shareholders Agreement provides that the Supervisory board, in theory, is to be composed of eight members, and that a change in the apportionment of seats on the Supervisory board is contingent upon a change in the respective beneficial interests of Vivendi and the Government of the Kingdom of Morocco in the Company s share capital, as follows. If the stake of the Government of the Kingdom of Morocco in the total voting rights held jointly with Vivendi becomes: greater than or equal to 50% but less than or equal to 65%, then five members will be appointed by the Government of the Kingdom of Morocco and three members by Vivendi; greater than or equal to 40% but less than 50%, then three members will be appointed by the Government of the Kingdom of Morocco versus five members by Vivendi; 37

40 greater than or equal to 30% but less than 40%, then two members will be appointed by the Government of the Kingdom of Morocco versus six members by Vivendi; greater than or equal to 20% but less than 30%, then one member will be appointed by the Government of the Kingdom of Morocco versus seven members by Vivendi; greater than or equal to 70% but less than 80%, then seven members will be appointed by the Government of the Kingdom of Morocco versus one member by Vivendi ; and greater than 65% but less than 70%, then six members will be appointed by the Government of the Kingdom of Morocco versus two members by Vivendi. In addition, if the Kingdom of Morocco holds less than 5% of the capital and at least 2 shares of the Company, it will be entitled to appoint 2 representatives of the Government of the Kingdom of Morocco who will attend the Supervisory board without being able to vote. In order to preserve the power to appoint the Chairman of Supervisory board, the number of seats which the Kingdom of Morocco has to have was lowered from three to two seats. Pursuant to the Amended Shareholders Agreement, the following rules will apply to the extent that the application of such rules would result in the Kingdom of Morocco appointing a number of members of the Supervisory board greater than the number resulting from the application of the rules described above: if the shareholding of the Government of the Kingdom of Morocco is more than or equal to 22% of the share capital and voting rights of the Company, three members of the Supervisory board will be appointed by the Kingdom of Morocco and five members of the Supervisory board by Vivendi; if the shareholding of the Kingdom of Morocco is less than 22% and more than or equal to 9% of the share capital and voting rights of the Company, two members of the Supervisory board will be appointed by the Kingdom of Morocco and six members of the Supervisory board by Vivendi ; and; if the shareholding of the Kingdom of Morocco is less than 9% or more than or equal to 5% of the share capital and voting rights of the Company, one of the members of the Supervisory board will be appointed by the Kingdom of Morocco and seven members of the Supervisory board will be appointed by Vivendi, and the Kingdom of Morocco shall be entitled to appoint one Representative who shall have the right to attend the Supervisory board without being able to vote. These rules governing the allocation of the seats on the Supervisory board shall remain applicable as long as the Kingdom of Morocco holds at least 5% of the share capital and voting rights of the Company. Consequently, since January 4, 2005, three members of the Supervisory board have been appointed by the Kingdom of Morocco and five members of the Supervisory board by Vivendi. The rules of majority applicable to the Supervisory board previously set out by the Shareholders Agreement, the Protocol of March 4, 2002 and the bylaws adopted on October 28, 2004 were replaced by new rules of majority, set forth in the amended Shareholders Agreement and reproduced identically and in full in the bylaws. The only decisions subject to the approval of the Supervisory board in the Amendment which are not reproduced in the bylaws are related to: (i) the agreement of the parties to require the Supervisory board s preliminary approval, by a majority, of any exceptions in the commitment of Vivendi to propose the appointment to the Management board of at least one Moroccan member and (ii) the agreement of the parties to require the preliminary approval of the Supervisory board, by a majority, any decision relative to a project recovering from the clause of non-competition in the zone MENA provided by the Amended Shareholders Agreement. Management Board The Amended Shareholders Agreement provides that a change in the apportionment of seats on the Management board is contingent upon a change in the respective beneficial interests of Vivendi and the Government of the Kingdom of Morocco in the Company s share capital, as described below. If the pro rata share of the Government of the Kingdom of Morocco of the total amount of voting rights held jointly by it with Vivendi becomes: greater than or equal to 40% but less than or equal to 65%, then two members will be appointed by the Government of the Kingdom of Morocco versus three members by Vivendi; greater than or equal to 20% but less than 40%, then one member will be appointed by the Government of the Kingdom of Morocco versus four members by Vivendi; greater than 70% but less than or equal to 80%, then four members will be appointed by the Government of the Kingdom of Morocco versus one member by Vivendi ; and greater than 65% but less than or equal to 70%, then three members will be appointed by the Government of the Kingdom of Morocco versus two members by Vivendi. 38

41 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL breakdown OF SHARE CAPITAL AND VOTING RIGHTS In addition, as long as the Government of the Kingdom of Morocco holds at least 9% of the share capital and voting rights of the Company, one member of the Management board will be appointed by the Government of the Kingdom of Morocco and four members of the Management board will be nominated by Vivendi notwithstanding any less favorable stipulation of the Amended Shareholders Agreement. These provisions will become automatically null and void in the event that the Government of the Kingdom of Morocco holds less than 9% of the share capital and voting rights of the Company. The completion on January 4, 2005 of the assignment by the Government of the Kingdom of Morocco to Vivendi of a shareholding representing 16% of the share capital and voting rights of the Company shall not entail any changes in the composition of the Management board and the allocation of seats in the Management board remained the same: two members of the Management board appointed upon the motion of the Kingdom of Morocco and three members appointed upon the motion of the Supervisory board. General shareholders meetings Vivendi holds the majority of votes at ordinary general meetings. Audit Committee As long as the Government of the Kingdom of Morocco holds at least 5% of the share capital and voting rights of the Company, at least two members of the Audit Committee of Maroc Telecom will be appointed by the Government of the Kingdom of Morocco and this committee s internal regulations shall provide for the possibility for any member of the Audit Committee to ask the Audit Committee to carry out an audit of the Company and the obligation for the Audit Committee to rule on any formal request submitted by at least two members of the Audit Committee to carry out such an audit. Specifics rights of the Moroccan Government The Government of the Kingdom of Morocco also holds a right to veto a plan of merger, divestment or partial contribution of assets that is likely to substantially modify the scope of the Company s business activities or substantially modify the Company s corporate purpose, unless Vivendi demonstrates to the Government of the Kingdom of Morocco, on objective and reasonable ground, a strategic purpose for the Company for such a plan. This right is valid notwithstanding any discrepancy with the Initial Shareholders Agreement, until the earliest of the two following dates: (i) the date on which the Government of the Kingdom of Morocco ceases to hold at least 14% of the share capital and voting rights of the Company or (ii) February 20, Conditions for transfers of shares and rights of the parties Call option of the Government of the Kingdom of Morocco Vivendi would have to transfer to the Government of the Kingdom of Morocco its beneficial interest in the Company, held directly or through its subsidiaries, in the event of a change in the control of Vivendi having such a impact on competition on the Moroccan market, that it will incur an obligation for Vivendi, imposed by the Moroccan competition authorities, to transfer all or a portion of its beneficial interest in the Company and/or a transfer by the Company of one of its business activities representing at least 25% of its revenues. This provision will remain in force as long as the Government of the Kingdom of Morocco holds at least 20% of the total amount of voting rights held jointly with Vivendi. Standstill obligation of Vivendi The Amended Shareholders Agreement provided that, so long as at least 30% of the share capital and of the voting rights of the Company is not traded on a stock market, during the period expiring on February 20, 2006, Vivendi is forbidden from buying shares, directly or through an affiliate or entity acting in concert with Vivendi or with its affiliates, unless the beneficial interest of a third party surpasses a threshold of 10%. In application of the amendment, the period during which Vivendi is forbidden to transfer Company shares without preliminary agreement of Moroccan Minister of Finance and Privatisation, is extended to February 20, Pro rata tag-along right of the Kingdom of Morocco In the event of a transfer of shares by Vivendi between February 21, 2008 and February 20, 2010 (inclusive) that does not trigger a mandatory public tender offer, the Government of the Kingdom of Morocco shall benefit from a pro rata tagalong right. However, this tag-along right shall not apply in the event of a transfer between companies within the Vivendi group (i.e., between Vivendi and/or any company/companies in which Vivendi holds at least two thirds of the share capital and voting rights). Transfer by the Kingdom of Morocco Without prejudice of restrictions on the ability of the Kingdom of Morocco to transfer shares in the Company applicable until February 20, 2006, as described in the offering memorandum of the Company registered November 8, 2004 by AMF under the number I , the Kingdom of Morocco has undertaken, for so long as Vivendi controls the Company (with the meaning of the provision of Article 144 of Moroccan Law on corporations) not to assign any share of Company either (i) to a telecommunications operator or (ii) to a direct competitor of Vivendi as of November 17, 2004, except with the consent, in each case, of Vivendi. 39

42 Vivendi s right of pre-emption In addition, notwithstanding the stand-still commitment by Vivendi described above, Vivendi shall benefit from a right of pre-emption in the event of an assignment by the Government of the Kingdom of Morocco of all or part of its shares until February 20, 2010 (inclusive). Mauritel SA Shareholders agreement On April 12, 2001, Maroc Telecom acquired 54% of the share capital of the incumbent Mauritanian operator, Mauritel SA. At the time of this acquisition, the Islamic Republic of Mauritania and Maroc Telecom entered into a shareholders agreement, under the terms of which Maroc Telecom obtained the right to appoint members of the board of Directors of Mauritel SA in proportion to the beneficial interest that it holds (four members out of seven, as long as it holds more than 50% of the share capital). Until June 30, 2004, the Mauritanian State benefited from a right of veto with respect to significant operations (including, in particular, modification of the legal structure of Mauritel SA, approval of the budget and business plan, fixing the annual dividend, and the conclusion of any financing. The agreement provides for a payment of dividends at the level of 30% of the consolidated profits of the Mauritel group, as long as such a distribution is legally possible and would not compromise the fulfillment of objectives set out in the business plan or a healthy financial position. In addition, Maroc Telecom was not entitled to transfer shares of Mauritel SA before June 30, 2004, except for a transfer within the group or a transfer of 3% of the share capital to the employees of the Mauritanian operator. On June 6, 2002, Maroc Telecom transferred its beneficial interest of 54% in Mauritel SA to the controlling holding company Compagnie Mauritanienne de Communications (CMC), and then transferred 20% of the share capital of CMC to Mauritanian investors. At the time of this transfer, Maroc Telecom and the Mauritanian investors entered into a shareholders agreement under which each shareholder holds management rights with respect to CMC in proportion to the levels of its beneficial interest. In reference to this transfer, CMC was substituted to Maroc Telecom in the Shareholders Agreement. Finally, under the terms of the shareholders agreement, CMC transferred 3% of the share capital of Mauritel SA to the employees of the Mauritanian operator, thus bringing its beneficial interest to 51% of the share capital of Mauritel SA. Each of the parties holds a right of pre-emption with respect to the beneficial interest of the other party. All transfers are subject to approval by the board of directors of Mauritel SA. The agreement also contains a tag along right (droit de suite) allowing the Government to sell to the acquirer of the beneficial interest in Mauritel SA the same percentage of shares acquired from Maroc Telecom. GSM Al-Maghrib Shareholders agreement Maroc Telecom disposed of its stake in GSM Al-Maghrib on March 28, Medi-1-Sat Shareholders agreement Pursuant to the shareholders agreement signed with the other shareholders (CDG, 28% via its subsidiary FIPAR-Holding, RMI 14% and CIRT, 30%), Maroc Telecom, which owns 28% of the share capital, received and/or granted certain rights (right of first refusal etc.) enabling it to protect its shareholder rights. Mobisud France Shareholders agreement Pursuant to the shareholders agreement signed with the other shareholders (SFR, 16% and Saham Group, 18%), Maroc Telecom, which owns 66% of the share capital, received and/or granted certain rights (right of first refusal etc.) enabling it to protect its shareholder rights. 40

43 3. GENERAL INFORMATION REGARDING THE COMPANY AND ITS SHARE CAPITAL ASSET PLEDGES 3.6 ASSET PLEDGES No pledge on assets of the Company has been granted. In addition, the shares in Maroc Telecom s subsidiaries are not pledged for the benefit of third parties. 41

44 4 INFORMATION CONCERNING COMPANY business ACTIVITIES 4.1 HISTORY Maroc Telecom was created as a result of a split of the Office National des Postes et Télécommunications pursuant to the enactment of Act and the implementing decrees relating to telecommunications. Maroc Telecom, the incumbent telecommunications operator in the Kingdom of Morocco, is organized around two business segments: the Mobile segment and the Fixed-line and Internet segment. A mobile telephone service was introduced in Morocco in 1987, using analog technology. As soon as the GSM digital standard was adopted, Maroc Telecom, as the incumbent operator, expanded its mobile telephone services and was the first operator in Africa and the second in the MENA (Middle East North Africa) region to operate a GSM network (since April 1, 1994). Maroc Telecom soon extended coverage to the country s main economic and political centers. In January 1995, Maroc Telecom signed its first international roaming agreement. In order to prepare for the arrival of a new competitor on the market and to increase market penetration, Maroc Telecom introduced prepaid schemes and GSM packages in 1999, and launched rate plans in There are now two 2G mobile operators, three 3G mobile operators in Morocco, including Maroc Telecom (see section 4.5 Competition ). There has been a fixed-line telephone service in Morocco since the first half of the twentieth century and Maroc Telecom was still the only operator with a fixed-line telecommunications license in Morocco in 2006 despite the fact that two licenses were attributed in 2005 (see section 4.5 Competition ). The Company extended the range of fixedline telecommunications services it provides with the launch of narrowband Internet in 1995 and broadband ADSL in 2003 and TV via ADSL in 2006, together with dedicated data transmission services for business users using state-of-theart technology. On February 20, 2001, Vivendi acquired a 35% interest in the Company pursuant to an invitation to tender organized by the Government of the Kingdom of Morocco for the selection of a strategic partner. Vivendi was granted certain rights relating to the Company s management and operations (see section Shareholders Agreement). Maroc Telecom, along with the SFR group, is now affiliated to the Telecommunications Division of the Vivendi group. Pursuant to an agreement dated November 18, 2004 between the Government of the Kingdom of Morocco and Vivendi, the Kingdom of Morocco transferred ordinary shares representing an additional 16% of Maroc Telecom s share capital. In 2006, the Government of the Kingdom of Morocco sold 0.1% of Maroc Telecom s share capital, reducing its stake to 34%. In addition, in its budget for 2007, the Government announced additional income of MAD4 billion from the sale of a stake in Maroc Telecom within the framework of its privatization program. As of December 31, 2006, the breakdown of Maroc Telecom s capital is as follows: Vivendi Group 51.0% Kingdom of Morocco 34.0% Free float 15.0% 42

45 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES GENERAL PRESENTATION 4.2 GENERAL PRESENTATION Organization The group s simplified legal structure as of February 12, 2007 was as follows: Vivendi Kingdom of Morocco Market 51.0 %* 34.0 %* 15.0 %* Maroc Telecom CMC 80 %* 66 %* 51 %* 51 %* Mobisud Onatel Gabon Telecom Other 51,5 % Mauritel SA 100 %* Mauritel Mobiles * the percentages represent voting right percentages Since 2001, Maroc Telecom has been part of the Vivendi group, a leading player in entertainment, with activities in music, television, cinema, mobile telecommunications, Internet and games. All of Vivendi s businesses, like Maroc Telecom, hold leading positions on their markets: Universal Music Group, a wholly-owned subsidiary of Vivendi, is the world leader in recorded music with one out of every four CDs sold worldwide, and a leading position on the digital music market; Canal+ Group, a wholly-owned subsidiary of Vivendi, is a key player in theme and premium TV channels, pay-tv and a pioneer in new TV offers. Canal+ Group is also a leader in France and Europe in the funding, acquisition and distribution of movies; SFR, in which Vivendi owns a 56% stake, is France s number two mobile telecommunications operator. SFR also owns 40.5% of Neuf Cegetel, France s leading alternative fixedline telecommunications operator; Vivendi Games a wholly-owned subsidiary of Vivendi is a global developer, publisher and distributor of multiplatform interactive entertainment. Vivendi owns 20% of NbC Universal which is a major global player in media and communications with activities encompassing the production of films and television shows, the broadcasting of TV networks and the operation of theme parks; Mauritel SA, which was acquired on April 12, 2001 by Maroc Telecom, is the incumbent telecommunications operator in Mauritania. Mobisud is an MVNO which was launched on December 1, 2006 in France, using the SFR network. Its shareholders are Maroc Telecom (66% stake), SFR (16%) and the Moroccan group Saham (18%). Mobisud is specifically targeted towards individuals who live in France and have ties with Maghreb countries (Morocco, Algeria, Tunisia). Onatel is burkina Faso s incumbent operator in which Maroc Telecom acquired a 51% stake on December 29, 2006 by means of an international invitation to tender. In addition, Maroc Telecom acquired a 51% stake in Gabon Telecom, Gabon s incumbent operator, on February 9,

46 On December 31, 2006, the functional organization chart of the Group is: Abdeslam AHIZOUNE Chairman of the Management Board Larbi GUEDIRA Managing Director Services Janie LETROT Managing Director Regulations, Communication and International Development Mohammed HMADOU Managing Director Networks Arnaud CASTILLE Managing Director Administration & Finance 8 Regional Divisions Organized into General and Regional Divisions based on its businesses and services, Maroc Telecom combines Mobile, Fixed-line and Internet operations in its Services department and Support, Networks and Administrative & Finance functions. Maroc Telecom is decentralized with eight Regional Divisions arranging each of the operational structures and the appropriate functions supports allowing them to be reactive and more autonomous on the field. In 2006, Maroc Telecom modified its internal organization to be able to seize the opportunities made available by convergence and to be in a position to propose global offers at the best prices while maintaining a high quality service. Accordingly, the Fixed-line & Internet and Mobile segments were grouped together into a single department called Services, for which Mr. Larbi Guedira, member of the Management board is responsible. Regional sales teams have been set up to strengthen links with Maroc Telecom s clients and partners at both provincial and prefectoral levels Description of operations The Mobile business provides mobile telecommunications services. It had 10.7 million customers as of December 31, 2006 and operates a GSM network covering almost the entire population through more than 4,600 base stations. The Fixed-line and Internet business provides fixed-line telephone services including public telephony, Internet services and data transmission services. The Fixed-line and Internet segment had 1.27 million customers as of December 31, As of the same date, its network, entirely digitized for switching, consisted of 7,300 kilometers of intercity fiber optic cable and over 4,500 kilometers of urban fiber optic cable. Maroc Telecom s products and services are marketed through a distribution network consisting of owned branches covering the entire territory of Morocco and through independent distribution channels (see section Distribution ). 44

47 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES GENERAL PRESENTATION The table below describes the development of Maroc Telecom s customer base over the past three fiscal years (excluding Mauritel): At December 31 - in thousands Mobile customers* 6,306 8,237 10,707 Fixed-line customers 1,309 1,341 1,266 Internet customers ** * Mobile customers figures include prepaid and postpaid and 2005 customer bases are restated. ** Internet customers concerns IP accounts opened with Maroc Telecom (subscribers and pay-as-you-go customers). The telecommunications sector accounted for 5.2% of Morocco s GDP as of December 31, This sector grew rapidly, from MAD8.5 billion in 1999 to MAD26.4 billion in 2006: (in billions of Moroccan dirhams) * 2006* Value of telecom market Source : ANRT * Maroc Telecom estimations based on revenues published by telecom operators. The table below describes the breakdown of revenues for the fiscal years ended December 31, 2004, 2005 and 2006: (in millions of Moroccan dirhams) Change IFRS - at December * /2006 Gross revenues Mobile 9,684 12,772 14, % Gross revenues Fixed-line and Internet 11,133 11,949 12, % Intersegment transactions (3,409) (4,179) (4,682) +12.0% Total consolidated revenues 17,408 20,542 22, % * CMC-Mauritel group has been fully consolidated since July 1, Gross revenue includes flows of business between the Mobile business and the Fixed-line and Internet business. Intersegment transactions relate mainly to the following services: interconnection services relating to the flows of traffic between Maroc Telecom s fixed-line and mobile networks, and; lines leased by the Fixed-line and Internet to Mobile. These flows are eliminated in the consolidated revenues line item. 45

48 4.2.3 ISO Certification Within the framework of its overall policy of improving the quality of its business activities, Maroc Telecom obtained in 2003 the ISO 9001 version 2000 certification for certain activities, such as the invoicing of Mobile services and the Mobile call centers and fixed-line services, invoicing and collection of the fixed-line revenues. In December, 2004, Maroc Telecom was rewarded for the quality of its products and services by obtaining the ISO 9001 version 2000 certification for all of its activities within the framework of a total quality method. This certification deals with the conception and the development of the offers, marketing, installation / deinstallation, activation / deactivation, invoicing and collection, after-sales service, information and assistance for the following products and services: business products including specific offers; Fixed-line products as well as the phone information business; Internet products; Mobile products. 46

49 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES MAROC TELECOM S business STRATEGY 4.3 MAROC TELECOM S business STRATEGY Against the background of a growing telecommunications market, supported by demand boosted by favorable economic and demographic conditions, Maroc Telecom s goal is to retain leadership in all its market segments (mobile, fixed-line and Internet), and to maintain profitability levels. At the end of 2006, despite efforts made by competitors, Maroc Telecom succeeded in maintaining its leadership in each segment of the market, relying in particular on: a segmented and competitive offer, tailored to consumers expectations; an extensive distribution network, the densest in the country, with more than 41,000 direct and indirect retail outlets licensed by Maroc Telecom; modern network infrastructure, offering the country s best mobile coverage; and strong brands enjoying high customer recognition. Maroc Telecom s strategy is accordingly organized along the following main lines: Stimulating growth in the mobile market by increasing usage of mobile services and through innovation Maroc Telecom stimulates prepaid customer usage, with promotional offers on voice services (offers on top-up cards and other regular promotions) and on data services (reducing SMS and MMS tariffs and promotions), while striving to expand its customer base and increase customer loyalty. Maroc Telecom has introduced new value-added services based on SMS, MMS and GPRS, to enhance its range and to increase ARPU. Maroc Telecom has always been a forerunner in developing new technologies, and is due to launch the new 3G services in Steady growth in the customer base while maintaining a firm grip on customer acquisition and customer loyalty costs, remains the Company s priority. The mobile penetration rate increased from 41.34% at December 31, 2005 to 53.54% at December 31, 2006 (Source: ANRT), which confirms the market s strong growth potential. In the medium term, the penetration rate is likely to reach more than 70% (Maroc Telecom estimates). Reinforcing its competitiveness in fixed-line to deal with liberalization in this segment The fixed-line telecommunications market has been completely liberalized since 2005 when two new licenses were granted to Meditel and Morocco Connect, which became Wana in both new entrants are due to start marketing their new Fixedline and Internet services in Maroc Telecom is actively prepared for the arrival of competition aiming to improve the competitiveness of its offering with particular attention paid to high quality service, together with a customer loyalty program and the launch of new innovative services. This strategy essentially aims to: Steadily increase unlimited fixed-to-fixed rate plans (Phony range with very competitive tariffs) granting unlimited calls and call time to all fixed-lines. Add content to telecommunications offers, with the launch in 2006 of TV via ADSL and Double and Triple Play Internet offers, VOIP and Video on demand in 2007, which are enabled by IP technologies and high bandwidth. The aim is to equip the Fixed-line segment with new growth drivers. Improve the quality of pre- and after-sales service, which has been rewarded by the quality certification obtained at the end of Strengthen customer loyalty programs, enabling customers to earn various gifts and benefits. Rapidly increase ADSL penetration which at the end of 2006 had already reached 35% of Fixed-lines (excluding public telephony). 47

50 Remaining the principal engine of Internet development in Morocco The great success of the new unlimited ADSL Internet access services, launched in early 2004, along with the reduction in rates in March 2005 and May 2006 and promotional offers launched throughout the year, is a sign of the market s growth potential. Maroc Telecom focuses its efforts on broadband, with a commercial policy organized around gradual price cuts and high speed Internet access. Maroc Telecom also develops a number of initiatives designed to increase the penetration of Internet, in particular in schools, to develop specific plans for business users, and to assist in the development of content and use of the Internet. Capitalizing on its brands and making Maroc Telecom a reference in terms of customer service in Morocco Maroc Telecom enjoys strong public recognition and an excellent image with its brands, such as Jawal (prepaid mobile telephony), El Manzil (fixed-line telephony for residential and business users), Phony (unlimited fixed-to-fixed rate plans) and Menara (Internet access). The Company also proposes to make Maroc Telecom the reference in customer service in Morocco by continuing to improve presentation, and customer interface at the point of sale, customer services (technical start-up, after-sales service, commercial administration, call centers). Relying on network infrastructure complying with the most recent technological standards Maroc Telecom has the most extensive and technologically advanced network infrastructure in Morocco. With its modern high-performance network, based on a fully meshed and secured fiber optic backbone, Maroc Telecom offers a wide range of high-quality telecommunications services (Fixed-line, mobile, data and broadband Internet). In order to maintain a reliable leading-edge network, providing innovative new services to its customers, Maroc Telecom intends to proceed with its policy of investment in its network, aiming to develop capacity and coverage, introduce new mobile and fixed-line technologies, develop, build and strengthen domestic and international interconnections. Maintaining rigorous financial management and a sound financial structure Maroc Telecom has outstandingly shown over the past years that it is capable of maintaining its level of profitability by continuing dynamic development, while keeping a tight hold on costs. Its large cash-flow generating ability enables it to maintain a sound financial structure while paying out dividends to its shareholders on a regular basis. In addition, Maroc Telecom intends to seize acquisition opportunities that would create shareholder value, while observing strict investment criteria. 48

51 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES 4.4 business ACTIVITIES Mobile business The information provided in this paragraph, except revenues, only concerns the Mobile business in Morocco. General presentation Maroc Telecom is the leader in the Moroccan market for mobile communications. The Company s market share reached 66.90% as of December 31, 2006 (Source: ANRT). This market has expanded considerably since 2000, with the number of mobile customers (all operators) rising from million in 2000 to million as of December 31, 2006 (Source : ANRT). Over the same period, the market penetration rate rose from 1.3% to 53.54% (Source: ANRT). The mobile market (all operators) is mainly a prepaid market. In 2006, the prepaid customer base in Morocco increased 30% from million customers to million customers at the end of On the postpaid segment, the total number of customers increased 12.7% between the end of 2005 and 2006, to 690,000 customers. Maroc Telecom offers prepaid services (the Jawal card) and a range of postpaid offers. Maroc Telecom provides extensive coverage both in terms of infrastructure and commercial presence. Its network covers almost the entire population of Morocco (Maroc Telecom estimate). Internationally, with over 414 roaming agreements, Maroc Telecom s customers have access to services in over 212 countries. This extensive commercial presence has been achieved through a direct and indirect distribution network of approximately 41,000 retail outlets licensed by Maroc Telecom (see section Distribution ). The following table breaks down Maroc Telecom s mobile revenues for the past three years: in millions of Moroccan dirhams IFRS December * Gross Mobile revenues 9,684 12,772 14,684 Maroc Telecom 9,444 12,198 13,996 Revenues for Mobile communications services ** 8,882 11,284 13,026 Terminal equipment revenues Mauritel Intersegment transactions (2,287) (2,938) (3,349) * excluding CMC-Mauritel group for the first six months of the year. ** including Management Services Agreement with Mauitel revenues of MAD6 million. Change in customer base The Moroccan market for mobile communications expanded rapidly with the introduction of prepaid plans in This prepayment system meets customers need to manage call costs and to avoid exceeding rate plan limits. This formula is particularly well-tailored to the Moroccan market, owing in particular to the young population, with half of it aged under 25. The following table sets out the main data relating to prepaid and postpaid services offered for the past three years. Maroc Telecom defines the churn rate as the ratio of cards disconnected or contracts terminated to the average customer base during a given period. For prepaid customers, Maroc Telecom defines the period of validity of a prepaid card as an initial six-month period for rechargeable cards costing from MAD50 and one month for rechargeable cards costing MAD10 to 20, corresponding to the duration of the card s credit, followed by a second six-month period during which the customer, while having the option of recharging the phone card, continues to receive calls. The Autorité Nationale de Réglementation des Télécommunications (ANRT) defines a mobile subscriber as a person with a postpaid mobile subscription that is still activated, or a person with a prepaid card who has made or received at least one call (charged or free) within the past three months. 49

52 As from January 1, 2006, Maroc Telecom uses the ANRT s definition in its communications with a restated comparison of 2004 and Number of Mobile customers * (thousands) 6,306 8,237 10,707 Prepaid 6,050 7,908 10,297 Postpaid*** Churn rate (%)** Prepaid 11.4% 12.1% 20.5% Postpaid*** 15.6% 13.9% 13.4% blended churn rate 11.6% 12.2% 20.3% ARPU (MAD/customer /month) Prepaid Postpaid*** blended ARPU Outgoing Usage (minutes/customer/month) Prepaid Postpaid*** blended usage * Postpaid subscribers and prepaid cards. ** See Glossary. *** Including 'Forfaits sans engagement' in 2005 and Prepaid services have seen sustained growth since their launch, in particular through subsidized packages including a GSM handset at fairly low prices, and Maroc Telecom s many promotions for top-up phone cards and calls, which stimulated growth and developed the loyalty of the expanded customer base. Post-payment covers mainly a high-consumption customer base generating substantially higher ARPU than prepaid customers. Despite tough competition in the market, Maroc Telecom has succeeded in maintaining its churn rate at a satisfactory level owing to its efforts to build customer loyalty while maintaining an acquisition policy in order to extend its base (see Offers ). Accordingly, the loyalty program offered to prepaid customers since mid-2002 has been improved through the launch of a point-based Fidelio loyalty scheme. The customer can choose from a variety of loyalty bonuses: additional time, SMS, or GSM terminal. In 2006, with strong growth in the customer base and the reduction in access costs, the churn rate stabilized at 20.3%, up 8.1 points compared with Pricing Since 2002, Maroc Telecom has charged calls by the second after the indivisible first minute for traditional subscribers and by 20-second increments for postpaid rate plans and prepaid calls. This pricing overhaul was accompanied by price cuts in order to: encourage the use of rate plans for postpaid subscribers, by offering them a wider range of rate plans and prices that are reduced along with the rate plan s duration; provide prepaid customers with substantial cuts according to the amount of top-up phone cards bought; and develop usage by changing over to an indivisible minute. The table below sets out the change in average charges per minute, prepaid and postpaid, in Moroccan dirhams (including VAT) as of December 31 of each year. 50

53 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES In Moroccan dirhams As of December Access costs Prepaid (1) (4) 200/ / /250 50/ / /100 20/50 20/50 10/30 Postpaid Subscription Postpaid (3) Mobile price per minute (including taxes) (2) To Mobile Maroc Telecom Prepaid Postpaid (3) To Maroc Telecom Fixed-line Prepaid Postpaid (3) To other mobiles Prepaid Postpaid (3) (1) including initial call credit. (2) Indivisible first minute; increments of one second for standard subscribers and 20 seconds for rate plans subscribers and prepaid; Standard subscription for postpaid and Jawal classique for prepaid at peak times. (3) Standard subscription formula. (4) Different costs according to credit including all taxes. Maroc Telecom regularly grants its customers further price cuts for mobile calls abroad, and harmonizes call charges. The new international pricing policy is in line with the general trend of new offers, in which the price variable is reflected in attractive and competitive charge scales. Mobile communication services Maroc Telecom offers prepaid and postpaid services for consumer and business customers. These services comprise a wide range of offers with different levels of user commitment and different terms for making calls outside the contract rate plan. The table below shows the range of Maroc Telecom s Mobile offers: Service Customers Commitment Calls outside Product Prepaid Consumer No No Jawal Classique Jawal Jeunes Postpaid Consumer No No Liberté rate plan Liberté rate plan SMS/MMS Yes No Controlled rate plans Yes Yes Standard subscription Individual rate plan business Rate plan business Class Intenso/Extenso/Extenso+ 51

54 Prepaid As of December 31, 2006, the prepaid customer base consisted of million customers, or almost 96% of the mobile customer base. Maroc Telecom aims to maintain ARPU by stimulating consumption (selling a wide range of top-ups) and by developing the use of value added data services (SMS and MMS). The group has launched several promotional offers on top-ups and calls to increase customer loyalty and to stimulate usage. The drop in ARPU in 2006 is mainly due to the strong increase in the customer base. Offers Maroc Telecom provides prepaid services under the Jawal brand. The prepaid services are aimed primarily at residential users, who demand a broad range of access and pricing offers. Maroc Telecom s prepaid plans are marketed as packages (handset and SIM card) and SIM card only deals, according to the following formulas: Jawal Classique, which offers an undifferentiated day/night tariff; Jawal Jeunes, with special rates in the evenings, on weekends and on public holidays. These two formulas are valid initially for six months, corresponding to the duration of the card s credit, and then a further six-month period during which the customer may recharge the phone card and receive calls. In 2006, Maroc Telecom introduced a new access fee of MAD30 (including tax). In addition, sales promotions on these deals are designed to stimulate sales. A selection of packs is also marketed at MAD0 against payment of MAD1,200 including tax which will be credited to the customer s Jawal account at a rate of MAD100 including tax per month. Finally, Maroc Telecom proposes promotion on SIM card only deals doubling the initial credit. In order to develop the use of prepaid services, Maroc Telecom markets a range of top-up phone cards from MAD10 to MAD1200, with automatic bonuses linked to the purchase of a MAD50 top-up phone card. In 2006 the group introduced a top-up card enabling customers to have two types of recharge for the same card depending on their needs. Promotions are implemented on voice and data services and on the range of top-up phone cards and are part of a policy to build customer loyalty, increase usage and develop the customer base. The available recharging resources are also diversified, with a dual goal of reducing distribution costs and facilitating recharging for the customer. Thus, in addition to PVC scratch card recharging, Maroc Telecom offers electronic recharging and recharging through bank cash dispensers. Lastly in 2006, Maroc Telecom set up the Express recharge to eliminate card manufacturing and logistics costs. Other similar solutions are also being considered. Pricing plans relating to prepaid services Maroc Telecom applies a differentiated pricing plan for prepaid customers according to the type of card Jawal (Classique or Jeune), the call destination, as well as according to schedules for the Jawal Jeune card: For a customer of Jawal Classique, prices are MAD3.60 including tax, whatever the time of the call, for calls towards a fixed or mobile Maroc Telecom number or any other fixed-line Moroccan network, and MAD4.80 towards another Moroccan mobile network; For a customer of Jawal Jeune, the price at peak time (Monday to Friday, from 8 am to 8 pm) to fixed or mobile numbers for all operators is MAD6 including tax. In off-peak periods, the price drops from MAD2.40 including tax for the first minute to MAD1.70 including tax thereafter by 20 second increments for calls to Maroc Telecom numbers and other fixed-line operators and MAD2.40 including tax for calls to any other mobile network. SMS are charged MAD0.96 per message including tax. The SMS price range is between MAD3.60 and MAD6 including tax for sending SMS to foreign countries. Since October 2006, the price of MMS has been set based on their size, from MAD0.96 including tax for MMS smaller than 3ko to MAD1.92 including tax for MMS larger than 3ko. Pricing of international calls varies according to the country of call destination, and is the same for both formulae. The countries of destination are classified in four areas and their rates vary from MAD11.52 to MAD28.80 including tax per minute. In 2006, to boost consumption, Maroc Telecom continued its promotional offers for prepaid clients giving unlimited calls to a chosen number at certain times at a special price. In addition, prepaid clients are compensated for incoming calls, by means of a call credit which is available on their next top-up. Migration of prepaid customers to postpaid In order to build customer loyalty and raise ARPU, Maroc Telecom is implementing a strategy intended to migrate high user prepaid customers to postpaid offers, a two-fold strategy. First, the Jawal services include an option for customers to migrate their prepaid accounts free of charge to a postpaid rate plan or subscription while retaining their call numbers. Second, Maroc Telecom offers capped postpaid rate plans, which are a basic product attractive to 52

55 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES prepaid customers wishing to migrate to postpaid while retaining control over their communication costs. This strategy, which relies on frequent promotional campaigns to boost migration, aims at raising aggregate ARPU. In 2005, continuing this strategy, Maroc Telecom launched two new products: the Liberté and Liberté SMS/MMS rate plans. Postpaid As of December 31, 2006, the postpaid customer base amounts to 410,000 subscribers. The postpaid customers are mainly high users. The slight fall in postpaid ARPU is due to an overall trend of new customers consumption, a phenomenon common to most operators and to the introduction of new rate plans, namely unlimited numbers. Maroc Telecom is seeking to increase ARPU by stimulating subscribers usage of its services and usage of new and existing voice and data services (SMS, MMS and GPRS). Postpaid is marketed mainly through the branches of Maroc Telecom s distribution network, 25 of which are dedicated to mobile services. In addition, 17 branches are especially dedicated to businesses and major accounts. Postpaid is also distributed through the GSM Al-Maghrib network (see section Distribution ). The postpaid offers are addressed at the entire consumer and business market. The business market comprises small and medium-sized enterprises and industries, local government and major public and private accounts. Subscriber plans Maroc Telecom offers three plans to consumers: the traditional subscription, a monthly subscription offering invoicing for consumption varying according to peak and offpeak times (see paragraph Pricing plans relating to postpaid services ); individual rate plans, which offer ten formulae based on communication time and a single count for calls regardless of domestic destination and times. They allow a development of usage by encouraging greater consumption (see paragraph Pricing plans relating to postpaid services ); and controlled rate plans, which allow control of communication expenses by blocking outgoing calls when the rate plan has been used up. In order to make additional calls, the customer may recharge the account with Jawal top-up phone cards. This rate plan was introduced in order to build customer loyalty and encourage migration towards postpaid plans. The rate plan offers, with ten formulae ranging from 1 to 15 hours, provide a charging of calls by 20-second increments after the first minute, and a single rate for any domestic call. These offers include a doubling of the call time for calls to Maroc Telecom numbers, automatic carry-over of unused time and free SMS, MMS and GPRS service. In 2005, to boost recruitment of new postpaid subscribers and encourage prepaid clients to migrate to postpaid, Maroc Telecom launched no commitment offers which allow customers to return to their initial offer free of charge. There were two types of these offers: Liberté rate plan: Maroc Telecom has developed a range of 3 controlled rate plans with no commitment for 45 minutes, 90 minutes and 150 minutes for monthly subscriptions starting at MAD (including tax).the customer gets a main rate plan, free off-peak calls for the same amount of time and a top-up account. In 2006, a reduction is offered for customers taking out a 6-month minimum subscription. SMS/MMS Liberté rate plan: aimed at young people, Maroc Telecom offers a range of two data rate plans with 100 and 300 SMS/MMS, a voice bonus and a top-up account with no commitment starting at MAD89/month (including tax). Furthermore, to satisfy business needs, in 2005 Maroc Telecom launched a new range of rate plans grouped together in the business Class offer. This offer comprises six types of all-inclusive rate plans for domestic calls (inclusive minutes ranging from 5h to 30h in 5h steps), certain international calls and free SMS, MMS and GPRS. Lastly, since the end of 2004, Maroc Telecom has marketed two special products: an SMS rate plan for the speech and hearing impaired and a pack including special software for the visually impaired. Since January 1, 2006, customers with 1 to 4 hour individual rate plans and all controlled rate plans and Liberté rate plans have been able to subscribe to an offer allowing them to make unlimited calls to two numbers of their choice for MAD including tax/month. Customers with 5 to 15 hour individual rate plans can subscribe to an offer allowing them to make unlimited calls to five numbers of their choice for MAD including tax/month since April 1, 2005 and customers with 15 hour individual rate plans can subscribe to an offer allowing them to make unlimited calls to seven numbers of their choice for MAD including tax/month since May 1, Business users Given the potential and strategic importance of business customers, Maroc Telecom has established a specific policy for this segment, organized around a dedicated range of offers and services and a dedicated distribution network. In addition, for major business customer, Maroc Telecom is implementing 53

56 customized service solutions meeting its customers specific requirements, in particular in terms of control over staff calls and management of costs. In addition to the consumer rate plans detailed above, also open to businesses, Maroc Telecom launched the following Mobile Solutions for business in 2002: Intenso: a suitable formula when GSM calls are made mainly internally, Intenso offers ten hours of calls free per month and per line for all communications within the business; Extenso: a suitable formula when GSM calls are made mainly to outside contacts, Extenso offers competitively priced subscription and outside call charges; and Extenso +: launched in May 2004, it combines the two previous offers and as such demonstrates the flexibility offered by Maroc Telecom to its business customers. In addition, Maroc Telecom has created various other services for business mobile voice services. These services meet companies needs in managing their mobile fleet and cost control, and include: Mouzdaouij (possibility of having two numbers on the same SIM card to differentiate between personal and professional calls); capped invoices; reduced call charges based on volumes; exemption from subscription fees subject to certain conditions; reductions for certain international calls; EasyFact (CD-based invoicing service) and E-Management. Maroc Telecom enhanced its professional offers in the last quarter of 2006 with the launch of two new innovative services perfectly suited to companies who are seeking to increase productivity and reactivity: «MobiMail» allows the user to receive and process s on his/her mobile in real time, and MobiTalkie, which enables colleagues to communicate via a voice message sent simultaneously to several other colleagues and receive their reply in real time. Loyalty building policy building loyalty among customers has been a key strategy for Maroc Telecom since 2000 and has prepared Maroc Telecom for the arrival of competition. The loyalty offers set up as early as January 2000 consist of offering handsets at preferential prices. The Gold project for high-volume users was launched in These customers are provided free of charge with a loyalty card, a top-of-the-range mobile phone, a dedicated call enter (a toll-free number 999) and a privileged welcome at commercial agencies. Since July 2003, the Gold club has been integrated into the Fidelio program and the selection is made on a points basis. New advantages are granted to customers: a VIP after-sales service and bonus points. Fidelio is the first point-based loyalty scheme introduced in Morocco. It is reserved for postpaid customers and was launched on June 1, This scheme allows points to be aggregated on the basis of invoicing, and provides advantages in the form of free or cut-price handsets, and free calls and SMS messages. Since April 2003, Maroc Telecom has set up the Fidelio 24-month offer. In 2005, Maroc Telecom introduced bonuses on incoming calls, granting customers points for the calls that they receive. In 2006 almost 83,000 customers renewed their subscriptions thanks to Fidelio. Pricing plan relating to postpaid services Activation expenses for a SIM card are identical regardless of the type of subscription and are established at MAD120 including tax. The pricing for postpaid services differs depending on whether it concerns a classic subscription, fixed price (package) or specific formula for businesses. For a classic subscription, the subscription charge is MAD150 including tax and the airtime price is MAD1.80 per minute for calls to Maroc Telecom fixed-line and mobile numbers and other fixed-line operators, or MAD2.40 (including tax) to other mobile networks at peak time. At off-peak times a single tariff of MAD1.20 including tax applies regardless of the domestic destination. There were price cuts in 2005 for the 10 individual or controlled rate plans. Tariffs now vary between MAD180 and MAD870 (including tax) for individual rate plans and between MAD and MAD942 for controlled rate plans. These rate plans include a predefined airtime of between 1h and 15h, free off-peak calls for the same amount of time, and free SMS, MMS and GPRS. For no commitment rate plans, charges range from MAD to MAD (including tax) for the Liberté rate plans, and from MAD89 to MAD189 (including tax) for the Liberté SMS/MMS rate plans. For business customers, business Class rate plans range from MAD522 (including tax) for a 5h rate plan to MAD1,584 (including tax) for 30h. For businesses, subscription and call pricing varies depending on the number of lines and whether they choose the Intenso or Extenso formula. In 2005, Maroc Telecom overhauled its business tariffs. For the visually impaired, a handset and special software are 54

57 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES offered at a competitive price, while an SMS rate plan for MAD150/month (including tax) is available for the speech-and hearing-impaired. SMS and MMS are charged MAD0.96 per message including taxes and their price ranges between MAD3.60 and MAD6 including tax for SMS to foreign countries. GPRS is charged between MAD48 and MAD636 per month including tax depending on the chosen volume of data. Pay-as-you-use is also available since September 2005 and is charged MAD0.29 including tax/ko. The pricing of international calls varies according to the country of call destination, whatever the formula of subscription. The countries of destination are classified in four areas and their rates vary from MAD6.66 to MAD25.20 per minute including tax. Supplementary services provided with prepaid and postpaid offers Prepaid supplementary services Many supplementary services are included in the Jawal plan, including ID, call waiting, dual call service and the Family & Friends service, all free of charge. Voic and all SMS and MMS related services are also included in all plans. In addition, since 2003, via the introduction of the Camel technology (see glossary), prepaid customers may use international roaming for their voice services. There are also supplementary services at an additional cost, such as the favorite number offer launched in 2005, which gives the client a reduction for calls made to the Maroc Telecom mobile number of their choice. Postpaid supplementary services The postpaid offer includes the prepaid supplementary services mentioned above. It also includes detailed invoicing, conference calls, and CLIR and call transfer, all offered free of charge. Postpaid clients can get reductions through the Family & Friends service and a reduction in call charges based on volume. In addition the Mouzdaouij service allows users to have two numbers on the same SIM card. Services available at an additional cost are also marketed to satisfy the needs of customers who make calls outside their rate plan like "Offre Complice" and the SMS/MMS rate plans. Maroc Telecom has also introduced unlimited calls by offering optional extras for individual rate plans, which are charged at an additional cost. In 2006, Maroc Telecom launched a new recharging service. Top-up for me or my friend, which enables customers to top-up their own account if they have a controlled rate plan, Liberté rate plan or Liberté rate plan SMS/MMS or to top-up another person s account Top-up for my friend if the friend is a customer with a controlled rate plan, Liberté rate plan, Liberté rate plan SMS/MMS or Jawal account. Moreover, Maroc Telecom s postpaid subscribers are provided with an international roaming facility for voice and SMS services, as well as for data services (MMS and GPRS). Value added services As of December 31, 2006, value-added services contributed 5.4% (excluding VMS) to total revenue. The contribution of the Voice Mail System (VMS) to total revenue, as of the same date, was 3.3%. Maroc Telecom takes special care to develop value-added services, in particular with the introduction of the latest technological innovations to the Moroccan market on an exclusive basis (WAP as early as 2000, GPRS in 2002, and MMS in 2003). In addition these services are offered to roamers. VMS The VMS was introduced in 1998 for postpaid customers and extended to the prepaid customer base in It is included in all prepaid and postpaid plans. At the end of 2006, there were more than 8 million voic boxes in operation, representing almost 75% of the active mobile customer base. This service was extended in 2005 with the introduction of two new functions: Automatic call-back allows postpaid clients to call back the person who has left a message on their voic simply by pressing a key. This service is offered at the standard cost of a call from a Maroc Telecom mobile; Straight to voic enables all Maroc Telecom Mobile customers to leave a message on the other person's voic without making the telephone ring. This service reduces the intrusive nature of calls. In 2006, two new advanced options were introduced: Maroc Telecom s mobile customers can receive a free SMS notifying them of their missed calls, the time of call and the number of times their correspondent tried to contact them; Maroc Telecom is the only operator which allows the person leaving a message on an IAM voice mailbox to modify or delete the message that they have just left via a user-friendly voice menu. SMS SMS (Short Message Service) has been available since April The service has been regularly enhanced with the launch of SMS Info in 2001 (SMS messages containing information of local interest such as TV programs, pharmacies on duty, train schedules, etc.) and SMS Chat in 2002 (a 55

58 community service aimed mainly at young customers), and the first pilots of kiosktype services in 2003 (SMS messages offering content or remote voting services suited to radio or TV programs), SMS International chat in 2005 (service enabling Maroc Telecom mobile customers to chat via SMS with French mobile customers). In 2006, almost 1.4 billion SMS messages were billed, representing 23% growth compared to GPRS The General Packet Radio Service (GPRS) was launched in October 2002 for business customers, and was extended to all postpaid customers starting on March 1, The GPRS is offered in the form of four rate plans (from 1 to 60 Mb) and charged by volume (the user pays only for the quantity of data actually exchanged, and not the duration of consultation). GPRS facilitates the use of data for those who are traveling, such as optimized Internet/intranet connections, sending and receiving s, WAP-mode browsing and file transfer. Maroc Telecom s GPRS offer has been enhanced by: GPRS ONLY which enables mobile customers to have a SIM card specifically for GPRS use. The GPRS customer can obtain a second SIM card for free to be used with the GPRS rate plan. He/she can continue to use the first SIM card for making or receiving calls or SMS/MMS; A GPRS Free Access formula which grants access to all GPRS services, without a subscription or any commitment. In 2006, almost 5% of postpaid customers, compared with 1.5% in 2005, activated this service. In addition, Maroc Telecom develops other specific GPRS solutions, to suit its business customers requirements. MMS The Multimedia Messaging System (MMS) was launched in June 2003 for postpaid customers and extended to prepaid customers in July It allows the exchange of text, images and sound. At the end of 2006, the number of MMS subscribers rose to almost 1.5 million. They exchanged 23.4 million MMS messages. The MMS was enriched at the end of 2004 with the launch of the Picture postcard by MMS. This novelty, exclusivity of Maroc Telecom, allows to send a text and a photograph from a MMS mobile. The addressee receives the message in the form of a real Picture postcard delivered by the Post Office. In March 2006, the maximum size of an MMS via the Maroc Telecom network was increased from 50 to 100 Ko to enable mobile customers to send MMS with high quality photos and pictures. In October 2006, MMS charges were changed. MMS Text are charged MAD0.96 including tax and MMS Photos are charged MAD1.92 including tax. MobiMail Push Mail service In February 2006, Maroc Telecom launched mobile pilot project with a Push service for businesses. This new service enables mobile customers to receive push s on their mobile and to access their diary and the company s phonebook easily and immediately. This service has been available since September 2006 and is charged MAD360 including tax for unlimited access and MAD240 including tax for customers who already have a GPRS subscription. Mobitalkie Push To Talk service In September 2006, Maroc Telecom launched the Mobitalkie Push to Talk service for business clients. This service is like using a Talkie-walkie on mobile phones which are equipped with this option, and have both nationwide and international (roaming) coverage. Mobitalkie uses the GPRS network giving the same cover as the GSM network. Maroc Telecom provides an Unlimited MobiTalkie rate plan for MAD360 including tax/month to allow customers to monitor their total calls. Content services In addition to the SMS information service launched in 2001, the 500 service launched in 2002 (service for downloading ringtones and logos), and the SMS kiosk services launched in 2003, Maroc Telecom has offered a service for downloading content under its own Mobile Zone brand since May This service enables subscribers to download ringtones, screen savers, animated pictures, games and videos onto compatible handsets. Customers are provided with local, regional and international value-added content. Exclusive content is available through partnerships with internationally renowned brands (Star Wars for cinema, the Spanish La Liga for football) and exclusive agreements with other suppliers of international content. In December 2005, Maroc Telecom enhanced its content offer with the new Al Jazeera and Maghreb Arabe Presse (MAP) News bouquet for postpaid customers. With this service customers can receive news of their choice via SMS on their mobiles: politics, economics, sport from Maghreb Arabe Presse or Al Jazeera (the Arabic language news channel). The customer can subscribe to one or more sections from MAP and/or Al Jazeera for between MAD18 and 30 including tax per section. Since May 2006, all of Maroc Telecom s postpaid and prepaid customers have been able to customize their voic message. This entertaining and practical service extends the range of available content services. Customers can choose their very own message from a selection to suit all tastes: comical, imitations, classical music etc. All these messages are available on Maroc Telecom s portal 56

59 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES This service is available by calling 309 (MAD8.40 including tax/minute plus the cost of call to a Maroc Telecom mobile) or by sending an SMS with the code corresponding to the chosen message to 309 (MAD18 including tax/message). Sale of handsets Prepaid The range of Jawal prepaid packages is also diversified in terms of models and prices. In this respect, Maroc Telecom places particular emphasis on the renewal of handsets and the latest associated functionalities. In 2006, Maroc Telecom reduced its prices further and prices now start at MAD249 including tax (with a MAD10 credit). Postpaid The actions taken to develop postpaid services focus on customer acquisition, loyalty and development of the service offered. For postpaid customers, the acquisition policy is based on providing an attractive offer, with a variety of associated products and services, and a large range of handsets. Offers of cobranding attract customers and ensure the successful launch and renewal of the handsets range, often launched at the same time as at the international level, and offering to the local customers state-of-the-art design and technology. Maroc Telecom offers a wide range of packages with minimum commitment duration (12 or 24 months). Since 2003, Maroc Telecom has also focused on loyalty building, as described above. Customer services In order to accompany the deployment of these offers, Maroc Telecom has set up a customer relations policy, with an approach built along several lines: information, recruitment and reminders (with a goal of customer retention). This customer service policy also responds to the needs of both consumers and businesses. Pursuant to its overall quality policy for its operations, Maroc Telecom was awarded ISO 9001 version 2000 certification in 2003 for the invoicing of mobile customers and its mobile call center. Mobile call centers In order to develop customer relationships and improve satisfaction rates, Maroc Telecom s call center is organized to respond, through six customer service numbers, to the various segments of the customer base: prepaid, postpaid, Gold customers, roamers, prospective customers and Fidelio members. Since March 2000, the call center has provided customers with information regarding Maroc Telecom products and services, requests for activation and parameterization of any given service, information regarding offer and pricing plan changes, a service for checking remaining balances and Fidelio program benefits, and a complaints service. Information of local interest in several languages (Arabic, French, English) is also offered to roamers. The Interactive Voice Service (IVS) set up in January 2005 handled more than 12 million calls for prepaid customers, offering them access, 24 hours a day and 7 days a week, to information on prepaid products and services. In addition, Maroc Telecom conducts customer satisfaction surveys monthly in order to measure the quality of the service provided by the commercial branches. Maroc Telecom monitors the quality of service offered through statistical indicators. Maroc Telecom makes the public aware of new offers through a special number that present and potential customers may call for information on such offers. business call centers Maroc Telecom makes available directly to its business customers dedicated services through its ww.mobileiam.ma portal, which displays, several on-line services along with descriptions of the offers. business customers can accordingly handle their fleets remotely through the Self Care service, by changing offers or activating supplementary services. In addition, business customers may easily monitor their mobile telecommunications budgets through the EasyFact service. This allows the receipt of invoices connected with the GSM subscriptions on CD-ROM for more detailed and easier access. After sales service The width of its handsets range has led Maroc Telecom to set up an after-sales service provided by its direct distribution network. This service is offered free of charge during the warranty period. In addition, the Gold after-sales service provides its dedicated customers with immediate replacement of a handset, by home delivery. Portals Maroc Telecom has set up three portals: describes the services and commercial deals offered and enables businesses to access the Self Care service; the WAP Maroc Telecom portal, in addition to theme based information, offers access to the yellow pages; 57

60 the Mobile Zone portal, which allows customers to download content. International roaming Roaming is a service offered by telecommunications operators enabling mobile telephone users to call and be called in a foreign country. For this purpose, the operators in various countries enter into roaming agreements, allowing their customers telephones to be easily connectable to a foreign network if necessary. Maroc Telecom entered into its first roaming agreement with SFR in February This roaming arrangement is carried out in the ordinary course of business. As of December 31, 2006, Maroc Telecom had entered into 414 roaming agreements with associated operators in 212 countries, including in 6 countries through agreements with operators of the GMPCS systems (Thuraya and Globalstar). Morocco s tourism industry generates a large inflow of visitors, providing large potential for roaming revenues. In order to catch most of this traffic, Maroc Telecom has developed a customer acquisition policy through associations with foreign operators, and has entered into preferential agreements with the largest among them. In 2006, to ensure constant Roaming revenue growth and increase competitiveness, Maroc Telecom has entered into agreements with its main partners granting discounts. GPRS and MMS services have been offered on a roaming basis since the end of At December 31, 2006, Maroc Telecom had signed agreements with 91 operators in 62 countries for GPRS/MMS roaming for postpaid customers (60 of which are for roaming out) and with 76 operators in 48 countries for prepaid customers (32 of which are for roaming out). Maroc Telecom also offers an international SMS facility, and the use of short access numbers (333 for voic and 777 for customer services). At December 31, 2006, Maroc Telecom had signed agreements with 258 operators in 143 countries for sending SMS abroad, and 90 operators in 53 countries for the use of short access numbers. Infrastructure Maroc Telecom s mobile network is based on the GSM technology, deployed throughout almost the entire territory of Morocco. It is characterized by a well-developed infrastructure, high international connectivity and a quality of service similar to that of international operators. This network is made of two parts, the NSS network and service platforms, and the bss network. NSS network and service platforms The NSS network combines the switching equipment and service platforms. The switching network, consisting of 30 MSC centers, is built around 7 TMSC transit centers (including one with softswitch technology). In order to secure the sharing and support of traffic, all MSCs are connected to at least two TMSCs. Signal traffic is separated from voice traffic through the use of an SS7 network with 4 STP systems. Maroc Telecom has several platforms enabling it to offer its customers high quality services: IN platforms which are used mainly for real-time management of the prepaid customers credits and also manage the implementation of value added services such as invoices or capped-rate plans. SMS platforms, with 2 SMSC servers (large capacity 230 SMS/S), which store and deliver short messages (SMS). VMS platforms which allow the recording of voice messages in the event that the correspondent is busy or cannot be reached. GPRS platforms are based on a packet-switched network architecture with roaming management and radio access. In 2006, to be able to provide its customers with new services, Maroc Telecom extended its network with new platforms : SMOLREV, for recharging prepaid accounts, managing retailer accounts (recharging, checking account balance, minimum, maximum level etc.), managing vouchers and transferring postpaid to prepaid accounts; SMS broadcast, which sends predefined SMS messages to one or more lists of GSM customers; RbT, which allows the customer to change the standard return call ringtone for a personalized ringtone, which can be a musical tune, a joke, a voice message, etc ; Push to talk, enabling customers to communicate Talkiewalkie style with their friends and colleagues; Geographic localization, which provides information on the area where the customer is located such as emergency services, news, tracking etc.; Pay-as-you-use, which means postpaid and prepaid customers are charged based on different types of service and charge types. bss network The network allows almost the entire population to be covered through over 4,600 radio base stations located throughout the Moroccan territory. The deployment plan for fiscal year 2006 provides for the establishment of 424 GSM sites and 70 replacement bts. A plan for the redeployment and extension of TRXs (radio cells), 58

61 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES initiated in 2002 and continued since has allowed optimized use of the radio access equipment (TRX). Quality and capacity In order to allow an extension of capacity without adding further centers, and in order to add new services (MMS, GPRS, roaming, prepaid, rechargeable phone cards prepaid by SMS or at the bank cash dispenser), the infrastructures of the mobile services networks and platforms have been upgraded using recent software releases for the latest generation equipment (SSNC and Power CP). The improvement in quality of service indicators for the mobile network is a priority for Maroc Telecom. Accordingly, the rate of successful dial-up in 2006 exceeded 98%, the cut-off rate remained below 1% and the rate of successful SMS delivery amounted to 97% (excluding promotions free SMS). This improvement was achieved through a major program of radio optimization and preventive maintenance. With a concern for the health of the population, Maroc Telecom launched a survey to measure the density of electromagnetic fields in the vicinity of GSM sites. The findings from that survey, conducted by bureau Veritas, confirmed the Maroc Telecom GSM sites compliance with European standards. 59

62 4.4.2 Fixed-line and Internet business Information described in this paragraph is limited to the Fixedline and Internet activities in Morocco. General presentation Maroc Telecom is the leading provider of fixed-line telephony, Internet and data transmission services in Morocco. These markets were all fully liberalized in 2005, with the granting of fixed-line telecommunications licenses to two new operators. At December 31, 2005, these licenses had still not been used (See section 4.8 Regulatory environment and possible dependencies ). The main fixed-line telecommunications services provided by Maroc Telecom are: telecommunications services; interconnection services with domestic and international operators; data transmission services for business users, Internet service providers, and other telecoms operators; Internet services, which include Internet service provision and Internet-related services, such as hosting; and TV via ADSL. The table below shows the breakdown of revenues from Fixed-line and Internet services for the fiscal years presented. In millions of Moroccan dirhams - IFRS - as of December * Fixed-line and Internet gross revenues 11,133 11,949 12,613 Maroc Telecom 10,944 11,617 12,304 Voice 6,597 6,583 6,618 Interconnection** 2,760 3,145 3,294 Data 1,241 1,374 1,585 Internet Mauritel Intersegment transactions (1,122) (1,241) (1,333) * excluding CMC-Mauritel group for the first six months of the year. ** Interconnection revenues are mainly revenues from international interconnection, regardless of destination (fixed-line or mobile), plus domestic interconnection revenues. Telecommunication services The penetration of fixed-line telephony in Morocco was 4.2% at December 31, 2006, compared with 4.5% in 2005 and 4.4% in 2004 (source ANRT). The penetration of fixed-line telephony in Morocco is defined as the ratio of the number of lines (including public telephony) to the total Moroccan population, which amounted to approximately 30 million as of December 31, 2005 (Source: Census 2004 Haut Commissariat au Plan). This relatively weak penetration rate must be considered in light of the high number of persons by home which is 5.3 on average (Source: Census Haut Commissariat au Plan). So, the number of lines (except public telephony, business users and Companies lines) divided by the number of homes gives a penetration rate of almost 15% of residential homes. besides, some 157,000 public telephony lines do not represent the real number of users of Maroc Telecom public call boxes and telestores (See paragraph "Public telephony " below). The fixed-line penetration rate fell between 1999 and 2002 (loss of approximately 330,000 customers) due mainly to the migration of existing customers from fixed-line to mobile, as a result of competition from prepaid mobile offers for the residential segment. Since 2002 the Company has implemented a policy designed to boost its operations in the area of fixed-line telecommunications by: developing an active marketing and commercial policy tailored to the customers expectations and requirements, in particular with creation of the El Manzil brand for fixedline offers for the residential segment; introducing offers which increase the use of Fixed-lines, in particular Phony, which offers residential and professional consumers unlimited Fixed-to-Fixed calls; 60

63 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES taking major steps to give the entire Moroccan population access to Internet. Frequent promotional offers and the move to ADSL have given a greater proportion of the population access to Internet; offering new services which drive the move to content offers for fixed-lines. Maroc Telecom has launched TV via ADSL with the ambition of making this a mass market TV product in Morocco; proceeding with the development of its fleet of public call boxes, initiated in 2001, and continuing its investments in this area; paying particular attention to the business market; Maroc Telecom has accordingly launched specific offers and prices targeting that customer base. At December 31, 2006, the overall fixed-line customer base totaled million lines (excluding Maroc Telecom inhouse base). The table below describes the development of the fleet of telephone lines by segment: Number of lines as of December Residential 889, , ,000 Public telephony* 135, , ,357 Corporate 283, , ,762 Customer base** 1,308,569 1,341,156 1,266,119 * Combines the lines of Maroc Telecom telestores and public booths. ** The customer base includes all subscriptions for a fixed-line telephone regardless of technology used (PSTN or ISDN). It does not include Maroc Telecom's inhouse base. Consumer market The consumer market includes residential subscribers, small businesses consisting of craftsmen, tradesmen and selfemployed professions, and public telephony. Consumer offers Maroc Telecom s consumer offers of fixed-line telecommunications have been marketed since March 2002 under the brand El Manzil. With the El Manzil range of products and services, the Company provides capped and unlimited access offers. Phony, a new fixed-line voice offer has extended the Group s consumer range and has been available since September Phony offers unlimited Fixed-to-Fixed calls in Morocco with various price plans starting at MAD144 including tax/month (including subscription) while enabling customers to keep a check on their communication costs. These offers have been very successful and boosted the consumer Fixed-line segment in the 4 th quarter. The Phony range was launched on September 1, 2006 and includes 3 price plans: Classic Phony ; Capped Phony and Liberté Phony. Depending on the price plan the customer can choose to make unlimited calls outside peak time with Phony Evening and Week End (EW) or at any time with Phony Anytime (AT). The two EW or AT area price plans are available with a standard subscription or with a capped subscription. If the customer chooses the latter option, which offers both unlimited calls and capped credit, he/she has a capped call credit which allows him/her to make calls outside the unlimited range (with the possibility of recharging the account). Liberté Phony gives the customer a time credit at a reduced rate for calls to all mobile numbers in Morocco. Maroc Telecom also offers El Manzil packages which grant free installation of a Fixed-line (for new customers) and a partially subsidized terminal. El Manzil packages, which have a wide choice of terminals and fax machines which is constantly being extended, are available from MAD99 including tax. Maroc Telecom also regularly organizes promotional campaigns to boost sales and animate the market, in particular with the 0 dirham package and free bonuses. The range of El Manzil offers is also regularly enhanced with new offers, such as the Master Package, which includes a year s subscription for capped rate plans payable in advance with an annual call credit. In June 2006, Maroc Telecom innovated on the Fixed-line segment with its new TV via ADSL service, which is the first 61

64 time this service has been made available in the African and Arab world. This service was launched in June 2006 and then enhanced in the November. It enables Fixed-line customers to watch 60 digital quality national and international TV channels via their telephone line using ADSL technology. The offer is available via 4 channel bouquets (Access, Discovery, Prestige and Evasion) from MAD48 including tax / month. There is a wide and varied choice of TV channels with something for all the family: all the national broadcast channels, generalinterest French channels, news channels in three languages (Arabic, French, English), children s channels, cinema and entertainment channels, music, documentaries, cultural programs. Consumer value-added services Maroc Telecom offers valued-added services to consumers such as voice mail, detailed invoices in Arabic or French, caller ID display, call-waiting notification and line transfer. These services also include an option for subscribers using capped rate plans, and Phony capped rate plans to recharge their accounts remotely, by simply placing a telephone call. Loyalty-building programs Maroc Telecom has created a loyalty building program for its top tier customers, based on El Manzil loyalty points system. All standard Fixed-line and Phony customers (excluding capped rate plan customers) are automatically enrolled in the Fixed-line loyalty program. They gain points depending on the amount of their monthly invoice, which they can convert into gifts via their local Maroc Telecom agency by calling the Fixed-line customer services department. Every quarter Maroc Telecom updates the catalogue of gifts which is sent to all the customers in the program. Gifts include phone terminals, fax machines, free calls via telephone cards, ADSL modems, mobile phones and TV packages (router + STb). Public telephony Maroc Telecom also provides a public telephony service with its own booths and call boxes operated by third parties, or telestores. As in other countries at a similar stage of development, public telephony remains the preferred means of communication for the lower income part of the population. The public telephone lines managed by Maroc Telecom, directly or by telestore operators with whom the Company has entered into operation agreements, amounted to over 157,357 lines as of December 31, 2006, down 4.1% compared with December Public booths. Maroc Telecom emphasizes the development of its public call boxes, and for this purpose, has entirely renewed and extended its fleet in recent years in order to have secure boxes operated with smart cards. Telestores. During the past five years, the network of telestores has seen substantial growth. As of December 31, 2006, it included over 44,000 telestores throughout the country. Almost all telestore operators are bound to Maroc Telecom by exclusive agreements. They make a profit based on the difference between the retail price and the preferential price charged by Maroc Telecom. In October 2004, against a background of heightened competition (see section Competition Fixed-line telecommunications Public telephone market ), the regulation setting the minimum distance between two telestores at 200 meters was repealed in order to allow a denser network of telestores. The repeal of that rule (disputed by certain existing telestore operators and certain associations representing them) entailed a significant increase of new telestores openings during the last quarter 2004 and the first quarter of In addition, on November 1, 2005, Maroc Telecom made significant changes to its price list, in particular reducing the minimum call charge to MAD1 for consumers. Prepaid phone cards On January 27, 2006 Maroc Telecom launched New Phonecard a new prepaid card. This new phonecard which combines the concepts of a chip card and a prepaid account card, can be used in Maroc Telecom call boxes and private Fixed-lines at home. This card is sold free of any subscription or commitment. This new formula replaces two prepaid cards: Kalimat, for use on private fixed-line phones and Phonecard for use only in call boxes. This new concept makes it easier to use prepaid cards, grouping together different cards into a single card, and has boosted the use of this type of card for public telephony. business market This market, which covers SMEs, SMIs, local government and public and private major business customers, is a key segment for Maroc Telecom, as it includes high-volume telecommunications users. Maroc Telecom is seeking to develop this segment and has adopted a dedicated organization and strategy (see Customer services-relations with businesses ). Offers to the business market In addition to the basic telephony offer, Maroc Telecom offers businesses all the functionalities of digital telecommunications through the ISDN offer marketed under the Marnis brand. This solution enables businesses to use an end-to-end digital network carrying the data flow for multimedia applications (voice, data and images) by means of either a basic access, with two communication channels, or a primary access with 30 communication channels. 62

65 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES Maroc Telecom has set up, since October 2002, a range of pricing options for businesses that it markets under the name of Tarifs Préférence Entreprises (see Pricing ). Since October 2003, Maroc Telecom has offered a Wellcom Pack PAbX, a turnkey offer of a switchboard including installation, hardware maintenance and upgrading of the switchboard according to the customer s requirements. During 2005, Maroc Telecom launched its new Multi-line rate plan for businesses and major business customers. These rate plans, which include call time of 15h to 600h, cover calls to local and domestic fixed-line numbers with a single price per minute within the rate plan ranging from MAD0.36 to MAD0.46 (including tax). Calls made outside the rate plan are charged extra at standard rates. Subscribers are granted the option of grouping several dial-up or ISDN lines together in the same rate plan. Business added-value services With a view to cost management, Maroc Telecom offers businesses an electronic invoicing system called Smart Fact. Maroc Telecom provides on a monthly basis a CD-ROM with details of the calls and an analysis of consumption by product. Maroc Telecom has set up a range of welcome numbers, toll-free number (0800xxxxx), Eco numbers (0810xxxxx) and Direct numbers (0820xxxxx), accessible throughout Morocco at a single rate, facilitating customers access to their business and allowing a suitable response. Maroc Telecom also offers high-charge numbers such as audiotext with charge back to the service provider. For Moroccan call centers, Maroc Telecom has offered since 2003 a virtual call center solution, CAIR (Centre d Appel Intelligent Réseau or network smart call center), consisting of the creation within Maroc Telecom s network of the functionalities of call centers, such as voice servers, and the routing of calls according to the availability of call center operators. This solution enables businesses to set up customer-response solutions with minimum cost. Pricing For several years, the ONPT, and later Maroc Telecom, implemented a price rebalancing policy characterized by cuts in call rates and gradual increases in subscription charges. The resulting pricing changes have been designed to grow the market while complying with regulatory requirements and preparing for the arrival of competition. In addition, since the second half of 2002, invoicing terms have been changed from a confusing unit-based billing to time-based billing, with the introduction of an indivisible first minute, and the price scale has been simplified with four charge levels: local, domestic, mobile and international. Access charges In 2006 subscription charges were not modified. Since September 1, 2005, standard subscription charges are MAD108 (including tax) for residential customers and MAD144 (including tax) for businesses. Service activation charges remained unchanged in For residential customers a standard charge of MAD600 (including tax) is applied. businesses benefit from a promotional price of MAD600 for the entire year (standard charge MAD1,200 including tax). However, to boost the growth of the customer base, since May 2002 Maroc Telecom has introduced the El Manzil packages including free installation and a highly competitive pricing policy as well as regular promotional offers: several promotions of this type were proposed in 2006, both to the residential and business users. Call charges Domestic calls In 2006, call charges from fixed-lines remained unchanged. Fixed-line call charges were last changed on September 1, Following the ANRT decision to reduce fixed-to-mobile interconnection charges Maroc Telecom reduced its fixed-tomobile rates by 5% for its customers to benefit from this reduction in the costs of traffic termination on mobile networks The table below sets out the evolution of the average price in Moroccan dirhams (including tax) per minute of a three minute domestic call at peak times from a fixed-line terminal: In MAD - including tax 2006 Fixed-line Local 0.55 Fixed-line Domestic 1.20 Fixed-line to Mobile 2.28 Calls from telestores and Maroc Telecom public call boxes are still priced by charging units. The retail prices for public telephones are substantially higher than those from a private terminal. In 2006, phone shop rates have not been changed, with a minimum call charge of MAD1 including tax and a tariff unit for all destinations in stages from MAD1.50 to MAD1 including tax. 63

66 International calls The international price scale was simplified in June 2004 and is now divided into eight geographical areas. The implementation of the new price scale was accompanied by a significant decline in call prices, in line with reductions implemented in previous years. Prices by zone in Moroccan dirhams including tax/minute peak time as of December 31, 2006 To fixed-line To mobile Zone 1 : North Europe / 6.50 Zone 2 : South Europe / 5.40 Zone 3 : North Africa Zone 4 : Canada & USA Zone 5 : Middle East Zone 6 : East Europe Zone 7 : Rest of America, Africa, Asia and Pacific Zone 8 : Rest of the world In December 2005, to support the development of call centers in Morocco, Maroc Telecom launched a new offer with a single rate of MAD0.60/minute (including tax) for calls to France, belgium, Spain and Italy, on condition that volumes exceed 200,000 minutes per quarter. Rate plans and other pricing options Maroc Telecom has also implemented a targeted pricing policy involving specific rate plans or price options. Maroc Telecom offers a range of business Preferential Tariffs, which allow its business customers to benefit from lower rates on domestic calls based on three price options: Group Preferential Tariff, Volume Preferential Tariff and Mobile Preferential Tariff. The range of services also includes an International Preferential Tariff which includes lower rates on international calls. There are also targeted price offers for consumer customers. The El Manzil capped rate plan was introduced in response to strong demand from consumers wanting to control spending and has driven renewed growth in the customer base. Maroc Telecom regularly launches promotional offers on El Manzil top-up cards to stimulate use by capped rate plan clients. The Phony offers (unlimited rate plans) which allow unlimited calls to Maroc Telecom fixed-line numbers subject to a rate plan fee starting at MAD144 including tax (line subscription included), have extended the range enabling more customers to make fixed-line calls at the best prices on the market. The fixed-line price list is available on the Grille tarifaire section of the website. Interconnection service Interconnection services include interconnection with domestic and international operators. Domestic interconnection Domestic interconnection is regulated by the ANRT. In this respect, Maroc Telecom is bound to comply with interconnection requests, taking account of the reasonable requirements and capacities of other operators. The interconnection charge serves as compensation for the actual use of the network and the related costs (see section 4.8 Regulatory environment & possible dependencies ). Interconnection with domestic mobile operators is a major cost item for fixed-line telecommunications, as the costs of traffic termination on mobile networks are far higher than the interconnection income generated by traffic entering the fixed-line network. In 2006, with the arrival of two new operators on the Fixed-line market, new interconnection charges have been determined. Domestic interconnection pricing Domestic interconnection pricing for calls to Maroc Telecom s fixed-line network is lower than in The table below indicates the domestic interconnection pricing applicable since January 1, 2007 (at peak time): Local Simple Double (intra CAA) Transit Transit Calls to Fixed-lines Tariffs (MAD excluding Tax/min, peak times)* * A reduction of 50% is applied on off-time. Following the ANRT decision, termination charges to mobiles were reduced by 7% as of September 1, The table below shows current termination charges: Mobile Termination Calls to Mobile Tariffs (MAD excluding Tax/min, peak times)* * A reduction of 50% is applied on off-time. The ANRT approved Maroc Telecom s partial unbundling offer. The table below shows the main prices applicable as of 8 January 2007: 64

67 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES Access costs In MAD excl. Tax. Expenses of order access (per order received) 70. Expenses of access to service (per provided access) 255. Expenses of cancellation (per removed access) 70 Monthly fees. Monthly subscription (use and maintenance / access) 50 The Fixed-line interconnection for 2007 and the partial unbundling offer are available on IAM s website ( in Actualités -> Offres aux opérateurs. International interconnection Maroc Telecom has very strong international connectivity, with 230 foreign destinations. Incoming international traffic Incoming international traffic terminating in Morocco, whether on fixed-line or mobile networks, accounts for a volume in excess of a billion minutes per year, and is growing regularly. In 2006, the volume of incoming international traffic to Morocco was approximately 5 times larger than the volume of traffic leaving Morocco (Maroc Telecom estimate). The strong presence of the Moroccan community abroad, together with the growth in fixed-line and mobile customer bases, price cuts and the imbalance of purchasing power between Morocco and the main caller countries (mainly Western Europe) are the main structural features of the Moroccan market, explaining the size of the incoming international traffic and the imbalance between the volume of incoming traffic and outgoing traffic. The liberalization of European markets has also favored the development of the volume of this traffic. In order to adapt itself to international market conditions, Maroc Telecom leads, for several years, a price reduction policy for incoming international traffic. The Company also differentiates prices depending on whether the termination is fixed or mobile, so as to adapt rates to the costs. Incoming international traffic has increased 11% and a contained reduction in prices resulted in a 5% sales increase for fiscal year Termination charges for incoming international traffic to operators present on the market vary depending on the operator and the termination network (See section 4.8 Regulatory Environment and Possible Dependencies ). Outgoing international traffic For outgoing traffic, Maroc Telecom negotiates with most foreign operators in order to terminate its traffic abroad at the lowest possible cost and to offer the most attractive price to the end consumer. This policy enables Maroc Telecom to make regular cuts in retail prices in order to stimulate the market (see Telecommunication services Pricing ). Fighting fraud The international traffic carried by Maroc Telecom has seen slower growth than expected in recent years, due to the diversion of traffic by fraudulent means. A specific action plan to fight fraud on incoming international traffic has been set up. It included the creation of a dedicated department, provided with detection equipment, and awareness building among the technical and commercial teams. Since 2004, almost 50 cases have been referred to the ANRT and 9 judgments have been decided in Maroc Telecom s favor by the Moroccan Courts, while 3 cases are still before the courts. Maroc Telecom constantly reinforces and modifies its antifraud measures and considers that fraud concerning international incoming calls is currently under control. Data services Data services for Corporate clients Maroc Telecom offers its customers (mainly business customers) a complete range of data transmission services meeting the most recent technological standards. Historically, the first data services launched on the market were leased analog lines, then digital lines, then packet technology (X25 network in 1991), and, recently, Frame Relay (in 2001) and VPN IP solutions (launched at the end of 2003). The table below sets out the evolution of the breakdown of the data transmission base (exclusive of Maroc Telecom s inhouse base) over the periods concerned (Source: Maroc Telecom): Number of lines Domestic leased lines * 6,169 5,980 5,497 International leased lines * Maghripac 1,504 1,470 1,271 Frame Relay 1,226 1,401 1,357 VPN IP 80 1,214 2,095 * Customer leased lines, except lines to customer operators. The range of products and services dedicated to Maroc Telecom s network solutions consists of the following offers : Leased lines: Maroc Telecom offers domestic and international leased-line services, including the physical chain, modems and monitoring of the leased lines. In order to meet the demand for the establishment of call centers in Morocco, Maroc Telecom offers special prices for call centers together with one-stop shopping for end-to-end 65

68 leased lines with France, which simplifies operational management; Maghripac: the Maghripac network is a solution based on the X25 packet data transmission technology, specially suited to interactive computer applications. Maroc Telecom offers two kinds of access to the Maghripac network: direct access through leased lines and indirect access through the PSTN; Frame Relay: this service allows businesses to carry multimedia flows (voice, data and image) within their networks at flow rates up to 34 Mbps. The Frame Relay offer provides a high level of performance with a warranted minimum flow rate associated with each permanent virtual circuit defined between the call s endpoints; and VPN IP MPLS: Maroc Telecom offers a virtual private network solution (interconnection of sites using a common infrastructure), developed on the IP/MPLS protocols and marketed as the IP Connexion range. This service is accessible through the leased lines, Marnis and ADSL. Maroc Telecom also offers secure roaming Internet access. In 2005, the range was rounded out with IP VPN ADSL access with guaranteed bandwidth. Maroc Telecom has adapted its ranges of products and services to the business market in particular in terms of a guaranteed quality of service. At present, Maroc Telecom agrees by contract with its customers to maintain a high level of quality of service. In particular, Maroc Telecom measures the rate of availability for the network and complies with international standards as regards that availability (see also Infrastructure ). Maroc Telecom has improved its international data offer by signing 3 one stop shop agreements which increased higher bandwidth international leased lines sales and improved the quality of service for customers. Together with the reduction in international leased line prices during the year, the number of orders for new installations and bandwidth upgrades rose in Data transmission services to Internet providers Data transmission services are regulated by the ANRT. In this respect, Maroc Telecom, as the incumbent operator, is bound to provide interested Internet service providers (ISPs) with non-discriminatory technical and pricing solutions enabling the ISPs to make competitive offers to their customers and allowing fair competition in relation to the same Internet services that Maroc Telecom provides to its own end customers under the Menara brand (see Internet ). Accordingly, the following offers, the contents and prices of which are approved by the ANRT, allow ISPs to market Internet access offers through various forms of access: transit IP offer, for Maroc Telecom international Internet bandwidth; offer of free PSTN collection for the caller, allowing ISPs to offer rate plans; offer of PSTN collection with repayment to ISPs, charged to the caller, enabling the ISPs to market Internet access offers without subscriptions; bulk ADSL offers allowing ISPs to market packaged ADSL offers, including the access and Internet components; and ISP special offer for the provision of Internet service over leased lines. Data pricing Maroc Telecom has regularly cut its prices for leased lines and for other related data services. These cuts reflect technological changes and the related reductions in costs. The current prices are in line with the prices applied by international operators. The table below sets out, as an illustration, the cuts in the price of a domestic 2 Mbps leased digital line which was reduced in April 2004 (retail price) for the periods concerned: Monthly subscription As from (MAD excluding tax) Apr 01 Feb 02 Nov 03 Apr 04 2 Mbps local 33,348 25,000 17,500 9,000 In 2004, Maroc Telecom revised its Operators leased lines offer, reserved for the Developers of Public Networks of Communication (DPNC): the pricing is made by class of distance, for the outputs until 155Mb/s. Finally, the following table shows the decrease in the tariff of international half-circuit leased lines to France (applicable rate for Call centers). Maroc Telecom is careful to remain competitive as the cost of international calls is decisive in setting up a delocalized call center. It cut tariffs twice in 2004 and once in 2005: Monthly subscription As from (MAD excluding tax) Sep 03 Apr 04 May 04 June Kbps 14,700 10,500 7,088 6,143 2 Mbps 110, ,261 99,235 86,004 66

69 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES Internet The first Internet connection was established in Morocco by Maroc Telecom in between 1997 and 2000, Morocco has seen the creation of many ISPs which have subsequently consolidated around two major players (Maroc Telecom and Maroc Connect). The Internet market nevertheless grew slowly until the end of The pace of development of that market has increased significantly since the first half of The slow development of the Internet market before 2004 was due to the combination of three factors: the low rate of computer ownership, with only 11% of urban households (Source: ANRT, 2005), the relatively high cost of the Internet for users (access and call costs), and fairly limited local content. The estimated number of Internet users is currently 3.8 million, with a growing proportion of users (88.4%) connecting to the Internet in public places (source: ANRT, 2005). Maroc Telecom has a determined policy to increase Internet access in Morocco and provides solutions both for access and use. A clear example of this is the price cuts carried out in March 2005 and May 2006 and frequent promotional offers (free modem, free months subscription, free bandwidth upgrade etc.). At December 31, 2006, Maroc Telecom had 390,617 Internet access contracts, which represents around 36% of Fixed-lines (excluding public telephony). As of December 31, 2006 ADSL lines accounted for around 35% of the total number of Fixed-lines (excluding public telephony). The table below sets out the number of Menara Internet customers (the Menara customer base represents customers of the Internet access plans marketed by Maroc Telecom, excluding access for Maroc Telecom s in-house use). Active customers at December Narrowband 43,459 9,436 5,568 Libr@cces* 11,909 1,622 1,964 Subscription 31,550 7,814 3,604 Broadband 61, , ,049 ADSL 60, , ,309 Leased lines 1, Total 104, , ,617 * The Libr@cces (pay-per-use) customer base only includes accounts having accessed the internet at least once over the past three months. The ANRT gave a new definition (Decision ANRT/DG/N01/05 dated March 9, 2005) of the terms 'internet users' and internet subscribers'. This decision had an impact on the pay-per-use customer base and on Maroc Telecom s total customer base, since only those clients having accessed the internet at least once over the past three months can be counted, whilst Maroc Telecom previously used a six month period to calculate its number of internet users. On this basis, Maroc Telecom s pay-per-use customer base as of December 31, 2004 was 7,426 instead of 11,909 reported. The customer base growth in 2005 and 2006 is mainly due to ADSL, launched in 2003 and commercialized in an unlimited formula since March At December 31, 2006, ADSL represented more than 98% of all types of Internet access used by Menara customers. Maroc Telecom s market share on this segment is 98% (Source: ANRT). Internet offers Maroc Telecom s Internet access offers are marketed under the Menara brand. The consumer market For narrowband, Maroc Telecom markets: Menara libr@cces: dial-up offers without subscription with time-based charging included in the telephone invoice for the line used; and Menara Toucompri Internet rate plan: comprehensive offers including a subscription and a connection time based on the volume of use. These offers include services for the hosting of personal webpages, services and options such as time carryover, an evening and weekends package, or usage limits. 67

70 For broadband, Maroc Telecom offers ADSL contracts with bandwidth ranging from 128 Kbps to 4 Mbps (ADSL + at 8 20Mbps launched in November 2006), enabling users to use their fixed-line phone at the same time. These contracts have met with a great success since the launch of Unlimited ADSL in March 2004, and the price cuts in March 2005 and May In 2006 there were several new products and promotional offers which stimulated the market. In response to the increasing customers requirements in terms of security and content control, in December 2004 Maroc Telecom launched the Pack Menara Sécurité which offers protection solutions against viruses or not sought E- mail (spam) as well as tools of parental control. The business market For businesses, broadband is provided via ADSL or via leased Internet lines (with bandwidth up to 155 Mbps). At present, the business customer base mainly uses ADSL. The success of ADSL is not only due to the fact that it is affordable but also because it meets a number of needs that were already satisfied by leased Internet lines (speed, unlimited and constant access). The ADSL Pro offer provides bandwidth ranging from 128Kbps to 20Mbps and includes a wide range of services, in particular secure s, a domain name, a web page for contacts etc.. Internet leased lines meet with success in large companies due to excellent performance (symmetrical and guaranteed very high bandwidth) and the end-to-end security offered. Maroc Telecom also hosts businesses web sites, with two kinds of solutions: mutualized hosting (on a Maroc Telecom platform) or dedicated hosting (purchase or joint leasing of a server), providing businesses with visibility on the Internet while minimizing the cost. As well as Internet access and web hosting services for businesses, Maroc Telecom also offers a complete range of optional extras, including an IP address, domestic and international domain name and addresses. In the 2nd half of 2006, Maroc Telecom launched two new Internet solutions for businesses with bandwidth via Wimax in 2 ranges, best Effort (Internet without any guarantee of bandwidth) and Guaranteed bandwidth. Internet pricing Over the past two years, Maroc Telecom has cut prices of all its ranges of products. The table below presents the main Internet prices currently applicable: Tariffs in MAD (incl.tax/month) ADSL Unlimited kbps 149 ADSL Unlimited kbps 199 ADSL Unlimited kbps 299 ADSL Unlimited - 1 Mbps 399 ADSL Unlimited - 2 Mbps 499 ADSL Unlimited - 4 Mbps 699 ADSL Unlimited - 8 Mbps 899 ADSL Unlimited - 20 Mbps 999 Toucompri rate plan* 79 Libr@ccès * Evenings and week-ends, ten hours' connection per minute The main prices measures implemented in 2006 were: Price cuts for all ADSL bandwidths in May 2006 and free bandwidth upgrading for existing customers. 128 Kbps was reduced from MAD199 to MAD149 including tax; The 4 Mbps bandwidth subscription was reduced in November 2006 from MAD799 to MAD699 including tax; ADSL+ was launched in November 2006 with 8 Mbps bandwidth at MAD899 including tax/month and 20 Mbps at MAD999 including tax/month. Other products and services In accordance with its contract specifications, Maroc Telecom is bound to provide the following services (without limitation): a free maritime radio-communication service to broadcast maritime safety notices; a two-way telecommunications service for the exchange of messages between ships at sea and any termination point of the public networks; a telegraph and telex service (Maroc Telecom has applied to the ANRT for permission to discontinue the telex service since the terminal equipment is no longer being manufactured); a telephone enquiries service (call number 160), provided through dedicated information centers; 68

71 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES the routing of calls to emergency numbers; and an Arabic-language telephone directory. Maroc Telecom also publishes a professional yellow pages directory. This business is not significant in terms of revenues. Customer services The customer relationship is at the core of Maroc Telecom s business. Accordingly, and to meet its customers expectations and requirements, Maroc Telecom has developed an active customer relations management policy. Invoicing and collection Since 2002, Maroc Telecom has upgraded its invoicing tools and processes for both fixed-line and the Internet, in particular through: establishment of a system of automated collection of charging data; changeover from per-unit to per-minute billing (except for public telephony, which remains charged per unit); detailed invoicing; clearer presentation of the Fixed-line and Internet invoices in order to improve their legibility; establishment of an interactive voice system enabling fixedline subscribers to be informed of the current bill in real time; establishment of a dedicated invoicing system for all the Internet offers; implementation of a new sales information system WIAM which improves the billing process; and a bimonthly invoice for clients with low invoices, enabling them to pay their invoices every two months. As for collection procedures, Maroc Telecom set up in early 2003 a dedicated organization made of 27 collection departments and seven customer management departments. Through these actions, Maroc Telecom obtained ISO 9001 version 2000 certification in 2004 for all its Fixed-line invoicing and collection services. Call centers Maroc Telecom s call centers include the following centers: Casablanca Fixed-line call center: handles incoming calls and makes outgoing calls. Incoming calls (several access numbers including the main number 108): dealing with general enquiries and assistance for Fixed-line customers, orders and activating certain services; Outgoing calls: debt collection from customers who have outstanding bills, telesales, telemarketing, checking customer data (billing addresses, direct debit, ); Sala Jadida Internet call center (a single access number: 115): dealing with general enquiries and assistance for Menara and TV via ADSL customers. Relations with businesses Over the past two years, Maroc Telecom has emphasized the reinforcement of its relationship with businesses. This is evidenced by the creation at the end of 2001 of a business Sales Directorate, and, within the business Directorate, of a Major Accounts Directorate. The latter acts as a one-stop shop for the largest public or private customers: the major accounts sales engineers handle the entire commercial relationship with their customers for all of Maroc Telecom s products and services on a nationwide basis. business branches within each regional directorate also act as relays for the business Sales Directorate as regards SME-SMI customers (see section Distribution ). To strengthen its sales presence with businesses, Maroc Telecom has recruited regional distributors. Subscribers portals Maroc Telecom has developed direct relationships with its fixed-line and Internet customers through its various portals ( for consumer Fixed-line and Internet subscribers, for businesses, for TV via ADSL customers and for Internet subscribers). In addition to important information relating to the products and services marketed, functionalities such as on-line subscription for services or the consultation of bills are also accessible. Menara ( has outstanding exposure as it has the largest number of visitors for any content and services site in Morocco and Maghreb countries (excluding international search engines and portals) with a strong brand image (more than 5 million visits and more than 3 million visitors per day). Infrastructure Maroc Telecom has developed a fully digitized modern network at the leading edge of available technology, allowing a wide range of services to be offered. This network is made of a transmission backbone, switching centers, service platforms and an access network. Domestic transmission network Maroc Telecom s transmission network is fully meshed and made mainly of fiber optic systems using the SDH and WDM technologies with flow rates of up to 10 Gbps. With almost 11,800 kilometers of fiber optic cable, Maroc 69

72 Telecom s transmission network is able to handle any kind of fixed-line voice, mobile voice, Internet and data traffic. It is comprised of: 7,300 kilometers of intercity fiber optic cable; 4,500 kilometers of urban fiber optic cable; and the related SDH and WDM at n x 2.5 Gbps and n x 10 Gbps equipment. Voice platforms The switching exchanges have a capacity of more than 1.85 million subscriber lines. The network is comprised of 13 transit centers with capacity of 9,200 PCM, 58 CAA and 426 URAD. A smart network platform for value-added services allows Maroc Telecom to offer various services, such as prepaid cards, prepaid lines, toll-free numbers and kiosk service. A new generation network (NGN) is currently being deployed for gradual migration to IP. Wireline access network and businesses With almost 8.7 million kilometers of copper wire and 36,000 Km of cable conduits, Maroc Telecom s access networks cover almost the entire territory of Morocco and give access to Voice, Data, and ADSL services with a higher quality service. The rate of reported malfunctions is now 7.8%, and over 98% of malfunctions were fixed within less than 24 hours. In addition, 11 fiber optic local loops are being laid in Casablanca, Rabat and Tangiers to connect key account customers with constantly improved service. The monthly rate of reported malfunctions for businesses (for all data products) is currently 1.6% (2.3% in 2005 and 2.6% in 2004) and the repair rate for malfunctions repaired in less than 4 hours (for all data products) is 82%. The ADSL network set up in 2003 gives Internet access with bandwidth of up to 2 Mbps to most Moroccan towns. International network With nearly 230 relationships with foreign operators, Maroc Telecom secures Morocco s connectivity to all countries worldwide through two international transit centers (Casablanca and Rabat) and three fiber optic submarine cables (SMW3, Tétouan-Estepona and Eurafrica), in addition to satellite connections via Intelsat, Arabsat and Eutelsat. A new fiber optic submarine cable is being laid between Asilah in Morocco and Marseille in France, with a capacity of 40 Gbps, extendable to 320 Gbps, which should be available for use in Data networks Maroc Telecom offers a wide range of data services through its Maghripac network, a Frame Relay network, an ATM routing network, a VPN IP network and an IP MPLS network. Internet Maroc Telecom also has a domestic Internet network and a redundant international bandwidth which increased from 1.4 Gbps in 2004 to 7.1 Gbps in 2005 and to 12.1Gbps at December 31, A large-scale program has been initiated to improve the performance of the Internet infrastructure and to improve the quality of service, as regards both installation with the customer and after-sales service. Auditing, reliability assessment, enhancement and optimization have been carried out throughout the access chain, improving the quality of service, as shown by the malfunction reporting rate which dropped to 7% at the end of December 2006 (see Glossary). 70

73 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES Shareholdings Mauritel Mauritel group includes Mauritel SA and Mauritel Mobiles. Mauritel SA is the incumbent Mauritanian operator and was created in 1999, following its spin-off from the Office National des Postes et Telecommunications, the Mauritanian National Postal and Telecommunications Office. In 2000, Mauritel SA created Mauritel Mobiles, a wholly-owned subsidiary, which obtained the second license to operate a GSM Mobile telecommunications network. On April 12, 2001, in response to an international invitation to tender launched by the Mauritanian government, Maroc Telecom acquired a 54% stake in Mauritel SA. In January 2002, Maroc Telecom created the Compagnie Mauritanienne de Communication (CMC), to which it transferred the shares it held in Mauritel SA. On June 6, 2002 Maroc Telecom sold a 20% stake in CMC to a group of Mauritanian investors. During 2003, CMC assigned 3% of the shares in Mauritel SA to the latter s employees for MAD17 million in compliance with the commitments undertaken at the time of the privatization in As of July 1, 2004, the Mauritanian government s veto rights expired, giving Maroc Telecom exclusive control of this subsidiary which is fully consolidated in Maroc Telecom s financial statements. In 2006, CMC Group acquired 0.527% of Mauritel SA s capital from Socipam, a non-trading company created by the staff of the Mauritanian subsidiaries. CMC now owns a % stake in Mauritel SA. Fixed-line telecommunications, Data and Internet Mauritel provides both fixed-line telecommunications (voice and data) and Internet access services. Although since 2004 Mauritel no longer has the monopoly of basic services (domestic fixed-line telecommunications, telex and telegraph) at the end of 2006 it was still the only fixed-line telecommunications operator in Mauritania. In November 2004, the Mauritanian Regulatory Authority ( ARE ) launched a call for interest to select consultants to assist it in granting licenses. In 2006 ARE granted fixed-line licenses to the new operator. As at December 31, 2006, Mauritel s total number of fixedlines amounted to almost 37,500, representing a 1.3% penetration rate and covering the main Mauritanian towns. Other than residential clients and companies, more than 10% of the customer base comprises phone shop lines, enabling a greater proportion of the population to have access to telephone services. Mauritel also offers Internet access via the standard dial-up telephone network, ISDN lines, leased lines and ADSL launched in The Internet customer base reached almost 4,200 accesses as of December 31, Mobile telecommunications Mauritel Mobiles, a wholly-owned subsidiary of Mauritel SA, provides prepaid and postpaid services and offers roaming and SMS and specially adapted services for businesses, such as closed user-groups. To boost consumption, Mauritel Mobiles offers volume reductions on call charges and special offers on top-ups. It operates in a liberalized market alongside the Compagnie Mauritano-Tunisienne de Telecommunications (Mattel). In 2006, the ARE granted new licenses, including a 3G license for Mauritel and 2G and 3G licenses for a new operator. With a customer base of more than 601,000, virtually all of which is prepaid, Mauritel Mobiles has an estimated market share of 70% (Source Mauritel). The mobile penetration rate in Mauritania is close to 30% (Maroc Telecom estimates). 71

74 The following table summarizes Mauritel Group s main operating and financial data: As of December % Change 2006/2005 Mobile customer base 330, , , % Number of fixed-lines 38,903 39,920 37,447 (6.2%) Internet customer base 1,600 2,343 4, % Contribution to Maroc Telecom's consolidated data (in millions of Moroccan dirhams) % Change IFRS 2004 ( * ) /2005 Consolidated revenues % Fixed-line (gross) (6.9%) Mobile (gross) % Operating income % Fixed-line (14) N.S Mobile % * Pro forma data include data for the 1st half of Maroc Telecom s representatives have seats on the boards of CMC, Mauritel SA and Mauritel Mobiles and none of Maroc Telecom s directors have any operational functions in any of these companies. The consolidation method of the Mauritel sub-group, and its contribution to Maroc Telecom s results are summarized in Notes 1, 2, 23 and 28 of the Consolidated Financial Statements. In addition, chapter 6.4 Related Parties Transactions gives details of the financial flows and the nature of such flows between Maroc Telecom and the Mauritel sub-group. Casanet A wholly-owned subsidiary of Maroc Telecom, Casanet is one of the leading Internet service providers in Morocco. It is focused on offers to business clients and the management of portals, including the Menara portal. In 2006, provisional revenues for Casanet amounted to MAD35 million, up 23% whilst provisional earnings reached more than MAD6 million, up 21%. GSM Al-Maghrib On March 28, 2006 Maroc Telecom sold its minority stake in GSM Al-Maghrib. This disposal did not have a material impact on Maroc Telecom s operations or financial position. Medi-1-Sat In 2005, Maroc Telecom acquired a 24.7% stake in Medi-1-Sat which it increased to 26.8% in Medi-1-Sat is preparing a television channel in Tangier offering continuous news in Arabic and in French. This project is financed by Moroccan and French investors. In the long term Maroc Telecom will own 28% of this project with a maximum investment of MAD4.2 million, alongside the other investors: Caisse de Dépôt et de Gestion (28%), Radio Méditerranée Internationale (14%) and the French shareholder, Compagnie Internationale de Radio Television (30%). In participating in this project, Maroc Telecom intends to establish closer links with the media industry, and namely to accompany the development of the content of its ADSL triple play offer. In December 2006, Medi-1-Sat started broadcasting its programs from the Hotbird satellite and on TV via ADSL. Onatel* On December 28, 2006, Maroc Telecom acquired a 51% stake in Onatel, Office National des Télécommunications, burkina Faso s incumbent operator, by means of an international invitation to tender. The provisions of the invitation to tender state that 20% of shares will be listed on the Regional Securities Exchange in 72

75 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES Abidjan and that 6% of Onatel s share capital will be acquired by its staff. The Government of burkina Faso will own 23% of the share capital at the end of Onatel, which lost its monopoly at the end of 2005, offers fixed-line services (telephone and Internet). Onatel had 100,000 lines at the end of 2006 representing a teledensity of around 0.75 %. In 2006, Onatel s provisional revenues totaled FCFA46 billion ( 72m). The company is due to increase access to a larger proportion of the population in compliance with the company s contract specifications. Mobile penetration was estimated at 8% at the end of 2006, which offers very strong growth prospects. The market is shared between 3 operators: Telmob, a whollyowned subsidiary of Onatel, Celtel, a Pan-African operator which is a subsidiary of the Kuwaiti MTC, and Telecel, subsidiary of Atlantique Telecom, which is 50% owned by Etihad Etisalat (UAE). At the end of 2005, Telmob had 243,000 customers, mainly prepaid; at the end of 2006, Telmob claimed to have almost 365,000 customers. According to company estimates, Telmob and Celtel have a 40% market share each and Telecel has the remaining 20%. In 2006, according to provisional accounts, Telmob s revenues totaled FCFA32 billion ( 20m). (*) Source Onatel data currently being audited. Mobisud On December 1, 2006 Maroc Telecom launched Mobisud, a new virtual operator (MVNO) on the French mobile market. Mobisud is specifically targeted towards individuals who live in France and have ties with Maghreb countries (Morocco, Algeria, Tunisia), to make their calls to friends and family easier, whether they are in France or in the Maghreb. Mobisud creates its own offers and services, develops its own IT system, manages its own brands, its communication, its sales activities and its customers. It uses the radio network of the French mobile operator SFR. It offers prepaid formulas and no-commitment subscriptions. Mobisud has 3 shareholders; Maroc Telecom (66% stake), SFR (16%) and the Moroccan group Saham (18%). At the end of 2006, after operations had been running for one month, Mobisud had a customer base of 12,000. In 2006, after operations had been running for one month, Mobisud recorded sales of MAD0.4 million and an operating loss of MAD-35 million Distribution General organization and strategy of Maroc Telecom s distribution network Organization Maroc Telecom has an extensive direct and indirect distribution network, comprised of more than 41,000 retail outlets, including 17,500 licensed by Maroc Telecom subject to distribution agreements with local retailers or nationwide distributors. In 2006, the various distribution channels were as follows: a direct network comprising 287 branches; the local indirect network, made up of small independent tradesmen bound by exclusive agreements and each managed by the closest Maroc Telecom commercial branch. A large proportion of these retailers also manage a telestore business approved by Maroc Telecom; an independent shop network comprised of national and regional distributors. In 2006, Maroc Telecom signed agreements with three new distributors; distributors structured on a nationwide basis, and for which telecommunications are not the major business, such as large-scale retailers, press distributors, the Régie des Tabacs (the tobacconist agency) or the post offices of barid Al Maghrib; two new regional distributors operating in the telecoms sector for business covering the regions of Rabat Tangiers and Marrakech; a national distributor which will cover all customer segments and all ranges of Maroc Telecom s products and services. 73

76 This partner, operating in more than 20 countries and with a strong distribution experience will be operational from February For the two coming years this partner will cover 15 towns throughout the Kingdom (15 own stores, 25 franchises, 175 specialized resellers and 600 convenience stores) and will cover virtually the entire country for prepaid offers. Distribution strategy The extent and organization of Maroc Telecom s distribution network are major strategic strengths for the Company. The Company s distribution strategy is organized mainly along the following lines: maintaining the central role of the direct network, in particular for high value-added services; developing the indirect networks local reach in order to increase proximity to customers; strengthening the role of telestores in the distribution of prepaid products and the marketing of Fixed-lines; taking advantage of synergies between the direct and indirect distribution channels; diversifying the types of distribution (electronic recharges, GAb, express recharges, SMOLREV etc.). Direct distribution network Maroc Telecom s direct commercial network comprises 287 branches organized and structured to meet the local needs of the various customer segments. Consistent coverage With knowledge of regional and local specific features, Maroc Telecom s own commercial network provides coverage suited to the entire domestic territory. In addition, almost all the branches market the entire range of products and services (Fixed-line, Mobile and Internet). Suitability to the needs of the various types of customers The branches are divided into four classes according to the type of customers. The network has four major accounts branches (with nationwide coverage); 13 business branches; 28 retailer branches and 242 consumer branches (located in most urban areas in order to provide optimal convenience for customers). Among the consumer branches are 25 branches dedicated to mobile, located mainly in shopping malls and high-potential areas. Indirect distribution network Indirect regional network The network of telestores, the main business of which is the operation of a public telephony service approved by Maroc Telecom, also distributes prepaid fixed-line and mobile cards, and subscriptions for Fixed-line telecommunications. The network of retailers consists mainly of tobacconists, convenience stores, bookstores and other promoters of telecom and electronic products that have entered into agreements for the marketing of Maroc Telecom products and services. The indirect network reached more than 17,500 retail outlets licensed by Maroc Telecom in Agreements are made with each telestore, which permits a wide-reaching distribution network and allows distribution on a local level. Compensation to telestore owners consists of commissions on the products and services sold. Nationwide indirect network The diversification of distribution channels has been completed by association agreements on a nationwide basis with channels such as Sapress (the nationwide leader in the distribution of press and books), barid Al-Maghrib (Morocco s post office, which provides subscription, sale and invoice collection services), the Régie des Tabacs and the Marjane and Aswak Assalam, both large-scale retailers. Maroc Telecom accordingly has a licensed nationwide indirect distribution network accounting for more than 23,500 additional retail outlets. Independent network In 2006, Maroc Telecom signed agreements with three new distributors, in addition to GSM Al-Maghrib. In March 2006, Maroc Telecom sold its 35% stake in the distributor GSM Al-Maghrib, but is still linked to the company by distribution agreements. 74

77 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES Distribution agreements As of December 31, 2006, Maroc Telecom had signed distribution agreements with the following companies: Company Nature of the business Date of the association Maroc Telecom products distributed agreement GSM Al-Maghrib Distribution of telecom products 11/2003 Prepaid mobile and fixed-line cards Mobile, fixed-line and internet subscriptions Electronic phone card recharging Barid Al-Maghrib Morocco s post office 06/2003 Prepaid mobile and fixed-line cards Fixed-line subscription Cofarma Marjane hypermarkets 10/2002 Prepaid mobile and fixed-line cards and Acima supermarkets Fixed-line subscription Mahatta Gas stations 07/2002 Prepaid fixed-line and mobile cards (Total Maroc group) Régie des Tabacs Manufacturer and distributor of 11/2003 Prepaid fixed-line and mobile cards tobacco products in Morocco Promo Presse Press distributor 03/2003 Prepaid fixed-line and mobile cards (Sapress group) ICA Data Systems Distributor of computer 11/2002 Fixed-line and mobile electronic recharging and telecoms products Canal Market Monetics; distributor of electronic 11/2002 Fixed-line and mobile electronic recharging recharging Aswak Assalam Supermarkets 05/2003 Mobile packages, SIM card only deals and prepaid rechargeable phone cards Sicotel Distribution of telecom products 11/2006 Prepaid mobile and fixed-line cards Mobile, Fixed-line and Internet subscriptions Lineatec Distribution of telecom products 11/2006 Prepaid mobile and fixed-line cards Mobile, Fixed-line and Internet subscriptions 75

78 4.4.5 Marketing, communication and sponsorship As the largest advertiser in Morocco, Maroc Telecom has a significant communication and marketing budget covering its mobile, fixed-line, business and Internet services, and both internal and corporate communication. The reorganization of Maroc Telecom in 2006 also involved the Group s Communications department as new entities were created responsible for communications regarding products and services within the Consumer and business Marketing Departments, and a Corporate communication entity which reports to the Director of Regulations, Communication and International Development. The Products Communication entities are responsible for communications for consumer products and services and business customers. Corporate communication is responsible for communications linked to Maroc Telecom s corporate image, sponsorship events, while guaranteeing the consistency of group s communication strategy, the group logo and visual brand identity. Maroc Telecom also has a Financial Communication entity which is responsible for ensuring compliance with the group s financial communication policy as defined by Management, regulatory obligations in terms of financial disclosure in Morocco and France and to organize investor and financial analyst events. Products communication Product communication involves advertising the launch of new offers by means of above- and below-the-line media advertising campaigns. Maroc Telecom uses co-branding operations with handset suppliers to promote both the latter's brands and the Maroc Telecom brand. During 2006, the main theme of Mobile communication was a series of new campaigns for prepaid offers using well known Moroccan actors, which strengthened cultural ties with our customers. A vast program of promotional offers for both prepaid (Unlimited Evenings, Week-ends, Daytime, ) and postpaid offers (cascade promotions, Fidelio, business Class ), also supported the Mobile communication campaigns. Fixed-line communication in 2006 was marked by the launch of TV via ADSL, a real event which makes Maroc Telecom a pioneer in Africa and throughout the Arabic world. The launch of the new unlimited Fixed-line formulas Phony (Evening and Weekend or Anytime) was also a major event saw the general acceptance of Internet at Maroc Telecom, illustrated by the Internet in the home theme. As the price is a key factor in convincing customers to subscribe to Internet, communication was based around promotional offers and price-cutting campaigns. At the same time, several campaigns aimed at business customers focused on the introduction of new bandwidths (2 and 4 Mb, 8 and 20 Mb) to meet their requirements with an extended product range. Finally, the new Menara Sponsor offer supported by a campaign demonstrated the company s aim to build customer loyalty. Maroc Telecom also uses direct marketing campaigns with its clients via clubs (the El Manzil club), newsletters and magazines (Generation El Manzil and Mobimag, e-jawal, Mobinews) and Internet portals ( and ww.menara.ma). Advertising aimed at businesses in 2006 used press and billboard campaigns for the year s main offers but direct marketing was also a key communication tool (the Company s monthly newsletter) and other sales support material (brochures; animations, roadshows and customer seminars). Internal and corporate communication Maroc Telecom benefits from excellent spontaneous brand awareness among the public. Positioning the Group s product brands with respect to the Maroc Telecom parent brand was amongst the major tasks for 2005 in order to develop a coherent brand structure with a real unity between the parent brand and the product brands. Maroc Telecom launched its new visual identity on January 16, 2006 with emphasis placed on simplicity and legibility and positioning the Maroc Telecom brand in its true place as an umbrella brand grouping together all the activities while maintaining the specific universe for each product. The Maroc Telecom colors were kept but refined to give a brighter image with greater impact. The rest of the logotype was simplified for better legibility: the parabola became an arc, a symbol of movement, and momentum but also of proximity, the zelliges tiles were reduced, embracing the curve of the globe and representing international development. The two languages, Arabic and French, were used in two separate versions. This new simpler brand architecture accompanies the new logo giving the parent brand its full strength by harmonizing all visual supports and using the new visual identity on buildings, at points of sale and on vehicles. 76

79 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES business ACTIVITIES Sponsorship Maroc Telecom is active in 4 domains: sport, environment, culture and community action. Sport: Maroc Telecom s aim is to discover and train young Moroccan talent both locally and nationally. Official partner of the Fédération Royale Marocaine de Football and the Groupement National de Football and official partner of national athletics via the Fédération Royale Marocaine d Athlétisme, Maroc Telecom is also active in other sports (golf, horse riding, tennis, jet skiing ). In 2006 the 4 th Hassan II Golf Trophy was organized. Environment: Maroc Telecom is also strongly involved in protecting the environment with projects like Clean beaches carried out under the auspices of the Mohamed V Foundation for Environmental Protection. The Company helped clean 12 beaches in and around Tangiers, and was awarded the trophy for innovation for the original wooden equipment set up on the beach in Achakar. Thanks to Maroc Telecom, this beach was awarded the internationally renowned blue Flag. Culture: Maroc Telecom is very involved in cultural events supporting festivals (Festival de la Culture Amazigh in Tangiers, Festival of Sacred Music in Fes, Raï Festival, International Film Festival in Tangiers ). It also supports national artists, particularly young artists, by organizing concerts during the summer and promoting their music. As regards community and humanitarian actions, Maroc Telecom is active via the Maroc Telecom Association for Entrepreneurship which awards grants to young entrepreneurs and to students from modest backgrounds. Maroc Telecom also supports foundations and charities such as the Mohamed V Foundation for Solidarity. Maroc Telecom organizes concerts in partnership with equipment manufacturers (Elissa, Tina Arena, Natasha St Pier ) which are an opportunity to meet its Gold customers and to communicate about the event with the targeted populations (Young people, VIPs ). Internal communication In 2006 internal communication was reorganized and transferred to Human Resources Department. The internal communication department organized Maroc Telecom s 7 th management convention and regularly issues internal communication tools (Hot news, Itissal and Wissal). It also accompanies projects launched by other departments such as EAP, MassaRH, quality policy, information security. Financial communication In 2006, Maroc Telecom complied with all its financial disclosure obligations in Morocco and France, had several meetings with analysts and investors and organized roadshows in Europe and in the US to present its annual and interim results. Furthermore, Maroc Telecom s financial communication was rewarded along with five other companies listed on the Casablanca Stock Exchange in 2006 by the SMAF trophy (Moroccan Society of Financial Analysts) for Financial Communication which is a tribute to the quality of Maroc Telecom s financial communication. 77

80 4.5 COMPETITION As of December 31, 2006, 18 licenses for telecommunications operators had been awarded in Morocco: three licenses for the operator of a public fixed-line telecommunications network (Maroc Telecom, Meditel and Maroc Connect), two 2G mobile licenses (Maroc Telecom and Meditel), three 3G mobile licenses (Maroc Telecom, Meditel and Maroc Connect), five licenses for operators of GMPCS-type satellite telecommunications networks, three licenses for operators of VSAT-type satellite telecommunications networks, and two licenses for operators of shared radio-electronic networks (3RP). In 2005, the liberalization process for the fixed-line market continued and two fixed-line telecommunications licenses were awarded: A fixed-line license including local loop (without restricted mobility) and national and international transmission was awarded to Meditel in July A fixed-line license including local loop (with restricted mobility) and national and international transmission was awarded to Maroc Connect in September In July 2006, three mobile licenses for 3G (UMTS) networks were awarded to Maroc Telecom, Maroc Connect and Meditel. The ANRT stated that this process represented the final stage in the liberalization of the telecommunications sector in Morocco as set out in by the Prime Minister in a note setting out general guidelines for the period Mobile telecommunications In the mobile sector, Maroc Telecom has a direct competitor in Medi Telecom ( Meditel ), the holder of a mobile license since August The majority of Meditel s stock is held by the Telefonica and Portugal Telecom groups (32.18% each). The minority interests are held by the bmce bank group and the Holdco group (which is more than 75%-owned by the Caisse des Dépôts et de Gestion), with interests of 18.06% and 17.59% of the stock, respectively (Source: Medi Telecom and CDG). The Moroccan market for mobile telecommunications had more than 16 million GSM customers as of December 31, This market is mainly prepaid, with more than 95.68% prepaid customers. In terms of market share, Maroc Telecom had at that date 66.9% of the overall market as compared to 33.1% for Meditel (or 5.3 million customers) (Source: ANRT). As of Dec. 31, 2006 Status Market share (as % of number of customers) Mobile prepaid Open competition Maroc Telecom : 67.2% Meditel : 32.8% Mobile postpaid Open competition Maroc Telecom : 59.4% Meditel : 40.6% Total Mobile Maroc Telecom : 66.9% Meditel : 33.1% (Source : ANRT) This market is characterized by very strong seasonality during the summer period, which sees a significant increase in operation, due mainly to the arrival for vacations of large numbers of Moroccans living abroad. In the prepaid services market, mobile operators organize frequent promotions, which has led to a fall in the prices. In parallel, they have granted a high level of subsidies for handsets, contributing to sustained growth of the market. In postpaid services market, the operators distinguish themselves on prices and the specific features of their offers. Maroc Telecom has a broad range of rate plans tailored to the customer s needs, whether individual or business customers. Maroc Telecom s brand enjoys a very high recognition, for postpaid as well as for prepaid services (Jawal). Maroc Telecom is also known for its expertise thanks to the performance and quality of its network (Source: survey conducted by Sofres). Maroc Telecom has the following competitive strengths: Maroc Telecom covers almost the entire Moroccan population (Maroc Telecom estimate); Maroc Telecom relies on a dense and localized distribution network of more than 41,000 licensed retail outlets; As early as January 2000, Maroc Telecom launched loyalty building offers. Starting in April 2002, Maroc Telecom innovated on the market with a points-based loyalty system, Fidelio ; The two operators are distinguished by their methods of compensating resellers: Maroc Telecom compensates resellers for sales, Meditel also compensates for calls (air time). 78

81 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES COMPETITION Accordingly, in order to enable its customers to enjoy the most recent innovations, Maroc Telecom acts as a pioneer by regularly introducing the latest technologies, such as WAP in 2000 or GPRS in The table below lists the years mobile technologies were launched on the market by the two operators: Maroc Telecom Meditel WAP SMS Info GPRS MMS Roaming MMS & GPRS Push mail Push to talk Meditel is developing a competitive policy on the business market through an offer of GSM gateways known as Lobox. That offer indirectly creates competition for Maroc Telecom s customers not only for mobiles but also for Fixedline services. The ANRT has permitted marketing of the Loboxes while nonetheless prohibiting operators from subsidizing them or from establishing specific offers connected with their use (ruling ANRT/DG/N.01/04 dated January 22, 2004 relating to the use of GSM gateways). Maroc Telecom believes that this phenomenon affected 10% of the fixed-line-to-mobile traffic of its business customer base in Meditel is acting aggressively with respect to subsidies for new customers and spends heavily on marketing and communication. In addition, in 2006 Meditel launched Tilifoundialdar, a residential telephony offer operating on their GSM network. According to information published in the press, the customer base for this offer totaled 100,000 at the end of Fixed-line telecommunications Two new fixed-line telecommunications licenses were awarded in July and September As of December 31, 2006, the recipients of these licenses had still not started operating fully. Operations are likely to start in Maroc Telecom currently faces competition in the public telephony and business segments of the fixed-line telecommunications market. Public telephone market The public telephone market is estimated by Maroc Telecom at over MAD3.9 billion annually (base 2004). Until 2003, Maroc Telecom had a monopoly. Competition started in 2004 with two new entrants: Meditel, which, since spring of 2004, has deployed telestores using a GSM technology, and Globalstar, deploying telestores using a satellite technology. The Thuraya satellite operator also announced in September 2004 its forthcoming entry to the market pursuant to the execution of an association agreement with the Moroccan company Quickphone. Thuraya will, like Globalstar, offer public telephony based on satellite technology. Maroc Telecom currently has no information on the launch of a public telephone offer by these two operators. In December 2006, Maroc Telecom s share of the public telephony market was estimated at around 90% as a percentage of the number of lines. business fixed-line telephone market Meditel, by installing Lo-box GSM gateways, has entered the market for business fixed-line telecommunications. Installation of this hardware at the PAbX outlet allows conversion of the fixed-line-to-mobile traffic into mobile-tomobile traffic without going through Maroc Telecom s fixed-line network (also see the discussion of the ruling ANRT/DG/N.01/04 above). In 2006, Méditel launched several offers and services for businesses: NéoFixe offering attractive prices for calls to domestic Fixed-line numbers and a flat price for calls to Meditel and Maroc Telecom mobile numbers; a range of pricing options offering reduced price per minute depending on the destination and the company s usage profile (Shared rate plans, intra company Option Advantages and Intra company+, ); international minutes for off-shore call centers (various rate plans depending on the call centers monthly consumption of minutes). At the end of 2006, Maroc Telecom considered that these offers only had a limited impact on its position on the market. Interconnection of incoming international traffic Since April 2006, when the decrees on the Fixed-line licenses granted to Medi Telecom and Wana were published, the three operators who were granted a Fixed-line license are entitled to offer international operators termination of their traffic to Morocco, regardless of the end destination of the calls. 79

82 4.5.3 Data transmission As of December 31, 2006, competition for data transmission services remained fairly limited, despite the fact that the two new fixed-line operators had launched products and services for businesses. It consisted of the following four forms: competition from ISPs with VPN IP services, such as those offered by Maroc Connect, which became Wana in The service offered is VPN IP based on the ISP IP network for interconnection of sites on a domestic and international basis. At the end of 2006 Wana unveiled its data transmission services for businesses; operators of VSAT satellite telecommunications networks, such as Space Com S.A., Gulfsat Maghreb and Cimecom S.A. On the domestic market, the service is suited to remote locations where Maroc Telecom is not present. Maroc Telecom may, however, meet its customers requirements by means of customized offers such as wireless service. The VSAT operators provide the call centers with international leased lines; the international operator Equant, which provides international connectivity services to major customers. Maroc Telecom considers that Equant offers services to approximately 20 airlines formerly customers of the SITA network, and to approximately 25 businesses. This competition remains limited since the entire traffic of Equant s customers is carried through a leased line with a total capacity of 2 Mbps; Meditel s data transmission services, in particular the international connectivity service, including a specially designed service aimed at call center customers, and a VPN IP service of up to 2Mega; the independent networks deployed by certain major customers, which have opted to build their own data networks and use radio solutions in particular. This competition is not significant. The table below summarizes the market situation as of December 31, 2006: Status of the market Market shares of Maroc Telecom Domestic data Competition from : transmission services - VSAT operators Not available - Private networks (radio solutions) - Meditel - Wana International data Competition from : > 90% transmission services - Equant (value*) - VSAT operators - Meditel - Wana * in terms of revenues as of December 31, 2006 Maroc Telecom' estimation Internet The main competitor on the market for Internet access services is Wana, present on the consumer and business markets, with an overall market share of less than 3% as of December 31, 2006 (Source: ANRT). Maroc Telecom has a very strong position on the ADSL market, a market segment which is growing rapidly, with a market share of more than 98% (Source: ANRT). The following table sets out the market situation (Source: ANRT) as of December 31, 2006 excluding non-subscription based offers: Status of the market Market shares (in % of access number) Narrowband access Full competition Maroc Telecom : 72% (excluding "Accès libre") Other ISP : 28% Broadband access Full competition Maroc Telecom : 98% (ADSL and leased lines) Other ISP : 2% 80

83 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES RESEARCH AND DEVELOPMENT 4.6 RESEARCH AND DEVELOPMENT Maroc Telecom has a research and development department which works on the Company s products. This research usually leads to the launch of new products and/or services or transformations and/or improvements of existing products, even though such work may not be considered as patentable inventions or processes. Maroc Telecom research and development costs are not significant. 81

84 4.7 SEASONALITY The summer months, with the return of Moroccans living abroad, and the fortnight preceding the Id al-adha holiday (January 12 in 2006) traditionally see sustained business (primarily mobile and fixed-line public telephony), while the month of Ramadan (from September 24 to October 24 in 2006) is a low point of consumption for both the fixedline and mobile businesses. 82

85 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES REGULATORY ENVIRONMENT AND POSSIbLE DEPENDENCIES 4.8 REGULATORY ENVIRONMENT AND POSSIbLE DEPENDENCIES General presentation of the legal environment with respect to telecommunications in Morocco This chapter summarizes the legal environment with respect to the telecommunications business in Morocco and does not describe it in a comprehensive manner. It cannot be determined with certainty whether recent and future changes in legislation and regulations will have material adverse effects upon Maroc Telecom. It is also impossible to determine with certainty whether domestic or international regulatory agencies or third parties will challenge Maroc Telecom s compliance with the legislation and regulations in force The legal environment with respect to telecommunications in Morocco General presentation The Moroccan Telecommunications Act stresses the strategic nature, in both economic and social terms, of this sector. The objectives of this Act are to favor the development of telecommunications infrastructure in order to secure a highquality service for the entire population throughout the country, and to favor the development of new information technology. For the economy of Morocco, the objective is to offer businesses telecommunications services which will allow them to increase their competitiveness and will strengthen the role of Morocco as a regional platform in the area of telecommunications. The reform of the Moroccan telecommunications sector was initiated by Act 24-96, dated August 7, 1997 (Act 24-96), which dissolved the Office National des Postes et Télécommunications (ONPT) and laid down the conditions for liberalization of the telecommunications sector. Prior to Act 24-96, the Government of the Kingdom of Morocco had already liberalized the market for Internet access, allowing the development of ISPs. The dissolution of the ONPT led to the creation of three separate legal entities: Itissalat Al-Maghrib (Maroc Telecom), a corporation organized under private law (société anonyme); barid Al Maghrib (the post office, or bam), a public agency organized as a financially independent legal entity; and the Moroccan telecommunications regulator ( ANRT ), the principal mission of which is regulation of the telecommunications sector. Most of the powers previously reserved for the minister in charge of telecommunications were accordingly transferred to the ANRT. The liberalization process continued with the adoption of a series of implementing decrees concerning mainly the operation of the ANRT, the terms applicable to an open telecommunications network, the list of value-added services which operators may provide, interconnection, and the general terms of operation of the public telephony networks. In 2001, Decree determined the conditions of the State s supervision of the ANRT s accounts and created a panel of expert advisers for such a purpose. In 2004, Act amended and supplemented by Act completed the liberalization process initiated in 1997, in particular through the clarification of the existing statutory framework. The operators contribution to universal service and to local development was reduced from 6% to 2% of revenues, excluding tax and net of interconnection costs. Act also allowed for access to alternative infrastructure (motorways, railroads, etc.) and permitted the sharing of existing telecommunications infrastructure (see Universal Service and Rights of way ). Finally, the ANRT s powers were reinforced (see Mission of ANRT ). In 2004, the ANRT published general guidelines on the liberalization of the telecommunications sector over the period These guidelines are intended to specify the conditions under which liberalization will occur over the coming years and, in particular (i) the specific actions which will have to be undertaken in matters of regulation and (ii) the liberalization strategy which, in the long term, aims to establish competition between three operators (including those operators already in place) in all segments of the fixed-line and mobile markets. In 2005, the decrees concerning interconnection and the general terms of operation of the public telephony networks were amended and supplemented, respectively by Decree no and Decree no dated July 13, A new Decree no dated July 13, 2005, relating to ANRT s new powers of monitoring compliance with the law on the freedom of pricing and competition, was adopted. These three decrees were published in the Official Moroccan Gazette (bulletin Officiel) no.5336 dated July 21, On December 23, 2005 the ANRT s board of Directors made the following decisions: 83

86 to launch an invitation to tender to grant 3G mobile licenses on May 2, 2006; to implement regulatory controls according to the following timetable; Carrier pre-selection on July 8, 2006; Partial local loop unbundling on January 8, 2007; Full local loop unbundling: July 8, In 2006, the ANRT set the agenda for the portability of numbers as follows: Portability of mobile numbers by January 1, 2007 at the latest; Portability of fixed-line numbers by March 31, 2007 at the latest. Lastly, the legal framework has also been supplemented by a number of decisions made by ANRT, on both a general and an individual basis, both for the purposes of regulating the sector and for settling disputes between operators. Rules applicable to the establishment and operation of telecommunications networks and services in Morocco Act 24-96, as supplemented by Act 55-01, implements different rules according to the nature of the telecommunications networks and services provided. Networks and services subject to a license General description The establishment and operation of public telephony networks using the public domain or using the radio frequency spectrum requires a license. A license may be issued only in response to an invitation to tender. Invitations to tender are issued by the ANRT. Contract specifications define, among other items: the conditions for the establishment of the network; the conditions for the provision of the service; the area of coverage of that service and the schedule for completion; the radioelectric frequencies and numbering blocks allocated; the terms of payment of the license fee; the duration of the license s validity and the conditions of its renewal; and the terms of payment of the consideration. The conditions for access and interconnection with public telephony networks and, if applicable, the conditions for leasing elements of that network, are specified in the documents accompanying the invitation to tender. The applicant whose bid is deemed to be the most favorable, as indicated by an opinion issued by the ANRT, is awarded the contract. The award is entered in a public report. Notice of the issuance of a license is by decree of the Prime Minister provided within no more than two months, and grounds are to be stated for any refusal of a license. Licenses awarded are personal and may be assigned to a third party only pursuant to a decree. In addition to complying with the contract specifications, the holder of the license is also required to comply with all applicable statutory and regulatory rules in force, including in particular: (i) the general conditions of operation, (ii) the conditions of provision of an open telecommunications network and (iii) the conditions of interconnection among networks. The general conditions of operation of public telephony networks are defined by Decree , as amended and supplemented by Decree no dated July 13, That Decree establishes certain obligations, relating in particular to competition (the principle of fair competition), pricing (the principle of equal treatment among users, nondiscrimination, compliance with maximum charges and the method of invoicing), cost accounting, confidentiality and neutrality of service. In addition, the operators are bound to contribute to certain general needs of the State. In particular, they are bound to contribute to local development, environmental protection, research and training in the area of telecommunications and the requirements and burdens of universal service (see Universal service ). The conditions of interconnection and the supply of leased lines are defined by Decrees as amended and supplemented by Decree no dated July 13, 2005 and , dated February 25, 1998 (see Interconnection-General background ). As regards radioelectric frequencies, Decree , dated February 25, 1998, delegating authority with respect to the determination of fees for the allocation of radioelectric frequencies, provides that the fees are to be set by an order of the minister in charge of telecommunications after obtaining an opinion from the minister of finance. Order , dated February 25, 1998, as amended by Order , dated February 4, 2004, provides that three fees are payable: the charge for monitoring radio-communication stations, the fee for the allocation of radioelectric frequencies and the duty for the inspection of operators of radio-communication stations. Decree no dated July 13, 2005 sets out the ANRT s monitoring procedure regarding disputes, anti-competitive practices and economic concentration, taking into account in particular ANRT s new powers of monitoring compliance with the law on the freedom of pricing and competition. 84

87 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES REGULATORY ENVIRONMENT AND POSSIbLE DEPENDENCIES Legal status of Maroc Telecom Pursuant to Act 24-96, the telecommunications networks and services previously operated by the ONPT, namely fixed-line telecommunications network and services, mobile telecommunications network and services and the right to use the radioelectric frequencies allocated or assigned to the ONPT, were transferred to Maroc Telecom. because of its position as the incumbent operator, Maroc Telecom is subject to specific contract specifications approved by Decree , dated October 9, 2000, which define the conditions for the operation of all the networks and services initially operated by the ONPT. These contract specifications specify the conditions in accordance with which Maroc Telecom is to establish and operate, for an unlimited duration: a) fixed landline telecommunications services (including data transmission services, leased lines and the integrated services digital network), on a local and nationwide basis; b) telegraph services; c) telex services; d) maritime radiocommunications services; e) mobile telecommunications services using the GSM standard; f) mobile telecommunications services using the NMT standard; g) radio paging services; and h) international telecommunications services. Since the promulgation of Act 55-01, Maroc Telecom s contract specifications have now been adapted accordingly. Thus, for instance, the provisions relating to periods of exclusivity have been removed, while those relating to universal service and local development have been modified, and those regarding the sharing of infrastructures have been added. It should be noted that mobile telecommunications services using the NMT standard were discontinued after the grant of permission by the ANRT, and that Maroc Telecom has applied to the latter for permission to discontinue the provision of telex services, for which terminals are no longer manufactured. Maroc Telecom s services are to be provided on a permanent and continuous basis, in an objective, transparent and nondiscriminatory manner. The Company is accordingly required to avoid any price discrimination based on geographical location. Maroc Telecom agrees to use its best efforts to achieve levels of quality of service in line with international standards. In this respect, the ANRT may perform inspections of Maroc Telecom, and the Company is required to provide an annual report relating to the quality of its services. Since the promulgation of Act no , the contribution to the universal service represents 2% of total revenues, and Maroc Telecom is allowed to offset these amounts with its own universal service costs (for the fixed-line business), thus generalizing the pay or play principle (see 4.14 Risk factors). It should be noted that Maroc Telecom provides telephone services throughout the entire territory of Morocco, including in unprofitable areas and to unprofitable customers. A special fund was created by the 2005 budget into which the universal service contributions are paid (see section Significant accounting policies and estimates Contribution to universal service). Pursuant to the terms of Act 55-01, the parameters of the universal service requirement will encompass the local development obligations and the amount of the overall contribution is set at a maximum of 2% of pre-tax revenues, and net of interconnection costs. Maroc Telecom s contract specifications have been revised accordingly (see Universal service ). Maroc Telecom pays a fee to the ANRT for use of the spectrum of radioelectric frequencies, in an amount set by regulation. Other licenses awarded Maroc Telecom s contract specifications provided for a period of exclusivity until December 31, 2002 for the operation of a fixed-line network and a public network of international telecommunications. Likewise, they provided that no license for operation of the land-based cellular telecommunications network using the GSM network could be awarded before August 5, 2003 (other than the license already granted to Méditel). As regards mobile telecommunications, pursuant to an invitation to tender issued by the ANRT, a GSM-type license was awarded on August 2, 1999 to Méditel for a term of 15 years, subject to extension. Early 2005, the term of this license has been extended to 25 years. In 1999 and late 2002, ten licenses for the establishment and operation of telecommunications networks were awarded in Morocco. Apart from the license awarded to Méditel, five licenses were issued to operators to operate GMPCS satellite telecommunications networks, three licenses were issued to operators to operate VSAT satellite telecommunications networks, and two licenses were issued to operators to operate trunked radioelectric networks (3RP) in Morocco. In 2005, two fixed-line telecommunications licenses were awarded: A fixed-line license including local loop (without restricted mobility) and domestic and international transmission was granted, to Meditel in July 2005; A fixed-line license including local loop (with restricted mobility) and domestic and international transmission was granted to Maroc Connect (ISP) in September

88 In 2006, three 3G mobile licenses were awarded to the three existing operators (Maroc Telecom, Meditel and Maroc Connect). Since the VSAT operators contract specifications have been modified, they may now provide telephony services in accordance with the conditions to be set out by the ANRT. The regulator has not yet determined the terms governing such services. Networks and services requiring licenses The establishment and operation of any independent network, other than an internal network, requires a license. Independent networks are telecommunications networks without commercial purposes, reserved solely for private use (i.e., where use is reserved for the party establishing it) or shared use (i.e., where use is reserved for the exchange of internal communications among a single group of companies). The license is issued by the ANRT and is subject to the payment of fees. Notice of the allocation of a license is provided within no more than two months, and grounds are to be stated for any denial of a license. One of the requirements for issuance of the license is that the network does not interfere with the operation of existing networks. In addition, the ANRT sets the terms on which independent networks may be connected to a public telephone network, without in any event allowing the exchange of communications among parties other than those for whom use of the network is reserved. Services subject to reporting The provision of value-added services is unrestricted, subject to the provision of prior notice to the ANRT. The list of valueadded services is determined by regulations adopted by the ANRT. Decree , dated February 25, 1998, defines the following as value-added services: electronic messaging, voice mail, audiotext, electronic data interchange, enhanced fax, on-line information, access to data (including data processing and searches), file transfer, conversion of protocols and coding and the provision of Internet service. This list may be amended or supplemented by an order of the minister in charge of telecommunications at the ANRT s discretion. The ANRT acknowledges receipt of the notice if the proposed services comply with the legislation in force. If, pursuant to provision of the service, it appears that the latter has a material adverse effect on public security or order, or is in breach of public morality, the competent authorities may cancel their permission immediately. Providers of value-added services are required to obtain a license to use the connection capacities of one or more public telephony networks, unless the value-added service provider is itself the holder of a license. Act provides that such capacity is to be used solely to link customers to a point of presence and between the point of presence and the network of the public telephony network operator, subject the ANRT s grant of special permission to a value-added service provider to use any other technical means. Unrestricted networks and facilities The ANRT permits the establishment of internal networks and radioelectric facilities consisting solely of low-powered and short-range devices without restriction. However, such networks and radioelectric facilities are subject to the same requirements applicable to the approval of devices (regarding the protection of the safety of users and operating staff, compatibility, etc.). The ANRT also determines the technical conditions of use of such networks and facilities. The establishment of a telecommunications network by a commercial concern consisting of several legal entities is also unrestricted, provided that all such entities are located within the territory of Morocco. If not, the permit procedure needs to be observed. The use of the network is to be reserved for the concern s own purposes, and the network s infrastructure must be entirely leased from one or more licensed operators of a public telephony network. Legislation with respect to pricing Theoretically, telecom operators are free to set their own rates, with the exception of interconnection charges and leased line tariffs which are controlled by ANRT. Maroc Telecom offers interconnection and leased lines and as such its rates for these activities are controlled by the ANRT. Interconnection General background Interconnection is governed by the telecommunications statute and more specifically by Decree , as amended and supplemented by decree no dated July 13, 2005, which defines the technical and pricing conditions that operators of public telephony networks are required to offer for interconnection to their own networks. Any operator of a public telephony network is required to grant requests for interconnection made by a holder of a license to operate a public telephony network with reasonable regard to the requirements of the applicant and the operator s capacities. The interconnection is to be subject to a contract between the operators, intended to determine the technical, administrative and financial terms of the interconnection, in compliance with the principles of objectivity, full disclosure and non-discrimination. If a disagreement occurs between the parties at the time of negotiation of the agreement, either party may refer the matter to the ANRT. 86

89 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES REGULATORY ENVIRONMENT AND POSSIbLE DEPENDENCIES Dominant operators Specific interconnection obligations are imposed upon operators designated by ANRT as exercising a significant influence on a given market. An operator is considered to exercise a significant influence, if, either individually or in conjunction with another, it enjoys a dominant position enabling it to behave independently with respect to its competitors, clients and consumers. Under Decree no , as amended and supplemented by decree no dated July 13, 2005, operators exercising a significant influence on a given market are required to publish technical and pricing terms for interconnection, once they have been approved by the ANRT. The pricing terms must cover only the actual costs of use of the network and related costs. For such purpose, the presentation of pricing terms must be sufficiently detailed to allow a precise determination of the relevant costs, and the ANRT is in charge of determining the appropriate accounting methods. Maroc Telecom is accordingly required to offer pricing terms that comply with the principles of objectivity, full disclosure and non-discrimination, and which approximate its costs. As of 2006, interconnection charges are to be calculated using the Long Run Average Incremental Costs method in compliance with an ANRT decision dated September 1, 2005 which defined the rules for adopting the Long Run Average Incremental Costs method to set interconnection charges for In addition, Ruling 06/04, dated May 24, 2004, specified the procedure for approval of the technical and pricing terms for interconnection. The operator is required to forward to the ANRT, on or before October 1 of each year, a schedule of interconnection pricing terms valid from January 1 to December 31 of the following year. After a consultation procedure, the ANRT may request that the operator revise its pricing terms to satisfy the principles of objectivity, full disclosure, non-discrimination and costbased pricing. The operator is bound to comply with the ANRT s request. In the event of disagreement, the ANRT s director settles the matter, provided that in all cases, the terms are to be approved by the ANRT on or before December 20 of each year. Since January 1, 2007, the interconnection charges to the Mobile network are calculated based on historical costs, in accordance with the ANRT decision of May 9, 2006 which determined the list of mobile network operators charges for Maroc Telecom was designated (decision no.03/06 dated April 17, 2006) as an operator exercising a significant influence on the following markets for 2007: Fixed-line termination; Mobile termination; Leased lines. Médi Telecom was designated in the same decision as an operator exercising a significant influence on the mobile termination market for On January 29, 2007, the ANRT approved Maroc Telecom s technical and pricing terms for interconnection to Fixed-line networks for These offers take account of the fact that Maroc Telecom was designated as exercising a significant influence on the above mentioned markets. The table below sets out the operators domestic interconnection charges to Fixed-line networks as applicable on January 1, 2007 (at peak time, whilst a 50% reduction is applied off-peak): In MAD (excluding tax)/minute Maroc Telecom Meditel Maroc Connect Fixed-line termination Local CAA : Single tariff : Single tariff : Single Transit : Double Transit : Limited mobility termination (Source : ANRT) between Meditel and IAM the international interconnection charges have been fixed at: MAD1 excluding tax/min at anytime for termination charges to Fixed-lines (January 2006) MAD excluding tax/min at anytime for termination charges to Mobiles (December 2004). For Maroc Connect, international interconnection charges are the same as domestic interconnection charges. 87

90 Leased lines Decree , dated February 25, 1998, relating to the conditions for the provision of an open telecommunications network sets the pricing and technical conditions for the provision of leased lines as well as quality (i.e., the time for provision of service and time for repair after a failure has been reported). The ANRT regulates leased lines, which operators of public telecommunications networks are required to provide. This list may be supplemented, after consultation with the operator concerned, by a mandate that further services be provided. Each operator offering leased lines is required to publish the technical terms of provision in its price catalog, including in particular the principles and terms of indemnification. The price catalog is to be determined on the basis of an operator s costs. The determination of relevant costs is carried out by the operator and monitored by the ANRT. Maroc Telecom is under an obligation to comply with requests for leased lines and is bound to offer an equivalent alternative solution if it is unable to comply with the request. Maroc Telecom has a right to lease transmission capacity of its fixed-line network to other operators offering capacityleasing services. Pricing Decree , as amended and supplemented by decree no dated July 13, 2005, provides that the prices for connection, subscription and calls comply with the principle of equal treatment among users and be determined so as to avoid discrimination based on geographic location. In the latter respect, it is only in the event of exceptional difficulty in installing a line that operators are permitted to provide special prices and terms for lines in their catalogs. As regards pricing, the decree provides only that the services are to be provided on the best economic terms. Maroc Telecom s contract specifications confirm that it maintains this pricing discretion for all the services offered to its subscribers. Maroc Telecom may grant cuts according to volume and establish its own marketing policy. Maroc Telecom is bound to publish its prices and the general terms of its offers for each service. Any price change is to be notified to the ANRT, which may object if the change does not comply with the rules of fair competition or the principles of uniform domestic pricing. Finally, users invoices must provide them with full disclosure. One exception from the principle of freedom of pricing is that the prices applicable to services included in the operator s provision of universal service may not become effective without the ANRT s consent. In addition, Maroc Telecom s prices for maritime radiocommunication services are to be cost-based (and free for safety messages, such as distress and emergency calls). Universal Service Universal service obligations cover telecommunications services including: a telephone service of a specified quality at an affordable price; value-added services, the contents and performance standards of which are set in the contract specifications of operators of public telephony networks (including services allowing access to the Internet); the routing of emergency calls, and the provision of an enquiries service and a telephone directory, in printed or electronic form. Act no instituted the pay or play principle and set the contribution required of public telephony network operators with respect to their universal service obligations at 2% of pretax revenues and net of interconnection charges, handset sales and income from value added services. The operators may accordingly either perform the universal service duties themselves, or pay a contribution into a special allocation fund. Only the routing of emergency calls and the provision of an enquiries service and a telephone directory, in printed or electronic form, are services to be performed by the operators on a mandatory basis. The terms of performance of the universal service duties are set, for each operator, in special specifications approved by decree. Particular licenses may be issued, after invitations to tender, for the performance of universal service duties. Special contract specifications will be approved by decree and will set the terms of implementation of the universal service function and of certain value-added services. If an invitation to tender for the award of such a license is unsuccessful, the State will appoint an operator of a public telephony network, holding a market share of 20% or more of a particular telecommunications service, to perform the universal service function concerned. According to its current contract specifications, Maroc Telecom is required to provide a service of emergency calls allowing transmission of a telephone call to a public emergency service agency free of charge. It must also provide a telephone directory of its subscribers to each of them, free of charge. Installation, operation and maintenance of call boxes on the public highway must also be provided. Any removal of a call box requires consent from the ANRT. A free service of maritime radio-communications must be offered to carry safety messages at sea. A two-way service of telecommunications for messages between ships at sea and any termination point of the public networks is also to be provided. These services are to be charged at the lowest possible cost and subject to a specified quality standard. Maroc Telecom may discontinue the operation of that service on more flexible terms than for the call box service. A telegraph and telex service is also to be provided. For 2007, ANRT s executive committee which is responsible for approving the universal service programs proposed by the 88

91 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES REGULATORY ENVIRONMENT AND POSSIbLE DEPENDENCIES operators in accordance with the applicable regulatory provisions (the pay or play principle), delivered its opinion on November 22, 2006 on the universal service program proposed by Maroc Telecom. The universal service executive committee only approved part of Maroc Telecom s universal service program for 2007 for Mobile and ADSL service, for the sum of MAD188 million. Contribution to research, training and standardization in telecommunications Act sets the required contribution from operators of public telephony networks in respect of training and standardization at 0.75% of revenues excluding tax, net of the costs of interconnection, of the telecommunications activities covered by their licenses. This amount is paid to the ANRT. The contribution in respect of research is set at 0.25% of the same revenues. This amount is to be paid into a special fund allocated to research. Operators carrying out research programs pursuant to agreements made with research agencies listed by the regulation in an equivalent amount are exempt from the payment requirement. Rights of way Act introduces a provision whereby legal entities organized under public law, public contractors and the other operators of public telephony networks must make their property (e.g., easements, major roads, conduits, high points, etc.) available to operators so requesting for the purpose of the installation and operation of transmission equipment. Compliance is mandatory only if the installation does not interfere with the existing public use. It is to be provided on acceptable, objective and nondiscriminatory regulatory, technical and financial terms, securing an environment of fair competition. The purpose of this provision is to allow operators to make use of the infrastructure currently at the disposal of entities such as the Office National de l Electricité, the Office National des Chemins de Fer (railroads), Autoroutes du Maroc (highways) or other operators of public infrastructure networks. The contracts must be forwarded to the ANRT for its information and the latter may resolve any related disputes. In addition, the operators of alternative infrastructure networks (public or private entities) may lease or assign to an operator the excess capacity at their disposal and/or rights of way over the public domain. The leasing agreement must be forwarded to the ANRT for its information, and may not interfere with the rights of way that other operators are entitled to obtain. Numbering and portability of numbers The ANRT allocates numbers, blocks of numbers and prefixes to the operators of public telephone networks on terms which must be objective, transparent and non-discriminatory. These numbers, blocks of numbers and prefixes may not be transferred without express prior consent from the ANRT. Act provides that the conditions for portability of numbers are to be set by the ANRT. Preselection Pre-selection of the carrier (i.e., of the operator carrying the call on the domestic and international network, as opposed to the local loop network), is scheduled to be in operation 12 months after the award of licenses, according to the ANRT (see the note setting out general guidelines for the liberalization of the telecommunications sector over the period , i.e. July 8, 2006). Unbundling of the local loop Act does not specify the terms for unbundling of the local loop. Under the current schedule, partial unbundling is expected to be implemented in 18 months, followed by complete unbundling three years after the award of licenses, according to the ANRT. On January 17, 2007, the ANRT approved the technical aspects and pricing of the partial unbundling offer. Accounting separation In accordance with decree no as amended and supplemented by decree no dated July 13, 2005, and with decree no as amended and supplemented by decree no dated July 13, 2005, operators are required to keep cost accounts allowing a determination of their costs, proceeds and earnings connected with each network they operate or service they offer. Maroc Telecom s contract specifications require that it distinguish in separate sets of accounts for the following activities: interconnection, fixed-line telecommunications, telegraph, telex, maritime radio-communications, Internet access, GSM, NMT, RM, and international telecommunications. The annual financial statements are to be submitted for auditing to an entity designated by the ANRT. The Moroccan Telecommunications Regulatory Authority Autorité Nationale de Réglementation des Télécommunciations (ANRT) Act created the ANRT as a public agency subject to the authority of the Prime Minister. It is a separate legal entity that is financially independent and subject to the State s financial supervision and direction. 89

92 Agencies of the ANRT Decrees and , dated February 25, 1998, specified the membership of the ANRT s board of Governors and its powers. The governing bodies of the ANRT are the board of Governors, the Executive Committee and the Director. The board of Governors consists, in addition to its Chairman, of seven representatives of the State having ministerial rank and five individuals appointed by decree for terms of five years. It is chaired by the Prime Minister and sets the ANRT s general policies and its annual agenda. An Executive Committee assists the board of Governors, and is in charge in particular of resolving disputes relating to interconnection. The Director of the ANRT is its executive agency. Challenges on the basis of misuse of powers against the ANRT s rulings are referred to the Rabat Administrative Court. Mission of the ANRT The mission of the ANRT is to develop the legal environment for the telecommunications sector, to monitor and secure compliance with the legislation relating to fair competition among the operators, and to resolve certain disputes. The ANRT drafts proposals for the development of legal, economic and safety rules relating to telecommunications activities. Towards this end, it prepares legislative bills, draft decrees and draft ministerial orders. The ANRT prepares and updates the contract specifications for operators of public telephony networks. The ANRT processes applications for licenses and establishes maximum charges for services relating to universal service needs. The ANRT sets the technical and administrative specifications for the approval of terminal equipment and radioelectric facilities, and the technical rules applicable to telecommunications networks and services generally. The ANRT manages and monitors the spectrum of radioelectric frequencies, and allocates these frequencies. Pursuant to its responsibility to monitor compliance with relevant legislation, the ANRT has expansive rights to obtain information, as well as disciplinary powers. The ANRT may conduct enquiries relating to telecommunications operators in order to ascertain whether they comply with their obligations. The information in the ANRT s possession is forwarded to the appropriate government authority and may be publicly disclosed, unless it is considered to be confidential or commercially sensitive. If such information is not provided or is provided late, Act enables the ANRT s Director to impose fines (the scale of penalties ranges from MAD to MAD , according to the information withheld). Any operator failing to comply with the requirements laid down by statute, regulation or contract specifications incurs certain penalties. First, the ANRT s Director issues a warning. Second, the operator incurs a fine not exceeding 1% of its revenue, excluding tax and net of interconnection costs, as reported the previous year. In such cases, the ANRT s Director refers the matter to the King s Prosecutor at the Rabat Court of First Instance in order to initiate criminal proceedings, and may bring a related civil action. Such fine is doubled if the operator is a repeat offender (i.e., it has been convicted within the previous five years by an irrevocable decision for the same offense). Third, the ANRT may suspend all or part of the operator s license for a term not exceeding 30 days, temporarily suspend the license or reduce its duration by up to one year, or revoke the license. Suspension of the license is ordered by the appropriate governmental agency upon a proposal from the ANRT s Director, and revocation is ordered by decree upon a proposal from the ANRT s Director. Finally, in the event of offenses against national defense or public safety, the ANRT s Director may, by a reasoned ruling and after informing the appropriate governmental agency, promptly suspend the license, permit or operation of value-added services. In addition, the equipment covered by the license, permit or operation may be impounded immediately. Furthermore, parties who, among other offenses, establish or provide a telecommunications service without a license or in breach of a suspension or revocation may be punished by penalties of imprisonment and fines. Such criminal penalties, however, are outside the scope of the ANRT s powers. The ANRT s remit includes the resolution of disputes occurring among operators, or between an operator and a user, as well as the resolutions of problems connected with the general operating conditions of a license. The executive committee has authority to resolve disputes with respect to interconnection and other matters for which it has received a delegation of authority from the board of Governors. It should be noted that Act has extended the scope of the ANRT s powers with respect to litigation to cover compliance with the provisions relating to competition contained in Act 6-99 regarding freedom of pricing and competition. The ANRT prepares the procedures for the award of licenses by invitation to tender, processes license applications and receives prior notifications for activities subject to the reporting system. It issues permits and prepares the related licenses and contract specifications. It also monitors the operators compliance with the terms of their licenses. 90

93 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES REGULATORY ENVIRONMENT AND POSSIbLE DEPENDENCIES Dispute settlement In 2006, the ANRT gave its judgment on a dispute between Maroc Telecom and Maroc Connect: Decision No.05/06 of ANRT s Executive Committee (27/07/2006) relating to the dispute between Itissalat Al-Maghrib (IAM) and Maroc Connect regarding interconnection charges This decision is available on the ANRT website ( Dependencies As a service provider, Maroc Telecom is not directly involved in any industrial process. The elements of its network infrastructure, and the handsets and SIM cards that it sells to its clients, are purchased from different suppliers so as not to create any form of dependency. 91

94 4.9 HUMAN RESOURCES Modernization of human resources management Considering that the richness of its staff s talents will enable it to sustain the pace of its growth, Maroc Telecom initiated in 2001 a plan for the modernization of its human resources. In order to pursue its development and to mobilize its human resources, Maroc Telecom has decided to promote a human resources policy based on performance recognition and the improvement of skills. The HR department has created innovative tools and programs enabling Maroc Telecom to meet its challenges. The main modernization initiatives have been as follows : A collective labor agreement, signed by Maroc Telecom and its labor unions on November 16, It sets out the guidelines of an HR policy suited to the Company s strategy and provides a single management framework for all of the Company s employees. A job classification system, which lists all the occupations within Maroc Telecom, and gives a description of each employee s tasks and responsibilities. A new appraisal system, based on an annual interview. Since 2003, each employee has an interview with his/her manager to assess the employee s performance over the past year and to determine the objectives for the coming year, which the employee commits to. An efficient HR information system, which has made the human resources management much more flexible, provided a reliable information base and helped in defining and implementing HR development programs. A skills management tool that provides Maroc Telecom with a standard with which to appraise each employee s skills and to set up personal development plans suited to the Company s strategy. A certification of the HR management process, which confirms the implementation of programs and processes aimed at constantly improving the quality of the company s services, in particular by using human resources to the best advantage of Maroc Telecom s strategy. A new mobility policy to promote career advancement, which takes into account both the employees desires and skills and the Company s requirements. At present, all employees are informed of job vacancies within the Group and can apply for these jobs. A support program has been set up to encourage mobility and to help employees settle into their new job. A training policy tailored to the Company s strategic needs, focused on developing employee skills. In 2006, our training sessions were systematically appraised and new learning methods were used to improve their efficiency. Other projects: Compensation policy. The Group has switched from a structured pay scale to a new system of individual compensation which aims to compensate employees for their contribution to the Company s success. In 2006, the Group took a closer look at its sales force aiming to increase professionalism to provide better customer service. More than half of sales staff underwent an individual evaluation carried out by an external consultant mainly assessing their professional and behavioral skills. This initiative helped optimize the redeployment of staff and training programs in order to meet Maroc Telecom s sales requirements. Management of key executives and high-potential individuals. Once again, this relies on assessing resources, defining personal development programs and determining succession plans Staff 42% of Maroc Telecom s staff is under the age of 40, which contributes to the Company s internal vitality. Maroc Telecom, which calls upon varied skills at a high level (engineers, sales staff, marketing staff, financiers, etc.), is one of the companies hiring the largest number of new graduates in Morocco. 92

95 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES HUMAN RESOURCES Staff turnover rate The rate of staff turnover (i.e., the ratio of staff having left at year-end to the staff at the beginning of the fiscal year) was 1.43% in 2006 compared with 8.4%* in 2005 and 0.75% in * The increase in staff turnover was due to the implementation of a new voluntary redundancy plan in Changes in the number of employees The table below shows the changes in the number of employees at Maroc Telecom for the past three fiscal years ended December 31, 2004, 2005 and 2006: At the end of 2006, in an aim to constantly improve performance, Maroc Telecom launched a fourth incentivebased voluntary departure plan with improved conditions compared with previous plans. Number of employees at the end of the period 12,204* 11,178 11,212 * See Note 19 of consolidated financial statements Staff of the Vivendi group The staff numbers mentioned in the table above also include the expatriate staff of the Vivendi group operating with Maroc Telecom pursuant to a service contract and on fixed-term contracts. The number of expatriate staff was 27 in 2004, 26 in 2005 and 17 in Training Training is considered an essential investment in Maroc Telecom s future. It is part of an overall effort to develop and adapt the Company s human resources to its requirements. This is reflected in 35,149 days of training provided to 22,399 participants, representing an average of nearly 3 days per employee Evolution of staff compensation The gross compensation granted to Maroc Telecom s staff consists of both a fixed and a variable component. The amount of the variable component (performance bonus) is set individually according to each employee s achievement of targets. The evolution of payroll costs over the past three fiscal years is as follows: in millions of MAD Payroll costs Maroc Telecom 1,604 1,946 1,958 Payroll costs Maroc Telecom Group 1,688 2,056 2,060 93

96 4.9.8 Labor relations Employer-staff communication The telecommunications sector has been characterized by continuous communication between employers and labor unions. This dialogue has been enhanced by the presence of well-structured and representative labor unions. In order to comply with the new provisions of the Labor Code, in 2006 Maroc Telecom held elections for employees representatives within the works council and regional health and safety committees. Elections were also held to set up the social welfare association. Labor unions There are six labor unions within Maroc Telecom: Syndicat National des Postes et Télécommunications (SNPT), affiliated with the Confédération Démocratique de Travail (CDT) Union Syndicale des Telecom (UST), affiliated to the Union Marocaine de Travail (UMT) Syndicat Autonome des Telecom (SAT) Syndicat National des Postes et Télécommunications (SNPT), affiliated with the Fédération Démocratique de Travail (FDT) Fédération Nationale des Postes et Télécommunications, affiliated with the Union Marocaine de Travail (UMT) Fédération Marocaine des Postes et Télécommunications, affiliated with the Union Nationale de Travail au Maroc (UNTM) It should be noted that the UST, SAT and FMPT were established after the creation of Maroc Telecom. Union representativeness The latest elections, organized in September 2003, in accordance with the labor legislation in force, allowed the election of employees representatives. The elected candidates were divided as follows: SNPT (CDT) : 48.8% UST (UMT) : 38.1% Indépendants : 7.1% FNPT (UMT) : 4.8% SAT : 1.2% SNPT (FDT) : 0% (did not take part in the election of employees representatives) FMPT : 0% (did not exist at the time of the elections) In accordance with the provisions of the Labor Code, the leading two labor unions are the most representative unions within the Company. The labor constituencies within Maroc Telecom, after consultation of the unions, consist of eight representative establishments and three bodies of employees. Professional elections have been held through two separate electoral processes and have resulted in the appointment, on the one hand, of staff appointees on the joint administrative commissions, and on the other hand, of staff representatives. 47% of eligible voters took part in the election of staff appointees and 75% in the election of staff representatives. The results achieved show the dominance of the SNPT (affiliated to the CDT), followed by the UST (affiliated to the UMT) in the two aforementioned electoral processes Agreements and negotiations between 2004 and 2006 five company agreements were signed with the unions. The two agreements signed in July and December 2006 mainly cover the levels of certain employee benefits and other advantages, and salary increases. 94

97 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES HUMAN RESOURCES Employee benefits In addition to statutory welfare benefits (including in particular pension, mutual insurance, coverage for occupational hazards and occupational diseases), Maroc Telecom s staff enjoys a number of welfare benefits, including in particular the benefits listed below: Supplementary pension. In addition to the basic scheme provided by the various agencies (CMR, RCAR and CNSS), the employees may join a supplementary pension scheme, taken out with the Caisse Interprofessionnelle Marocaine de Retraite (CIMR). The contributions amount to 7.50% of the salaries of those participating. Maroc Telecom contributes 50% of these payments. 7,179 employees have taken advantage of these supplementary pension benefits as of December 31, Supplementary healthcare insurance. Employees may take out supplementary healthcare insurance providing 100% reimbursement of the medical expenses incurred for themselves and their dependents. The costs of membership of the supplementary healthcare insurance are assumed jointly by Maroc Telecom and the insured party, in equal shares. The premium rate amounts to 1.2%, excluding tax of the gross salary. 8,422 employees have applied for the supplementary insurance as of December 31, Life insurance. Active employees and pensioners up to the age of 70 are provided with life insurance in an amount of MAD100,000. An optional additional bracket potentially up to MAD900,000 is open to those employees wishing to subscribe. The cost of that bracket is assumed by the employee entirely, and the amount of the contribution is computed in the basis of a levy of 0.35% of the insured capital. Property loans. An employee in a permanent position is eligible for loans for the acquisition or construction of housing from banks that have entered into agreements with Maroc Telecom. The amount of the loan is set according to the employee s ability to repay, provided that the loan period may not exceed 18 years. Transport allowance. To encourage employees to acquire their own vehicle, an allowance of between MAD2,000 and MAD5,000 is granted for employees who purchase a motorbike or a car. Summer vacation centers. For their leisure, employees are eligible, at prices negotiated and subsidized by Maroc Telecom, to use the firm s residential vacation centers. In order to strengthen the existing scheme and to expand the programs it can offer its employees while securing attractive value for money, Maroc Telecom enters into agreements with tourism promoters every year. Medical and community activities. Employees and their families may obtain health care from a network of medical and community centers staffed by 20 contracted physicians, including three specialists. In 2006, 4,093 people benefited from the medical services provided by these centers. Occupational health. In addition to medical treatment, Maroc Telecom has also set up preventative health measures which aim to prevent any deterioration in its employees health due to their work. These measures include: ensuring general hygiene in the workplace, protecting employees from the risk of occupational hazards, improving working conditions (ergonomic work techniques, the elimination of hazardous products and the risk of contagion). Pensions. The pensions of the Company s employees are maintained by three external pension funds, according to the origin of the employees: CMR for the staff from the Ministry of PTT, RCAR for the staff from the ONPT, and CNSS for the staff hired by Maroc Telecom. These pension funds provide payment of the employees pensions, in consideration of the contributions withheld (employer and employee s share) and paid monthly by Maroc Telecom. 95

98 4.10 REAL PROPERTY For the purposes of development of its networks and for its commercial, support and administrative functions, Maroc Telecom makes use of more than 5,300 sites (buildings, land, etc.), spread out over the entire territory of Morocco, including around 80% leased locations and 20% owned for accounting purposes by Maroc Telecom. The sites owned by Maroc Telecom were historically owned by the Kingdom of Morocco and were legally transferred to Maroc Telecom at the time of its incorporation in 1998, in compliance with Act no via a contribution in kind. Maroc Telecom is currently in the process of obtaining formal legal title to these sites. Administrative proceedings are expected to be completed in This timetable is given as an indication, since the length of administrative procedures may vary. As of December 31, 2005, the 1,150 sites owned by Maroc Telecom can be broken down as follows: 42% of the sites are legally owned by Maroc Telecom, which has legal title to them. 37% of sites are under requisition. Requisition is a claim to a property right. It is delivered by the land registrar once the application for land registration has been made. It becomes a title deed once regulatory administrative formalities have been completed, i.e. publication of application for land registration, boundary marking, notification of requisition and finally registration. This procedure is subject to regulatory time limits. 21% of sites are in the process of being formally registered, around 17 of which are owned by the ONPT and 70 are subject to legal disputes. These sites include buildings that belong to several presumed owners and where ownership is contentious, certain pieces of land for which there is lack of evidence of ownership, land owned by local authorities and subject to several oppositions, and land subject to compulsory purchase by Maroc Telecom. The estimated costs linked to these procedures (payment of land registration fees) and/or the potential financial risks likely to arise from any contentious issue over the legal title of ownership are deemed to be not significant. The Company s Statutory auditors have noted this matter in their unqualified audit reports on the consolidated financial statements and in the notes thereto since 1998 reserving their opinion due to failure to inform shareholders mainly in the Additional Disclosures section. This reserve takes the form of an observation in the certified Consolidated Financial Statements as the notes to the Consolidated Financial Statements mention the situation (see note 4 on Property, plant and equipment). In connection with any transfer of ownership of real or personal property allocated to charitable works falling within the private domain of the State to the Company which should be made in the form of a remunerated contribution through an increase in the share capital in favor of the Government of the Kingdom of Morocco, the latter has undertaken to reconvey to Vivendi, simultaneously with the increase in capital and at no cost, a percentage of the shares issued at the time of this increase in capital equal to the percentage of the capital of the Company held by Vivendi prior to the realization of these assets. 96

99 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES INTELLECTUAL PROPERTY 4.11 INTELLECTUAL PROPERTY As of December 31, 2006, Maroc Telecom owned some 639 trademarks and trade names, 4 patents and one industrial model and one industrial design registered with the Moroccan Office for Industrial and Commercial Property (OMPIC). Itissalat Al-Maghrib, Maroc Telecom, Jawal, El Manzil, Kalimat, Menara, Fidelio, Les pages jaunes de Maroc Telecom, Maghribcom and Mouzdaouij Solutionentreprises and Phony are among the main trademarks and trade names owned by the group in Morocco. The first patent, registered in 1997, is related to the complete execution, with a prototype, of an NDT (Digital Transmission Terminal device). This device is used to connect customers to Maroc Telecom s Marnis integrated service digital network, and was the method used to carry a digital connection to each customer. The second patent, registered in 1999, regards complete execution, with a prototype, of a remote display device through a radio paging network named RAKKAS. This wireless device allows the display of banking, stock exchange or other information at any location covered by the RAKKAS radio messaging network. The third patent, registered in 2006, covers an automatic cooling system which provides a back up system in the event of a failure in the air conditioning system in the areas which house the energy and telecommunications equipment. The fourth patent, registered in 2006, covers an automatic line identification system which automatically detects all the pair cables connected to telecommunications access network equipment. The design model registered in 2002 mentions the implementation of a new design for the shelters of call boxes to be installed in public locations. This design model was developed for the Moroccan market and takes account of, among other factors, mechanical, electrical, electromagnetic (electric sparking, radiation, storms) and sound constraints in order to provide the user with comfortable and entirely safe use of the public call box. This shelter has now been extensively deployed by Maroc Telecom. The industrial design registered in 2006 covers the drawing of the person on the cover of the Guidelines for the Security of Information manual. The brands and trade names currently owned by Maroc Telecom, of which there are 639, are protected over the entire national territory. For the 284 trade names registered before January 5, 2005, the protection period is 20 years (renewable indefinitely) from the date of their registration. in accordance with Act no which came into force on that date, concerning the protection of industrial and intellectual property rights. For the 355 registered subsequently, the protection period is 10 years. In 2006, Maroc Telecom was awarded the national trophy by the OMPIC, for having registered the greatest number of national brands in 2005 (241 brands). Maroc Telecom is careful to take any action either necessary or desirable in order to protect the trademarks, the patents and the design model that it has developed. Maroc Telecom has a research and development department which works on the Company s products. This research usually leads to the launch of new products and/or services or transformations or improvements of existing products, even though such work may not be considered as patentable inventions or processes. These improvements made to protected inventions may be registered for protection by means of an instrument known as an additional patent, the formalities for the registration of which are identical to those for the principal patent. Maroc Telecom has launched among its employees an innovation contest intended to reward the best ideas or projects, with possible benefits for the Company in terms of the registration of patents, trademarks or design models. The rights to use the trademarks and trade names granted to Maroc Telecom are described in the service agreements made with its contractors. Some contracts for the sale of services or products from Maroc Telecom s Mobile business and Fixedline and Internet business confer on retailers a right to use Maroc Telecom s trademarks during the term of performance of the agreement, in accordance with the procedure agreed between the parties. On November 25, 2004, Maroc Telecom purchased the Maroc Telecom trademark and domain names which had been filed in France by a third party. In 2006, Maroc Telecom extended the protection of 33 of its brands abroad (France, benelux, Germany, Spain, Portugal, Italy, Algeria, European Union), including the Mobisud brand. 97

100 4.12 INSURANCE Over the past four years, Maroc Telecom has instituted a program to improve its risk management, including the following measures: estimating and assessing potential risks; identifying those risks likely to affect the Company s employees, property or its performance; determining a more suitable property risk coverage plan, which has been assessed and updated by insurance experts; optimizing the cost of cover for such risks; covering the remaining risks through insurance policies; setting up claims notification and claims management procedures; setting up prevention and protection measures against risks of fire and explosion for the largest sites. Maroc Telecom accordingly took out, in May 2003, a liability insurance policy, to cover personal injury, property damage and intangible damage caused to third parties in the course of its operation. In June 2003, it also took out an insurance policy securing the indemnification relating to compensation for occupational accidents and diseases. Maroc Telecom has supplemented and reinforced this system by taking out an insurance policy for property damage and operating losses commencing on July 1, In addition to extending the limits of coverage to risks of operating losses, the policy has also raised the contractual indemnification limits in order to secure continued operation and to avoid any material loss. Maroc Telecom s insurance costs amounted to MAD21.9 million in 2006 compared with MAD31.5 million in 2005 and MAD13.9 million in Maroc Telecom s main insurance policies to date are the following : Property damage and business interruption: the coverage afforded to the company is capped at MAD200 million per casualty, whether relating to damage or to operating losses. In 2005, to improve risk coverage, Maroc Telecom took out a new All risks except policy with Property Damage and business interruption with increased cover compared to Maroc Telecom now has a total cumulative contractual loss limit of MAD850 million instead of MAD200 million in the previous policy. Third-party liability (operation and after delivery) policy: cover is limited to between MAD5 million and MAD7 million depending on the nature of the loss. In addition to this insurance policy, since 2005 Maroc Telecom has also initiated a program to improve protection against fire and explosion risks at the sites most at risk. As regards the security of data and uninterrupted data processing operations, Maroc Telecom currently has a backup computer center. 98

101 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES LEGAL AND ARbITRATION PROCEEDINGS 4.13 LEGAL AND ARbITRATION PROCEEDINGS To the Company s knowledge, there are no pending or potential government, legal or arbitration proceedings, including proceedings of which the Company has knowledge, that may have or have had in the past 12 months, a significant effect on the Company and on the group s financial position, profits, business and property, with the exception of the following litigation: In a ruling dated December 28, 2004, the Commercial Court of Rabat declared that the application of the National Federation of Phone Shop Associations was not within its jurisdiction. The Federation then brought a writ before Commercial Court of Rabat, demanding the withdrawal of all authorizations delivered by Maroc Telecom to new phone shop operators that do not respect the chaining rule imposing a minimum distance of 200 meters between each phone shop. The Court of First Instance, in a ruling dated April 6, 2005, (non-enforceable) ordered Maroc Telecom to reverse its decision to abandon the 200 meter chaining principle and to withdraw the authorizations that had been granted that did not respect the chaining rule. This judgment was accompanied by a penalty of MAD500/day for nonexecution. On June 27, 2005, Maroc Telecom appealed against this judgment before the Commercial Court of Appeal of Casablanca. In its ruling on May 9, 2006, the Court of Appeal partly accepted Maroc Telecom s applications, annulling the first instance judgment as regards the order to withdraw the authorizations but upheld the judgment as regards the requirement for Maroc Telecom to reverse its decision to abandon the 200 meter chaining principle and ordered the company not to grant any new authorizations that did not comply with the chaining rule subject to a penalty of MAD500 /day for non-execution. The Company considers that the claims made by the Federation are not legally founded, and appealed to the Maroc Telecom Supreme Court on July 21, 2006, seeking the annulment of the Court of Appeal s judgment. As the Federation had also appealed to the Supreme Court, Maroc Telecom applied for the two procedures to be joined together. This application was considered by the Court at a hearing on 14/02/2007 which referred the case to the Chief Court Clerk for further inquiry. This procedure is currently ongoing. To date Maroc Telecom has received 50 individual applications before the Commercial Court of Rabat from phone shops who each claim MAD50,000 in interim damages and a legal expertise to determine the final amount of damages. These applications are based on the above mentioned judgment and the Court of Appeal s decision. During the first quarter of 2007, 28 of these cases were dismissed and in another case the applicant withdrew the claim. The other cases are still before the court. The Company claims that the chaining rule is contrary to competition rules as other operators are not subject to this rule. The Company does not intend to revoke its decision to put an end to chaining, as it considers that the claims made by the Federation are not legally founded. In October 2006, Meditel applied to the ANRT claiming that Maroc Telecom uses anti-competitive practices after Maroc Telecom introduced the unlimited Fixed-to-Fixed offers. On February 23, 2007, ANRT delivered its decision on this case (see section Phony case ). 99

102 4.14 RISK FACTORS In addition to the other information contained in this Registration Document, investors should carefully consider the risks described below before deciding to invest in the Company s shares. If one or more of such risks were to occur, the activities, financial position, earnings and development of the Company could be affected Risks relating to the company s business Maroc Telecom s revenues and earnings are dependent to a significant extent on the Moroccan economy. Maroc Telecom s core business is the provision of telecommunications services in Morocco, the provision of international telecommunications services to and from Morocco. Accordingly, Maroc Telecom s revenues and profitability depend to a significant extent on telecommunications spending by Moroccan customers and international telephone traffic to and from Morocco. The evolution of usage of telecommunications services in Morocco reflects, in part, the evolution of the country s economic position, and more specifically, the population s disposable income and its businesses economic activity. A contraction or slower-than-expected growth of the Moroccan economy could have a negative impact on the development of the customer base and the usage rate of fixed-line and mobile telecommunications services in Morocco, which could have a material effect on the growth and profitability of Maroc Telecom s activities, and possibly entail a decline in its revenues and earnings. In this context, the perception of possible acts of terrorism, whether committed in Morocco or abroad, could significantly affect the Moroccan economy in general (in particular through a decrease in tourism business). As regards this risk, which is not specific to Morocco, Maroc Telecom cannot forecast the consequences of the perception, informed or otherwise, of such possible acts of terrorism. Maroc Telecom faces an intensification of competition on the Moroccan market for telecommunications, which could lead to a loss of market share and a reduction in Maroc Telecom s revenues. Three licensed operators are currently present on the Moroccan market for mobile and fixed-line telecommunications: Maroc Telecom and Meditel and Wana (previously Maroc Connect). On the mobile segment Maroc Telecom s market share was on a downward trend until 2005, and improved to 66.9% as at December 31, 2006 (Source: ANRT). Over the same period, the Company cut its prices and set up promotional offers (including customer subsidies) to anticipate and respond to competition. In 2006, ANRT granted 3G Mobile licenses to the existing operators (Maroc Telecom, Meditel and Wana). In the future, Maroc Telecom may be required to implement further price cuts and promotions to maintain its position on the market and anticipate competition on the 3G segment. In addition, the granting of two new licenses on the fixedline telecommunications market in 2005 could further increase competition on the market (see Risks relating to the regulatory environment below). The intensification of competition among the existing operators or with new entrants could result in a continued reduction in Maroc Telecom s market share, and in increased costs for customer acquisition and retention, which could lead to a reduction in Maroc Telecom s revenues and earnings (see Market trends and other factors affecting earnings ). 100

103 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES RISK FACTORS Maroc Telecom is dependent on the reliability of its information systems; damage to or loss of all or part of its systems could result in a loss of customers and a fall in revenues. Maroc Telecom can be paid for its services only insofar as it uses reliable information systems (including collection and invoicing systems), and succeeds in protecting and securing the continuity of such systems operation. Maroc Telecom has established a security policy for its information systems allowing it to deal with ordinary disturbances in computer operations (unauthorized access, power cuts, theft, hardware crash, etc.) and to secure uninterrupted service. Maroc Telecom now has a Recovery Plan for its critical information systems, which have a direct impact on its revenues, such as pricing data systems, and sales and billing information for three business lines Fixed-line, Mobile and Internet. An event entailing a destruction of all or part of its systems (such as an act of God, a fire or an act of vandalism) would automatically activate a back-up system. As the data on the critical information systems is regularly saved from the production platforms onto the back-up system, the risk of losing data and being unable to bill customers and recover outstanding invoices is now very limited. Maroc Telecom is dependent on the reliability of its telecommunications networks. A disturbance to such networks could result in a loss of customers and a fall in revenues. Maroc Telecom is able to provide services only insofar as it is able to protect its telecommunications networks from damage caused by disturbances, power cuts, computer viruses, acts of God and unauthorized access. Any disturbance to the system, accident or breach of security measures causing interruption in the Company s operations could affect its ability to provide services to its customers and have a material effect on its revenues and operating income. Such disturbances would also have a material effect in terms of image and reputation for the Company, which could lead to a loss of customers. In addition, the Company could be required to bear additional costs in order to repair the damage caused by such disturbances. Maroc Telecom s indirect distribution network could be weakened if Maroc Telecom does not succeed in maintaining it. Maroc Telecom has an extensive distribution network, with a direct network of branches, an indirect network consisting of telestores, retailers and partners, and an independent network (see business Distribution ). If Maroc Telecom were unable to maintain close relations or to renew its distribution agreements with the components of its indirect network, if its indirect distribution network were to be jeopardized for other reasons, in particular the actions of competitors, or if the managers of telestores failed to comply with the exclusive agreements made with Maroc Telecom by distributing products competing with those of Maroc Telecom, the distribution network could be weakened and the Company s business and earnings could be affected significantly. Continued and rapid changes in technology could intensify competition or require Maroc Telecom to make significant additional investments. Many services offered by Maroc Telecom involve intensive use of technology. The development of new technologies could cause some services of the Company to cease to be competitive. Maroc Telecom could fail to identify new opportunities in due time, and be required to make significant additional investments, in particular for the development of new products and services, or for the installation of infrastructure required to enable it to remain competitive. The new technologies in which the Company may choose to invest may affect its ability to achieve its strategic targets. Maroc Telecom could then lose customers, fail to succeed in attracting new customers, or be required to bear significant costs in order to maintain its customer base, which would have a negative effect on its business, revenue and earnings. 101

104 Alternative means of communication could result in a reduction of the usefulness or even in the obsolescence of the fixed-line network, which could lead to the loss of a competitive advantage and reduce the Company s revenues significantly. The Company has already had to deal with the substitution of fixed-line customers by mobile customers, which has been heightened by the use of alternative technologies. As an illustration, GSM gateway services are beginning to compete with Maroc Telecom s fixed-line voice services (see 4.5 Competition ). The Company s fixed-line telecommunications activities could be affected by the development of such gateways or other alternative means of communication. Such alternative technologies could jeopardize the usefulness of Maroc Telecom s infrastructure and fixed-line network, by enabling competitors to use mobile telecommunications services to compete with Maroc Telecom without having a fixed-line network. Maroc Telecom s infrastructure and extensive network would then become less useful or even obsolete, which would lead to the loss of a competitive advantage and could affect significantly the Company s revenues and earnings. Health risks, whether real or perceived, or other problems connected with mobile devices or their base stations, could result in less intensive use of mobile communications. Certain studies of mobile technology claim that the electromagnetic signals emitted by mobile devices and base stations involve health risks. Such risks, whether real or perceived, and the publicity they receive, together with any resulting legislation or litigation, could reduce the Company s base of mobile customers, make the establishment of new base stations and the maintenance of existing base stations more difficult, or incite customers to reduce their use of mobile telephones. Fraudulent diversion of traffic could limit the Company s revenues and affect its earnings. The Company first experienced a fraudulent diversion of its traffic in In response, Maroc Telecom has established a plan to combat that fraud. Maroc Telecom cannot forecast, however, whether new means of fraud will develop, the sectors that potential offenders will attack, nor the effects that any such fraud could have. If Maroc Telecom fails to prevent these fraudulent activities, it could see a reduction in its traffic in the sector affected by the fraud, and its revenues and earnings could thereby be affected. Maroc Telecom may carry out acquisitions of telecommunications companies or licenses. In order to extend its geographical presence, Maroc Telecom could acquire telecommunications companies or licenses in other countries. Such transactions necessarily involve risks. If Maroc Telecom does not achieve the results expected from such transactions, its business and earnings could be affected. In particular, Maroc Telecom could: carry out acquisitions on financial or commercial terms that were subsequently found to be unfavorable; incur difficulties in integrating the companies acquired, or their networks, products or services; fail to retain the key employees of the companies acquired or to recruit skilled personnel as may be required; fail to achieve the expected synergies or economies of scale; make investments in countries where the political, economic or legal situation involves particular risks, such as civil or military unrest, the absence of effective or comprehensive protection of shareholders rights, or disagreements with other major shareholders, including public authorities, relating to the management of the companies acquired; and fail to adapt to the specific features of the countries in which any such companies would be acquired. 102

105 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES RISK FACTORS Maroc Telecom could fail to retain its key employees or to hire highly skilled personnel, which could affect significantly the Company s activities and its ability to adapt to its environment. Maroc Telecom s performance is dependent to a significant extent on the abilities and services provided by its management team. The management team has significant experience and knowledge of the telecommunications industry. The loss of key members of management could have a significant adverse impact on Maroc Telecom s ability to implement its strategy. Maroc Telecom and its performance are also dependent on skilled personnel having the experience and technical or commercial abilities required for the development of its business. Maroc Telecom s ability to adapt its services, products and commercial offers, whether in the area of Fixed-line or mobile telecommunications, is highly dependent on the presence of competent and skilled teams in its various markets. Failure by Maroc Telecom to retain its key personnel, whether its management team or its commercial and technical executives, could affect the Company s business and its operating income could diminish substantially Risks relating to the regulatory environment The interpretation of existing legislation and the adoption of new statutory rules could affect Maroc Telecom s activities significantly. Legislation relating to the telecommunications industry in Morocco is currently evolving. Act 55-01, dated November 2004, could be interpreted in a manner that could affect Maroc Telecom s business significantly, and result in a reduction in its revenue and earnings. In addition, the introduction of (i) carrier pre-selection, (ii) unbundling, and (iii) number portability will necessarily favor the competition to Maroc Telecom s detriment. The increase in the number of players could weaken Maroc Telecom s position on the market for mobile telecommunications services. In 2005 and 2006, the ANRT granted a Fixed-line license with reduced mobility to Wana, and three 3G mobile licenses to Maroc Telecom, Meditel and Wana. Furthermore, the ANRT indicated that a third GSM license may be awarded in upcoming years. Nonetheless, after granting the 3G mobile licenses the ANRT stated that this process represented the final stage in the liberalization of the telecommunications sector in Morocco as set out in by the Prime Minister in a note setting out general guidelines for the period (see section 4.8 Regulatory Environment and Possible Dependencies ). It is possible, however, that the regulator s stance will change. The Company cannot forecast whether this process of liberalization of the mobile sector will evolve in a favorable manner. If such liberalization were to entail heightened competition on the market for mobile telecommunications in Morocco, Maroc Telecom could see its market share diminish and its customer acquisition and retention costs increase, which could result in a reduction in its revenues and earnings. Liberalization of the fixed-line market could restrict Maroc Telecom s market share and affect its profitability. Maroc Telecom operates in a fixed-line telecommunication market that has just been liberalized. Two new fixed-line licenses were awarded in 2005 for national, international and local loop services. Liberalization of the fixed-line market could reduce the base of existing or potential customers for Maroc Telecom, who may be attracted by the competition. In addition, the entry of new operators through the award of international licenses will entail heightened competition, which could result in a decrease in international rates. Accordingly, the liberalization of these markets may affect Maroc Telecom s revenue and earnings. Maroc Telecom could be affected by regulatory decisions enabling other operators to enter the telecommunications market on terms less onerous than those imposed on Maroc Telecom, and to have access to Maroc Telecom s network on favorable terms. An operator could provide telecommunications services without having to bear the same obligations as Maroc Telecom, while enjoying the benefit of the latter s infrastructure, thereby enabling it to target highly profitable markets, to the detriment of Maroc Telecom. 103

106 As a dominant operator on the fixed-line, voice and data networks, the Company is bound under Act to permit access to its network, which will enable competitors to provide their own services through the use of Maroc Telecom s network. Such operators may thereby target markets with comparatively high profitabilities, such as the businesses market, the urban areas or the international market, which could restrict the opportunities for Maroc Telecom to extend the number of its high-volume users, or divert its existing customers in such markets. Maroc Telecom could be affected by the ANRT s application of the legislation relating to competition. Under Act 55-01, the ANRT s duties will henceforth also include monitoring and ensuring the observance of fair competition among operators with regard to Act 6-99 relating to freedom of pricing and competition. The ANRT could accordingly rule on matters relating to the competitive environment of the telecommunications market. Maroc Telecom cannot forecast to what extent the ANRT s rulings in this area might affect its operations. Favorable interconnection costs for other operators could significantly affect the Company s future earnings. In order to provide services to its customers, Maroc Telecom is required to connect its network to that of any other operator holding a domestic license, and vice versa. The interconnection charges are approved by the ANRT. The Company cannot forecast whether the ANRT s policy with respect to the fixed-line and mobile interconnection charges will be favorable to it Tax risk Maroc Telecom could be unable to deduct certain allowances for doubtful accounts. The amount of bad debt for which Maroc Telecom has made a provision is deductible from its taxable base, subject to the presentation of evidence of legal action taken against the debtors. Maroc Telecom has not initiated such legal action against all the debtors for whom it has made a provision. If the deductibility of such provisions for doubtful receivables in an amount below a certain threshold were to be challenged, the Company s earnings and profit could be adversely affected Risks relating to the interests held by major shareholders in Maroc Telecom The Company could be influenced by Vivendi, whose interests may not always be consistent with those of the Company s other shareholders. Vivendi hold a majority of the stock and voting rights in the Company. Accordingly, Vivendi will retain control over the decisions requiring adoption by the shareholders acting by a simple majority of votes. The interests of Vivendi with respect to such matters and the factors that it will take into account when exercising its voting rights may not be consistent with those of the Company s other shareholders. 104

107 4. INFORMATION CONCERNING COMPANY BUSINESS ACTIVITIES RISK FACTORS Market risks In accordance with its cash management policy, Maroc Telecom does not invest in equities, in equity mutual funds or in derivatives. Maroc Telecom invests its cash with financial institutions either in sight deposits or term deposits. The counterparty exposure limits for each financial institution are approved by the Management board. For market risks (foreign exchange risks, interest rate risks, stock valuation risks and liquidity risks), see Disclosure of qualitative and quantitative information about market risks. 105

108 5 FINANCIAL REPORT 5.1 CONSOLIDATED FINANCIAL DATA FOR YEARS ENDED DECEMbER 31, 2004, 2005 AND 2006 Maroc Telecom s consolidated financial data is summarized in the table below. The financial data for the years ended December 31, 2004, 2005 and 2006 has been taken from the Group s consolidated financial statements, which were prepared in accordance with International Financial Reporting Standards (IFRS), audited by the statutory auditors Abdelaziz Almechatt, representative of Coopers and Lybrand Morocco, and by Samir Agoumi, correspondent of Salustro Reydel in Morocco. IFRS-compliant 2004 financial statements and the transition document were published by Maroc Telecom when it reported its consolidated financial statements for the six months ended June 30, The transition to IFRS had a limited impact on the group s financial statements at December 31, Financial data in Moroccan dirhams Income statement data (in millions of Moroccan dirhams) December 31, December 31, December 31, Consolidated revenues 22,615 20,542 17,408 Operating expenses 12,572 11,864 9,811 Operating income 10,043 8,678 7,597 Earnings from continuing operations 10,029 8,695 7,627 Earnings 6,833 5,921 5,228 Attributable to the equity holders of the parent 6,739 5,809 5,171 Earnings per share (in Moroccan dirhams) Diluted earnings per share (in Moroccan dirhams) Balance sheet data (in millions of Moroccan dirhams) December 31, December 31, December 31, ASSETS Non-current assets 18,095 14,788 14,021 Current assets 10,129 15,090 13,663 LIABILITIES Share capital 5,275 8,791 8,791 Equity attributable to equity holders of the parent 16,261 19,195 17,773 Minority interests Total equity 16,853 19,724 18,201 Non-current liabilities Current liabilities 11,147 9,890 8,602 TOTAL LIABILITIES AND EQUITY 28,224 29,878 27,

109 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL DATA FOR YEARS ENDED DECEMbER 31, 2004, 2005 AND Financial data in euros The company maintains its accounting records and prepares its financial statements in Moroccan dirhams. The aim of this section is to help investors make comparisons in euros. The table below sets out selected consolidated financial data for Maroc Telecom in euros, translated at the exchange rates used for Vivendi s consolidated financial position and earnings for the years ended December 31, 2004, 2005 and Income statement data (in millions of euros) Published December 31, December 31, December 31, Consolidated revenues 2,053 1,860 1,581 Operating expenses 1,141 1, Operating income Earnings from continuing operations Earnings Attributable to the equity holders of the parent Earnings per share (in euros) Diluted earnings per share (in euros) Balance sheet data (in millions of euros) December 31, December 31, December 31, ASSETS Non-current assets 1,624 1,358 1,251 Current assets 909 1,385 1,219 LIABILITIES Share capital Equity attributable to equity holders of the parent 1,459 1,762 1,586 Minority interests Total equity 1,512 1,811 1,624 Non-current liabilities Current liabilities 1, TOTAL LIABILITIES AND EQUITY 2,532 2,743 2,

110 The table below sets out the MAD/EUR exchange rates used for Vivendi s consolidated financial statements for the years ended December 31, 2004, 2005 and For 1 euro Jan Dec Dec Dec Period-end rate used for Balance Sheet Average rate used for Income Statement (Source : Vivendi Universal) The exchange rates above are provided for convenience only. The group does not claim that the amounts denominated in Moroccan dirhams were, could have been or could be converted into euros at such exchange rates or any other rate. For information relating to the impact of foreign exchange variations on the group s earnings, see section Disclosure of qualitative and quantitative information about market risks. 108

111 5. FINANCIAL REPORT GENERAL OVERVIEW 5.2 GENERAL OVERVIEW The discussion and analysis below are to be read together with this Annual Report as a whole including, in particular, the audited consolidated financial statements of Maroc Telecom for the years ended December 31, 2004, 2005 and The operational data included in Chapter 5.2 refer only to business activities in Morocco and do not take into account data reflecting Mauritel business (for further information about Mauritel, see Shareholdings Mauritel ) nor Mobisud business General presentation Maroc Telecom was created in 1998 as a result of a split of the Office National des Postes et Télécommunications and is Morocco s incumbent telecommunications operator. Maroc Telecom is the leading Moroccan operator and is present on the fixed-line and mobile telecommunications segments and Internet, a fast growing market. Maroc Telecom remains the domestic leader on these three segments. The Mobile business provides mobile telecommunication services (subscriptions, rate plans, prepaid phone cards and handsets) for individuals and businesses in Morocco (see Description of Operations Mobile business ). Mobile business has expanded rapidly and represents a growing share of Maroc Telecom s revenue, rising from almost 47% in 2004 (pro forma) to more than 54% in The Fixed-line and Internet business provides fixed-line telecommunications services, Internet services, TV via ADSL and data transmission services for residential and business customers in Morocco. It also provides public telephone services through its own network of public payphones, and through an independent network of phone shops. Its services also include interconnections with other domestic and international telecommunication operators (see Description of Operations Fixed-line and Internet business ). In addition, Maroc Telecom, together with a group of local investors, owns a 51.5% stake in the Mauritanian incumbent telecommunications operator, Mauritel. Through this shareholding Maroc Telecom provides telecommunications services in Mauritania. On December 28, 2006 Maroc Telecom also acquired a 51% stake in the burkinabe operator Onatel by means of an international invitation to tender, and a 51% stake in Gabon Telecom on February 9, Maroc Telecom launched Mobisud, an MVNO (Mobile Virtual Network Operator), on December 1, 2006 in France, in partnership with SFR and SAHAM Market trends and other factors affecting earnings As Maroc Telecom provides telecommunications services in Morocco, including international telecommunications services to and from Morocco, the revenues and earnings of Maroc Telecom are dependent to a significant extent on Moroccan consumers average telecommunications spending and, to a lesser extent, on the volume of international telephone traffic to Morocco. Trends in the consumption of telecommunications services in Morocco need to be considered against a backdrop of changes in the country s economy and, more specifically, in the Moroccan population s disposable income. From this point of view, the firm growth in Morocco s gross domestic product should be noted, i.e. 5.2% in 2003, 4.2% in 2004, 1.8% in 2005 and 8.1% in 2006 (Source: Morocco s Treasury and External Finances Department). Main factors determining revenues Maroc Telecom generates revenue primarily from sales of telecommunications services by the Mobile business and by the Fixed-line and Internet business and, to a lesser extent, from sales of products associated with those services, consisting mainly of handsets used by customers and subscribers (mobile and fixed telephones and multimedia devices). 109

112 Mobile business The Mobile business combines mobile telecommunications services (voice, data and roaming) and sales of mobile handsets. The revenues generated by the mobile telecommunications sector vary according to changes in the number of customers and Average Revenue Per User (ARPU). Those two factors were affected to a significant extent by the introduction of prepaid plans in 1999 and the liberalization of the market in 2000, with the award of a second license in August There will be further changes after three 3G licenses were granted in July (see 4.8 Regulatory Environment and Possible Dependencies ). In terms of Mobile customers, Maroc Telecom has benefited from the expansion of the market, as shown by a significant increase in the penetration rate. The penetration rate measures the ratio of users of mobile telecommunications services to Morocco s total population. It grew rapidly over the past six years, from 1.3% at December 31, 1999 to 53.5% at December 31, 2006 (Source: ANRT). The number of mobile users increased from 364,000 at the end of 1999 to 16 million at the end of December 2006 (Source: ANRT). The growth in the penetration rate was boosted by the launch of prepaid plans in 1999, allowing users to control their spending. At December 31, 2006, Maroc Telecom had a 66.9% share of the Moroccan mobile market compared with 66.7% at December 31, 2005 (Source: ANRT), with prepaid customers accounting for 96.2% of Maroc Telecom s mobile customers (Source: Maroc Telecom). Offers Mobile offers are described in detail in Chapter IV of this Registration Document. Tariffs Tariffs include access charges (subscription, prepaid phone cards, installation charges and the price of handsets) and usage charges. The entry of a second mobile operator into the Moroccan mobile telecommunications market has put downward pressure on prices, and prompted operators to adapt their product range. They initiate frequent promotional offers on both handset subsidies and usage charges. Maroc Telecom offsets the negative impact of these price cuts on ARPU by expanding its customer base and boosting usage. Traffic Incoming and outgoing mobile traffic grew rapidly, due to increases in the number of prepaid and postpaid customers. Average usage by postpaid subscribers (outgoing traffic) grew to 508 minutes per subscriber per month in 2006, and usage by prepaid customers amounted to 21 minutes per user per month for the same period. Morocco s tourism industry also plays a part in this development, generating a large flow of visitors (including Moroccans resident abroad), and providing a strong potential revenue stream from roaming services. In 2006, roaming accounted for more than 3.7% of mobile revenues, down compared with 2005 due to general price cuts in the sector. In order to capture most of this traffic, Maroc Telecom has entered into alliances with most foreign operators, and has signed preferential agreements with the largest among them. At December 31, 2006, Maroc Telecom had 413 roaming agreements for its postpaid customers with partner operators in 212 countries. Maroc Telecom also offers roaming to its prepaid customers with 76 operators in 48 countries, and for its GPRS and MMS services with 91 operators in 62 countries. ARPU Mobile ARPU corresponds to the revenue generated by incoming and outgoing calls and value-added services over a particular period (excluding roaming revenue), divided by the average number of customers over the same period and by the number of months in the period. The monthly average customer base is the average number of customers per month during the period. ARPU is influenced by several factors, including the price and volume of mobile telecommunications related traffic (incoming calls, outgoing calls and value-added services). ARPU fell from MAD122 in 2005 to MAD111 in This decrease was mainly due to the strong increase in the customer base and the reduction in call charges. These price cuts, which make Maroc Telecom more competitive, also favor an increase in consumption and customer base growth. Prepaid ARPU amounted to MAD87 at December 31, 2006 compared to MAD97 a year earlier, despite strong growth in the prepaid mobile customer base (+30.2% compared to 2005). Postpaid ARPU fell between 2005 and 2006, from MAD710 to MAD702 as a result of the acquisition of lower-use subscribers and the introduction of new rate plans and in particular the capped plan and the unlimited formulas. Postpaid customers remain predominantly higher-use customers. As a result, Maroc Telecom is implementing a strategy to encourage its high-use prepaid customers to migrate to postpaid offers in order to increase revenues and build loyalty. 110

113 5. FINANCIAL REPORT GENERAL OVERVIEW Fixed-line and Internet business Until the end of 2006 Maroc Telecom was the sole provider of Fixed-line telecommunication services and the main provider of Internet services and data transmission services in Morocco. These markets were fully liberalized in 2005 when fixed-line licenses were granted to two new operators, which had still not commenced operations at December 31, The main Fixed-line services provided by Maroc Telecom are: telephony; interconnection with domestic and international operators; data transmission services for businesses and Internet service providers and other telecom operators; Internet including Internet access services and related services such as hosting; TV via ADSL. As in the Mobile business, revenues in the fixed-line business vary according to the subscriber base, the pricing policy and the usage level of each of the services. Revenues generated by international interconnection services are determined by the volumes of incoming traffic on the fixedline network and by changes in interconnection charges, which are subject to renegotiation from time to time. Revenues generated by domestic interconnection services are determined by the requirement that Maroc Telecom offer interconnection services at prices compensating the actual cost of the use of the network and related costs. The consolidated revenues rose 5.6% in 2006, mainly due to strong momentum on the public telephony segment, increased international incoming traffic, the confirmed success of ADSL, and strong performance in data services to businesses and operators. On the voice segment, the average invoice per customer increased by almost 3%. In 2006, voice services accounted for almost 54% of Fixedline and Internet consolidated revenues whilst Internet services, although growing strongly, accounted for 6.6% of revenues compared to 4.4% in Fixed-line telecommunications services Historically, the penetration rate of fixed-line telecommunications services, which include public telephone lines, has been fairly low, owing in particular to the large number of people per household and the high usage rate of public telephones, which has hindered the development of residential fixed-line telecommunications. The fall in the penetration rate until 2002 was primarily due to fixed-line customers switching to mobile services. Through a policy of developing new products and services, such as package deals and capped plans (El Manzil), prepaid cards, unlimited offers launched in September 2005 and the extension of public telephone coverage, the penetration rate in Morocco is still very low at 4.24% at December 31, 2006 (source: ANRT). In 2006, the fixed-line customer base dropped 5.6% to million lines, compared with December Fixed-line offers are described in detail in Chapter IV of this Registration Document. Data transmission services Maroc Telecom also provides data transmission services to businesses through a wide range of products and services (ISDN, X25, Frame Relay, digital and analog leased lines, VPN IP), and a reliable, high quality network. This business is dependent on the development of the Moroccan economy. Liberalization of the data transmission market, initiated with the award of VSAT satellite telecommunications licenses in 2001, has not yet had a significant impact on Maroc Telecom revenues. Internet Services Maroc Telecom markets Internet services under its Menara brand. With the development of new offers (subscription-free dial-up, plans featuring inclusive hours, ADSL) and price cuts, the market has seen rapid growth since the beginning of The number of customers accessing the Internet through Maroc Telecom increased by almost 55% in Growth was boosted by price cuts in ADSL services in March 2005 and May 2006 together with frequent promotional offers. ADSL accounted for 98% of the total Internet customer base at December 31, The main competitor on the Internet services sector is Wana, which operates in the consumer and business segments. Maroc Telecom had a 98% market share at December 31, 2006 (source: ANRT). In 2006, Maroc Telecom launched TV via ADSL, which is the first time this service is available in the African and Arab world. This offer is available via 4 bouquets of channels and enables customers to watch 60 national and international TV channels. Interconnection services Interconnection revenues arise mainly from incoming international traffic, in particular interconnection with international operators (excluding revenues generated by outgoing calls, which are included in fixed-line revenues), and interconnection with Meditel. Interconnection revenues generated by incoming international calls depend on call volume and the allocation of charges 111

114 negotiated with international operators. The positive impact of increased traffic on international interconnection services revenues was limited by the reduction in termination rates over the same period as a result of pressure from foreign operators to cut these prices, and Maroc Telecom s efforts to stimulate outgoing international traffic by reducing the imbalance between the prices for incoming and outgoing traffic. Seasonality The summer months, with the return of Moroccans living abroad, and the two weeks preceding the Eid al-adha holiday (December 31 in 2006) traditionally bring strong business levels (primarily mobile and fixed-line public telephony), while the month of Ramadan (from September 24 to October 24 in 2006) represents a low point for both fixed-line and mobile businesses. Operating expenses Operating expenses include: purchases, mainly including the cost of handsets and interconnection costs; payroll and payroll-related costs; taxes and duties; other operating expenses, such as fees and network maintenance costs; depreciation, impairment and provisions. Operating expenses rose in 2006 due to an increase in maintenance costs resulting from the extension of the networks, a rise in international bandwidth costs linked to Internet traffic, higher ANRT fees due to revenue growth and provisions for trade receivables Scope of consolidation Mauritel Maroc Telecom holds 51.5% of the voting rights of Mauritel S.A., the incumbent operator in Mauritania and operator of a fixed-line telecommunications network. Mauritel S.A. itself holds 100% of Mauritel Mobiles, which holds a mobile telecommunications license. Mauritel SA is owned by the holding company Compagnie Mauritanienne de Communications (CMC), in which Maroc Telecom holds 80%, so that Maroc Telecom holds a 41.2% interest in the Mauritanian incumbent operator. Through CMC, the Mauritel group has been fully consolidated by Maroc Telecom since July 1, 2004 (see the notes to the consolidated financial statements). Mauritel s contribution to the consolidated earnings of the Maroc Telecom group amounted to MAD59 million in 2004 and MAD73 million in 2005 and MAD67 million in 2006 ; 2006 earnings were impacted by an expense of MAD29 million (group share: MAD11 million) due to two voluntary redundancy plans. Mauritel s gross revenues totaled MAD997 million in 2006 (3.7% of Maroc Telecom s consolidated gross revenues) with earnings from operations of MAD296 million (2.9% of Maroc Telecom s consolidated earnings from operations). Its noncurrent assets amounted to MAD902 million (5% of Maroc Telecom s consolidated assets). Long-term debt amounted to MAD108 million (98% of Maroc Telecom s consolidated longterm debt) and cash and cash equivalents amounted to MAD408 million. The above data are 100% figures. Mobisud On November 3, 2006 Maroc Telecom acquired a 66% stake in SFR6, renamed Mobisud, alongside the other shareholders SAHAM (18%) and SFR (16%). Mobisud has been operating as an MVNO (Mobile Virtual Network Operator) since December 1, 2006 in France. Mobisud creates its own offers and services, develops its own IT system, manages its own brands, its communication, its sales activities and its customers. It uses the radio network of the French mobile operator SFR. Mobisud is specifically targeted towards individuals who live in France and have ties with Maghreb countries (Morocco, Algeria, Tunisia). Mobisud has been fully consolidated since Maroc Telecom acquired its shareholding in the company (see notes to the Consolidated Financial Statements). Medi-1-Sat Medi-1-Sat has been accounted for by the equity method since Maroc Telecom held 26.8% of the company s share at December 31, Medi-1-Sat produces and broadcasts news programs in French and Arabic in Maghreb countries. The company started broadcasting on December 1,

115 5. FINANCIAL REPORT GENERAL OVERVIEW GSM Al-Maghrib GSM Al-Maghrib (GAM) was accounted for by the equity method in 2005, but this is no longer the case since Maroc Telecom sold its 35% share to Air Time on March 27, Other non consolidated investments Maroc Telecom s other non-consolidated investments include Casanet (in charge of maintaining Maroc Telecom s Menara Internet portal), an investment in Matelca (currently in liquidation), and other minority stakes. These companies are not consolidated as their results do not have a material impact on Maroc Telecom s financial statements. The burkinabe operator, Onatel, in which Maroc Telecom acquired a 51% stake on December 28, 2006, was not consolidated at December 31, 2006 due to the fact that reliable financial statements were not available at the acquisition date. Key data for these companies are presented in the annexes Significant accounting policies and estimates Context of the preparation of 2006 consolidated financial statements In application of the European regulation 1606/2002 dated July 19, 2002 concerning the adoption of international accounting standards, the consolidated financial statements of Maroc Telecom for the year ended December 31, 2006, were prepared in accordance with International Financial Reporting Standards (IFRS) as determined by the International Accounting Standards board (IASb) and adopted by the European Union at December 31, For the purpose of comparison 2006 financial statements include items from 2005 and All new standards, interpretations or amendments published by the IASb and compulsory in the European Union since January 1, 2006, have been applied. This has not resulted in a restatement of data for the fiscal years 2005 and 2004 as their impact was not significant. Statement of compliance Maroc Telecom s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Maroc Telecom prepared its 2006 consolidated financial statements and its 2005 and 2004 comparative financial statements in accordance with: All mandatory IFRS and IFRIC (International Financial Reporting Interpretations Committee) standards and interpretations at December 31, All these standards and interpretations have been adopted by the EU; by anticipation from January 1, 2004: IAS 32 and IAS 39 on financial instruments. Maroc Telecom is not concerned by any sections of IAS 39 not adopted by the EU. Maroc Telecom has consequently applied IAS 39 (see note 15) in full to its 2004 financial statements and its 2005 consolidated financial statements; The following principle, pending publication of an IASb or IFRIC text on the matter; Pending a final IFRIC interpretation, Maroc Telecom does not accrue loyalty bonuses granted to customers that do not result in an additional cost. These bonuses are not considered to be a greater benefit than those benefits granted to new customers at the inception date of a contract. Loyalty bonuses convertible into free services are accrued. The accounting method used is compliant with the proposed IFRIC Interpretation D20 - IAS 18 on Customer Loyalty Programmes. Maroc Telecom has not opted for a prospective application of the following standards, amendments and interpretations: IFRS 7: Financial Instruments: Disclosures; this text is compulsory as from January 1, 2007; IAS 1 Amendment: Presentation of Financial Statements Capital Disclosures, this text is compulsory as from January 1, Nonetheless, Maroc Telecom is currently reviewing the practical implications of these new texts and of their impact on the presentation of its financial statements. Use of estimates and judgements In connection with the preparation of its financial statements, Maroc Telecom must make estimates and judgements and use certain assumptions. Maroc Telecom s management bases its estimates and judgements on past experience and on various other assumptions that it deems reasonable under the circumstances. These estimates and judgements permit an evaluation of the appropriateness of book value. The figures derived from such estimates, judgements and assumptions could differ if other estimates, judgements or assumptions had been used. The main items calculated on the basis of estimates and judgements are 113

116 provisions for litigation, provisions for restructuring, impairment of trade receivables and inventories, and deferred income. Management reviews its estimates, judgements and evaluations regularly based on past experience and various other assumptions that it deems reasonable, which constitute the basis of its evaluations of the book value of its assets and liabilities. The impact of the changes in accounting estimates is accounted for in the period of the change and thereafter. Contribution to universal service Maroc Telecom is required to set aside 2% of its annual revenues net of interconnection costs for its universal service obligation allowing the Company to offset this contribution with its own costs of implementing the universal service, thereby establishing the principle of pay or play. Maroc Telecom was exonerated from these contributions in In January 2006, the executive committee in charge of the ANRT universal service granted Maroc Telecom a subsidy of MAD202 million to implement the universal service program it had proposed for Given this amount, Maroc Telecom paid MAD137 million to the universal service fund for its contribution for In April 2006, the ANRT universal service executive committee granted Maroc Telecom a subsidy of MAD178 million for the universal service program that it proposed for Given this amount, Maroc Telecom will have to pay MAD195 million to the universal service fund for its contribution for This amount was fully provisioned in the accounts at December 31, Deferred income Deferred income mainly corresponds to prepaid subscriptions, prepaid top-up cards sold to distributors and not yet activated, unused prepaid minutes sold and to provisions related to customer loyalty programs. In 2006, Maroc Telecom carried out a one-off revaluation of the non-activated prepaid top-up cards sold to distributors for the sum of MAD109 million. Provisions Provisions are recorded when, at the end of the period, the Group has a legal, regulatory or contractual commitment to a third party resulting from past events, and it is probable that there will be an outflow of resources to the third party, without any consideration expected from the latter, and that the amount can be evaluated accurately. If the time value effect is significant, provisions are determined by discounting expected future cash flows at a pre-tax discount rate which reflects the market s current evaluation of the time value of money. If no reliable estimate can be made of the amount of the obligation, no provision is recorded and a disclosure is made in the notes to the consolidated financial statements. Restructuring provisions are recorded when the Group has approved a formal and detailed restructuring program and has either started to implement the program or has published the program publicly. Future operating expenses are not provisioned. No provision for pensions and post-retirement benefits relating to the Group s affiliates incorporated in Morocco has been recorded in the consolidated financial statements as pension expenses are covered by statutory pension plans set up for employees in Morocco. Inventories Inventories comprise: Goods held for sale to customers upon line activation, which comprise fixed and mobile telephones and accessories. Inventories are accounted for using the first-in, first-out method. The handsets delivered to distributors and nonactivated at year-end are accounted for in inventories. The handsets which are still non-activated six months after delivery are accounted for in revenues; Equipment and supplies unrelated to the telecoms network. These inventories are measured at their average acquisition cost. Inventories are valued at their lowest net realizable value. An impairment charge is recorded by comparing their fair value and their net realizable value. Trade accounts receivable and other receivables These comprise trade and other receivables and are initially recognized at their fair value, and then at amortized cost less impairment. Accounts receivable include trade receivables and government receivables: Trade receivables: these are amounts receivable from individuals, distributors, businesses and international operators; Government receivables: these are amounts receivable from local authorities and the Moroccan government. An impairment charge is recorded if the carrying amount of the asset under consideration is greater than the present value of the estimated discounted future cash flows. 114

117 5. FINANCIAL REPORT GENERAL OVERVIEW Contractual obligations and contingent assets and liabilities Once a year, Maroc Telecom and its subsidiaries prepare detailed records on all contractual obligations, commercial and financial commitments and contingent obligations, for which they have liability. These detailed records are updated on a regular basis by the departments concerned and reviewed with senior management. The value of off-balance sheet commitments for suppliers of fixed assets is determined as follows: The difference between the minimum commitments and commitments actually fulfilled for the global agreements and any endorsements (exceeding MAD50 million); The difference between firm orders and actual orders for all other contracts. In addition, commitments arising from real estate rental contracts are estimated on the basis of one month s expense given that virtually all termination clauses require one month s notice. Segment data The group s business is organized by business segment: Fixed-line and Internet segment and Mobile segment. Revenues from each business segment include revenues from the provision of telephone services to customers and subscribers as well as inter-segment transactions. Intersegment transactions are conducted at market price. Earnings from operations reflect the difference between operating income and expenses. Costs are allocated directly to the relevant segments or alternatively by using cost allocation ratios based on economic criteria. Capital expenditure is directly allocated to the relevant segments. Fixed assets used by several segments are allocated in proportion to dedicated assets. The main items not divided between the segments are tax, cash, financial assets, borrowings and shareholders equity. The classification of the balance sheet by business segment is based partly on estimates. The classification used is based on reasonable assumptions. The following balance sheet items are allocated on an apportionment basis between the two activities: For items comprising elements that can be allocated directly to a segment and elements shared by both segments: the shared part of these items is divided proportionally in respect of the amounts allocated directly to these items; For items comprising solely shared elements: these amounts are allocated in a way that takes into account the type of items involved (e.g. employee-related liabilities are divided proportionally based on the number of employees in each business segment). Geographic segment data Maroc Telecom operates in two geographic segments, i.e. Morocco and others. Definition of Maroc Telecom group financial statements Revenues Revenues from operations are reported when it is probable that future economic benefits will flow to the Group, and that these revenues can be reliably measured. Maroc Telecom group generates revenues from fixed and mobile telecommunications services, Internet services, and the sale of products, which essentially comprise mobile and fixed-line handsets and multimedia equipment. Revenues from telephone subscriptions are recognized on a straight-line basis over the subscription contract period. Revenues from incoming and outgoing call traffic are recognized when the service is rendered. For prepaid services, revenues are recognized as calls are made. Revenues from Fixed-line and Internet and Mobile services comprise: income from domestic and international outgoing and incoming calls under postpaid plans, which is recorded when generated; income from subscriptions; income from prepaid services, which is recognized as calls are made; income from advertising in printed and electronic directories, which is recognized when the directories are published. Revenues from the sale of handsets, net of point-of-sale discounts and connection charges, are recognized on activation of the line. Customer acquisition and loyalty costs for mobile and fixed-line services, principally consisting of rebates on the sale of equipment to customers through distributors, are recognized as a deduction from revenues. Sales of services provided to subscribers managed by Maroc Telecom on behalf of content providers (mainly special-rate numbers), are accounted for net of related expenses. When the sale is made via a third party distributor supplied by Maroc Telecom and involves a discount compared with the public sale price, revenues are recorded as gross revenues and commissions granted are recognized as operating expenses. 115

118 Operating expenses Operating expenses include purchases, payroll costs, taxes and duties, other operating expenses and net depreciation, impairment and provisions. 1) Purchases Purchases include the cost of handsets, expenses relating to interconnection with domestic and international operators, and other purchases (fuel and electricity, top-up cards, supplies and consumables). 2) Payroll costs Payroll costs comprise wages, salaries and payroll taxes. 3) Taxes, duties and fees This item includes taxes and duties (urban taxes, patents, taxes for occupying public land etc.) and royalties paid to ANRT: royalties related to frequency assignment in compliance with Act and Order of February 25, 1998; costs related to universal service in compliance with Act and Order of October 9, 2000; and contributions to research, training and standardization in telecommunications in compliance with Act and Order of October 9, 2000 (IAM specifications). 4) Other operating income and expenses Other operating income and expenses comprise commissions, advertising, marketing and other promotional costs and other expenses (network maintenance costs, audit and advisory fees, postage and the costs of leasing transportation equipment, land and buildings). They also include foreign currency translation adjustments arising from operations and expenses linked to voluntary redundancy plans. Communication expenses comprise advertising, marketing and other promotional and multimedia public relation costs incurred to enhance Maroc Telecom s market reach and profile. 5) Net depreciation, impairment and provisions Net depreciation, impairment and provisions include: Depreciation calculated on a straight-line basis over the useful life of the relevant assets. Depreciation begins when the asset is effectively placed in service; Net provisions and impairment relating to trade accounts receivable and related accounts, inventories and litigation. Income from equity affiliates Medi-1-Sat is the only company accounted for using the equity method up to December 31, A capital loss was recorded on the sale of the shareholding in GSM Al-Maghrib in GSM Al-Maghrib was the only company accounted for using the equity method in In 2004, GSM Al-Maghrib was accounted for using the equity method as well as the Mauritel group for the first six months of the year (fully consolidated as from July 1, 2004). Net financial items Net financial items include: Income from cash and cash equivalents (investments). Maroc Telecom s cash assets generate income from banks or the Treasury, either as interest-bearing sight deposits, or as term deposits not exceeding three months. Generally, Maroc Telecom does not make high-risk investments (investment funds, shares, bonds or derivatives); Cost of debt: interest expense and expenses incurred for early repayment. Net financial items are affected by foreign exchange gains and losses as the group receives income, pays expenses and has borrowings denominated in foreign currencies (See section Disclosure of qualitative and quantitative information about market risks ). Income tax Maroc Telecom pays income tax like any other Moroccan corporation. The income tax rate is 35% in Morocco and 25% in Mauritania. Tax consists of tax due and deferred taxes. Deferred taxes reflect temporary differences between the book value and taxable value of assets or liabilities. 116

119 5. FINANCIAL REPORT GENERAL OVERVIEW Cash flows Net cash from operating activities corresponds to cash earning plus or minus the change in the Group s working capital requirement. Net cash used in investing activities corresponds to the difference between purchases and sales of property, plant and equipment, changes in the scope of consolidation, proceeds from the sales of investments, and net cash flows relating to long-term loans. Net cash used in financing activities mainly comprises repayment of long-term debt, increases in borrowings and the payment of dividends. Comparability of Maroc Telecom financial statements The consolidated financial statements have been used by the company as a means of communication to financial markets since its shares were listed on the Casablanca and Paris stock exchanges. In this context, the 2006, 2005 and 2004 consolidated financial statements have been prepared in accordance with IFRS. 117

120 5.3 CONSOLIDATED INCOME STATEMENT The table below sets out data regarding Maroc Telecom s consolidated income statement for the years ended December 31, 2004, 2005 and (in millions of Moroccan dirhams) Consolidated revenues 22,615 20,542 17,408 Cost of purchases (3,692) (3,879) (3,209) Payroll costs (2,060) (2,056) (1,688) Sundry taxes and duties (771) (680) (398) Other operating income and expenses (2,686) (2,610) (1,781) Net depreciation, amortization and provisions (3,363) (2,639) (2,735) Operating income 10,043 8,678 7,597 Other income (charges) from ordinary activities 7 4 Income from equity affiliates (21) Earnings from continuing operations 10,029 8,695 7,627 Income from cash and cash equivalents Finance expense (7) (13) (29) Net finance costs Other financial income Other financial expense (3) (65) (5) Net financial items Tax expense (3,339) (2,886) (2,574) Earnings 6,833 5,921 5,228 Attributable to the equity holders of the parent 6,739 5,809 5,171 Minority interests EARNINGS PER SHARE (in Moroccan dirhams) Net income-group share 6,739 5,809 5,171 Number of shares as of December ,095, ,095, ,095,340 Earnings per share Diluted earnings per share The various items of Maroc Telecom s consolidated income statement and their changes during the periods under consideration are discussed below. 118

121 5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT Comparison of 2006, 2005 and 2004 Revenues The table below shows the breakdown of revenues for the years ended December 31, 2004, 2005 and Operating expenses Operating expenses for the years ended December 31, 2004, 2005, and 2006 were as follows. (in millions of Moroccan dirhams) Published Year ended December 31, Gross revenues Mobile 14,684 12,772 9,684 Gross revenues Fixed-line and Internet 12,613 11,949 11,133 Total consolidated gross revenues 27,297 24,721 20,817 Elimination of intra-segment transactions (4,682) (4,179) (3,409) Total net consolidated revenues 22,615 20,542 17,408 between 2005 and 2006, Maroc Telecom s consolidated revenues rose significantly as a result of growth in mobile activity, in the ADSL business, in data services for businesses and operators, and in incoming international traffic. In 2006, consolidated revenues amounted to MAD22,615 million, up 10.1%, compared to In 2005, consolidated revenues amounted to MAD20,542 million, up 18%, compared to In 2005 revenue growth was already a result of growth in mobile activity, in the ADSL business and in incoming international traffic. (in millions of Moroccan dirhams) Published Year ended December 31, Consolidated revenues 22,615 20,542 17,408 Cost of purchases 3,692 3,879 3,209 % 16% 19% 18% Payroll costs 2,060 2,056 1,688 % 9% 10% 10% Sundry taxes and duties % 3% 3% 2% Other operating income and expenses 2,686 2,610 1,781 % 12% 13% 10% Net depreciation, amortization and provisions 3,363 2,639 2,735 % 15% 13% 16% Total operating expenses 12,572 11,864 9,811 Purchases (in millions of Moroccan dirhams) Year ended December 31, Cost of handsets 1,466 1,771 1,154 Domestic and international interconnection costs 1,892 1,784 1,491 Other purchases Total 3,693 3,879 3,209 Other purchases include the purchases of energy (fuel and electricity), phone cards and the other consumables. Purchases dropped 5% to MAD3,693 million in 2006 compared with MAD3,879 million in 2005, mainly due to purchases of handsets impacted by a slight decrease in the volume of handsets purchased and an 11% reduction in the unit purchase price. 119

122 Purchases rose by 21% from MAD3,209 million in 2004 to MAD3,878 million in 2005, mainly due to the enlarged customer base and the development of loyalty bonuses. Payroll costs (in millions of Moroccan dirhams) Year ended December 31, Wages 1,709 1,819 1,489 Payroll taxes Wages and taxes 1,983 2,046 1,688 Share- based compensation Payroll costs 2,060 2,056 1,688 Average headcount 11,764 12,360 12,859 This item includes the payroll costs for the period, excluding redundancy costs, which were recognized as other operating expenses. On December 12, 2006, the group allocated 15 Vivendi shares to each active employee of Maroc Telecom and who at that date had been with the company for a minimum of six months. This plan was not subject to any performance related or presence conditions. The 15 shares allocated per beneficiary will be issued at the end of a two-year period from December 12, These shares are allocated without any conditions on employee presence between when the shares are granted and when they are issued. The charge for Maroc Telecom, which represents the cost of services rendered charged by Vivendi, was fully provisioned at December 31, A matching entry is recognized directly in equity, which will be revalued at fair value at the end of the next two fiscal years, which is when the shares will be issued. This charge is calculated by multiplying the number of employees present on the company payroll on June 30, 2006 (11,252) by the number of shares allocated per employee (15), by the reference share price on the allocation date ( as at December 12, 2006) and by a discount reflecting the absence of dividends over the first two years (91.75%). This discount will be reviewed at the end of each of the next two fiscal years. Taxes, duties and fees (in millions of Moroccan dirhams) Year ended December 31, Taxes and duties Fees Total The taxes, duties and fees include local taxes (trading licenses, urban taxes), taxes for occupying public land and other taxes (stamp duty, vehicle tax). The fees include amounts paid to the ANRT for universal service and training. The increase in fees is mainly due to increased revenues, which are the basis for calculating these fees. Other operating income and expenses (in millions of Moroccan dirhams) Year ended December 31, Communication Commissions Other O/w : 1,504 1, Rental expenses Maintenance and repair Audit and advisory fees Postage costs and banking services Voluntary redundancy plan Other Total 2,686 2,610 1,781 between 2005 and 2006, other operating income and expenses rose slightly by 3% to MAD2,686 million compared with MAD2,610 million in This increase is mainly due to mobile commissions linked to prepaid top-up card sales and stepped-up sales efforts to increase the customer base and maintenance and repair costs linked to network development. The increase is also due to operations-related foreign exchange losses (line item Other ). The increase in the line item Other between 2006 and 2005 is mainly due to: + MAD85 million: circuit rental; + MAD180 million: foreign exchange impact (+102 in 2005 and -77 in 2006); + MAD59 million: compensation for intermediaries and fees (SOX, due diligence.); + MAD28 million: travel and other expenses incurred in analyzing acquired companies or companies to be acquired. between 2004 and 2005, other operating expenses were up 47%, from MAD1,781 million in 2004 to MAD2,610 million in This was due to: 120

123 5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT higher advertising costs linked to intensive advertising campaigns for the mobile business and increased corporate communication; increased commissions for the mobile business linked to the sale of prepaid top-up cards along with intensive efforts to win new customers; a rise in maintenance costs and repairs resulting from the regional extension of the network; expenses associated with voluntary redundancy plans amounting to MAD468 million. Net depreciation, impairment and provisions The table below shows changes in net depreciation, impairment and provisions for the years ended December 31, 2004, 2005 and (in millions of Moroccan dirhams) Year ended December 31, Depreciation and impairment of fixed assets 2,752 2,673 2,666 Impairment of accounts receivable Impairment of inventories Impairment of other receivables 5 35 Provisions 290 (184) (73) Net depreciation, amortization and provisions 3,363 2,639 2,735 The increase in impairment losses is linked to the growth of the customer base and a stricter policy for recording impairment of trade receivables. The MAD184 million release from provisions includes a release of MAD161 million relating to voluntary redundancies in Conversely, a provision of MAD300 million for the new voluntary redundancy plan which will be implemented in 2007, is integrated in the provisions for Depreciation and impairment of fixed assets The table below sets out Maroc Telecom s depreciation and impairment of fixed assets for the years ended December 31, 2004, 2005 and (in millions of Moroccan dirhams) Year ended December 31, Other intangible assets Building and civil engineering Technical plant and pylon 1,662 1,645 1,818 Other property, plant and equipment Total 2,752 2,673 2,666 Net depreciation and impairment on fixed assets totaled MAD2,752 million in the year ended December 31, 2006 compared to MAD2,673 million in 2005 and MAD2,666 million in Net depreciation and impairment on fixed assets are relatively stable; the increases on new fixed assets are offset by the fact that older assets are nearing the term of their depreciation period. Net provisions and impairment The table below sets out Maroc Telecom s net provisions and impairment for the years ended December 31, 2004, 2005 and (in millions of Moroccan dirhams) Year ended December 31, Impairment of accounts receivable Impairment of inventories Impairment of other receivables 5 35 Provisions 290 (184) (73) Total 611 (35) 69 Net provisions and impairment totaled MAD611 million at 31 December 2006, compared with MAD-35 million in This is due to: the increase of the impairment loss linked to the growth of the customer base and a stricter policy for recording impairment of trade receivables; the recording of a provision linked to the voluntary redundancy plan for MAD300 million in 2006 compared to a reversal of MAD161 million in 2005 (related to a provision in 2004). Net provisions and impairment amounted to MAD-35 million in 2005, compared to MAD69 million in This resulted from changes in several items: increased impairment of trade receivables linked to the enlarged customer base; 121

124 the recognition of a provision of MAD161 million to cover the voluntary redundancy plan launched at the end of 2004 and its release in 2005; MAD237 million of releases from provisions in 2004, following the favorable outcome of the dispute with Meditel. Operating income The table below shows Maroc Telecom s operating income for the years ended December 31, 2004, 2005 and (in millions of Moroccan dirhams) Year ended December 31, Operating income 10,043 8,678 7,597 Operating income rose by 16% to MAD10,043 million in 2006 and by 14% to MAD8,678 million in This increase reflected substantial growth in revenues and tight cost control despite intensive efforts to win over new customers. Income from equity affiliates (in millions of Moroccan dirhams) Year ended December 31, Mauritel 33 GAM (9) 14 (3) Medi-1-Sat (12) Total (21) Income from equity affiliates amounted to MAD-21 million at December 31, 2006 compared to MAD14 million in 2005 and MAD30 million in Medi-1-SAT is accounted for using the equity method as from fiscal year 2006 with an impact of MAD-12 million. Maroc Telecom sold its 35% stake in GSM Al-Maghrib in 2006 for MAD13 million generating a capital loss of MAD12 million offset by positive earnings over the first quarter of MAD3 million. The group Mauritel, which was fully consolidated since July 1, 2004, has been accounted for by the equity method since the first quarter of the period. Net financial items (in millions of Moroccan dirhams) Year ended December 31, Income from cash and cash equivalents Interest expenses on loans (7) (13) (29) Net finance costs (in millions of Moroccan dirhams) Year ended December 31, Other financial expense (3) (65) (5) Other financial income Other financial income and expense 1 (18) 4 Other financial expense represent the negative foreign exchange impact over the past three fiscal years. Other financial income includes revenues from non-consolidated equity investments and proceeds from their disposal. between 2005 and 2006, net financial income increased from MAD112 million to MAD143 million, mainly due to the increase in investment income and the positive foreign exchange impact on earnings. between, 2004 and 2005, net financial income fell from MAD175 million at December 31, 2004 to MAD112 million at December 31, This decline is mainly due to a reduction in investment income and to the negative impact of foreign exchange, partly offset by a decrease in interest expense as a result of the early repayment of loans. Foreign exchange losses totaled MAD3 million at December 31, 2006 compared with MAD65 million in 2005 and MAD5 million in This is due to the impact of variations in the exchange rate between the Moroccan dirham and the US dollar, the euro and the Mauritanian ouguiya. Income tax The table below shows the breakdown of tax into income tax due by Maroc Telecom and deferred taxes for the years ended December 31, 2004, 2005 and 2006: (in millions of Moroccan dirhams) Year ended December 31, Income tax 3,249 2,871 2,560 Deferred taxes Current tax 3,339 2,886 2,574 Consolidated effective tax rate* 33% 33% 33% * Income tax / earnings before taxes. 122

125 5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT Income tax increased over the period in line with the rise in earnings in net income from consolidated companies after deduction of non-recurrent items. Earnings before minority interests Earnings before minority interests rose from MAD5,228 million in 2004 to MAD5,921 million in 2005 and to MAD6,833 million in 2006, representing a 13% increase in 2005 and a 15% increase in Minority interests Minority interests amounted to MAD94 million in 2006, MAD112 million in 2005, and MAD57 million in 2004, reflecting the interests of shareholders other than Maroc Telecom in the earnings of the group s consolidated entities. This is partly due to the fact that Mauritel group has only been fully consolidated since July 1, The table below shows breakdown of minority interest. (in millions of Moroccan dirhams) Year ended December 31, Mauritel Mobisud (8) Total Minority interests Earnings after minority interests Consolidated earnings after minority interests amounted to MAD6,739 million at December 31, 2006 compared with MAD5,809 million in 2005 and MAD5,171 million in Earnings per share based on 879,095,340 shares in issue, earnings per share amounted to MAD7.7 for the year ended December 31, 2006, MAD6.6 in 2005 and MAD5.9 in Comparison of business segment results Revenues and operating income for the Mobile segment (in millions of Moroccan dirhams) Year ended December 31, Gross revenues-mobile 14,684 12,772 9,684 Maroc Telecom 13,996 12,198 9,444 Revenues from sale of handsets Revenues from sale of services 13,026 11,284 8,882 Mauritel Elimination of inter-segment transactions (3,349) (2,938) (2,287) Operating income-mobile 6,904 5,394 3,806 Maroc Telecom 6,630 5,146 3,714 Mauritel Mobisud (35) Contribution to consolidated operating income 69% 62% 50% Depreciation and impairment of intangible assets and PP&E- Mobile (1,428) (1,318) (1,239) Comparison of 2005 and 2006 data Mobile gross revenues rose sharply between 2005 and 2006 up 15% mainly due to a 15.5% growth in services. Consolidated operating income in the Mobile business totaled MAD6,904 million in 2006 up 28%. This strong performance is due to the higher revenues and tight cost control for acquisition costs despite strong customer base growth. Maroc Telecom: Revenues grew strongly as a result of strong customer base growth, up 30% at million customers, and a net increase of 2.47 million clients in Continuing as a forerunner, Maroc Telecom confirmed its market share in 2006 by developing innovative offers, extending unlimited offers to all rate plans, introducing a SIM card at MAD30 (including MAD10 in call credit), new offers for businesses and several new promotional offers. Prepaid ARPU dropped 10.3% to MAD87, due to the strong increase in the customer base and reduced call prices. Postpaid ARPU dropped slightly by 1.1% to MAD702 compared with The price cuts implemented by Maroc 123

126 Telecom have made the company more competitive, and favor increased usage and a wider customer base. With the increase in the customer base and the reduction in access costs, the churn rate is now 20.3% (+8.1 points compared with 2005). Intersegment transactions, which include transactions both within Maroc Telecom and between affiliated companies, increased by 14% from MAD2,938 million to MAD3,349 million, due to the rise in incoming traffic (mainly international) to the mobile network. Mauritel: In 2006, Mauritel Mobiles showed: 20% growth in revenues at MAD688 million, mainly due to the 29% increase in the customer base which totaled more than 601,221 customers; operating income of MAD309 million, up 25% compared with Comparison of 2004 and 2005 data Mobile gross revenues increased significantly between 2004 and 2005, up 32%. Revenues from mobile telecommunications services rose 27%. Eliminating the effect of the rise in international call termination tariffs determined by ANRT and effective from January 1, 2005, revenues increased by 21%. Consolidated operating income in the Mobile business reached MAD5,394 million in 2005, up 42% compared with This growth was partly due to the increase in international call termination tariffs. Stripping this out, operating income in the Mobile business would have increased by 27%, due to growth in the customer base to 8.8 million (+2.4 million customers over the year) and tight control of customer acquisition costs. Maroc Telecom: Strong revenue growth was mainly due to a 38% increase in the customer base, along with the resilience of prepaid ARPU, which was MAD94.1 despite the significant increase in its customer base. Postpaid ARPU declined slightly (MAD709.8, down 10% compared with 2004) due to Maroc Telecom s strategy of encouraging prepaid customers to migrate to postpaid plans, which generate greater revenues per subscriber. Revenues from sales of handsets were up 63%, from MAD562 million to MAD914 million, as a result of new packs retailing at MAD290. by focusing on increasing customer loyalty, the customer churn rate only rose by 0.6 points to 12.2% compared with Inter-segment transactions, which include transactions both within Maroc Telecom and between affiliated companies, increased by 28% from MAD2,287 million to MAD2,938 million, due to the rise in incoming traffic (mainly international) to the mobile network. Mauritel: In 2005, Mauritel Mobiles financial data showed: 40% growth in Mobile revenues compared to 2004, (24% considering 2004 as a 12 month period instead of 6 months for the reported figures, as Maroc Telecom acquired its shareholding on July 1, 2004), at MAD574 million at December 31, 2005, mainly due to a 41% increase in the customer base to more than 465,000 customers a 170% increase in operating income to MAD248 million at December 31, 2005 compared with 2004 (+39% considering 2004 as a 12 month period instead of 6 months for the reported figures, as Maroc Telecom acquired its shareholding on July 1, 2004). Revenues and operating income for the Fixed-line and Internet segment (in millions of Moroccan dirhams) Year ended December 31, Gross revenues-fixed-line 12,613 11,949 11,134 Maroc Telecom 12,304 11,617 10,945 Voice 6,618 6,583 6,597 Interconnection 3,294 3,145 2,760 Data 1,585 1,374 1,241 Internet Mauritel Elimination of inter-segment transactions (1,333) (1,241) (1,122) Operating income-fixed-line 3,139 3,284 3,791 Maroc Telecom 3,153 3,266 3,756 Mauritel (14) Contribution to consolidated operating income 31% 38% 50% Depreciation, amortization and impairment of intangible assets and PP&E- Fixed-line (1,324) (1,356) (1,427) 124

127 5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT Comparison of 2005 and 2006 data In 2006, consolidated revenues in the Fixed-line and Internet segment amounted to MAD12,613 million, up 5.6% compared with In 2006, consolidated operating income in the fixed-line totaled MAD3,139 million, down 4% compared with Maroc Telecom: Revenues rose 6% to MAD12,304 million. This performance was mainly a result of strong momentum on the public telephony segment (revenues up almost 15%), the increase in incoming international traffic (+11%), the confirmed success of ADSL, and the strong performance of the data services to businesses and operators for which revenues continue to grow significantly (+15% including leased lines for the mobile business). On the voice segment the average invoice per customer increased by almost 3%. The Fixed-line customer base dropped by -5.6% to 1,266 million lines compared with December 31, The ADSL customer base continues to expand rapidly and at December 31, 2006, totaled 384,000 lines (+59% compared with December 31, 2005). To build customer loyalty and attract new customers, in September 2006 Maroc Telecom launched Phony, new unlimited Fixed-line telecommunications offers enabling customers to make unlimited calls to all Maroc Telecom fixed-line domestic and local numbers. The success of these offers stabilized the customer base over the fourth quarter. This increase in Fixed-line and Internet revenues can be analyzed as follows: MAD6,618 million, generated by voice traffic, compared to MAD6,583 million in In 2006 this segment benefited from the strong momentum of the public telephony segment and the rates review that was carried out at the end of 2005; MAD3,294 million from interconnection services in 2006, up 5% from MAD3,145 million in This increase was driven primarily by the rise in incoming international traffic (up 11%), partly offset by the reduction in the average price per incoming minute paid by international operators; MAD1,585 million for data service revenues at December 31, 2006 compared with MAD1,374 million in 2005, up 15%, reflecting Maroc Telecom s active presence on this segment; MAD807 million from Internet revenues at December 31, 2006 compared with MAD515 million in 2005, up 57%. This strong performance was due to growth in the ADSL customer base, stimulated by price cuts and promotional offers, which continued to grow with 384,000 accesses at the end of December 2006 compared with 242,000 at December 31, 2005; Intersegment transactions were up 7% from MAD-1,241 million in 2005 to MAD1,333 million in 2006, mainly due to the increase in outgoing international traffic from Maroc Telecom mobiles, together with leased lines for the mobile network. Mauritel: In 2006, Mauritel SA revenues from Fixed-line business were down 7% to MAD309 million compared with Mauritel SA s Fixed-line customer base, mainly concentrated in Nouakchott and Nouadhibou, decreased by 6.4% to 37,447 lines. The company recorded an operating loss of MAD14 million at December 31, This includes MAD29 million in restructuring costs. Excluding these costs, the company would have recorded operating income of MAD15 million compared with MAD18 million in Comparison of 2004 and 2005 data In 2005, gross revenues in the Fixed-line and Internet segment amounted to MAD11,949 million, up 7% compared with Fixed-line consolidated operating income decreased 13% to MAD3,284 million in Excluding the voluntary redundancy plan, which mainly concerns the Fixed-line business, and excluding the impact of the increase in international call termination tariffs for mobile operators effective from January 1, 2005, operating income increased 8%. Maroc Telecom: Revenues rose due to the increase in the number of fixed lines (up 2.4% compared with 2004), strong growth in the ADSL business and continuing growth in incoming international traffic (up 19% compared with 2004). These positive factors offset the decline in customers average spending on voice calls (down 4% compared with 2004). This increase in Fixed-line and Internet revenues can be analyzed as follows: MAD6,583 million generated by voice traffic, compared to MAD6,597 million in This slight decline was due to a decline in average use, despite the broader customer base; MAD3,145 million from interconnection services, up 14% from MAD2,760 million in This increase was driven primarily by the rise in incoming international traffic (up 19%), partly offset by the reduction in the average price per incoming minute paid by international operators; 125

128 MAD1,374 million for data revenues as of December 31, 2005, compared to MAD1,241 million in 2004, up 10%; MAD515 million from Internet revenues, compared with MAD346 million in 2004 (up 49%). This strong performance was due to growth in the ADSL customer base, which grew from 60,000 at December 31, 2004 to 242,000 at December 31, 2005, stimulated by a price cut in March 2005 and by promotions at the end of the year; Inter-segment transactions were up 11% from MAD-1,122 million in 2004 to MAD-1,241 million in 2005, mainly due to the increase in outgoing international traffic from Maroc Telecom mobiles, together with leased lines for the mobile network. Mauritel: In 2005, Mauritel SA fixed-line revenues amounted to MAD332 million, up 76% compared to 2004 (down 6% considering 2004 as a 12 month period instead of 6 months for the reported figures, as Maroc Telecom acquired its shareholding on July 1, 2004). In 2005, the number of Mauritel SA fixed lines, concentrated mainly in Nouakchott and Nouadhibou, grew by 2.6% to nearly 40,000. Operating income amounted to MAD18 million at December 31,

129 5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT Cash and cash equivalents The group s main source of liquidity has been net cash from operating activities. Maroc Telecom group funds all its capital expenditure with its operating cash flow. Statement of cash flows The table below contains information relating to Maroc Telecom s consolidated cash flows for the specified periods: (in millions of Moroccan dirhams) Year ended December 31, Cash flows from operating activities 11,233 8,425 7,806 Cash flows used in investing activities (6,435) (3,119) (2,281) Cash flows used in financing activities (9,615) (5,098) (5,846) Foreign currency translation adjustments (27) 11 (13) Change in cash and cash equivalents (4,844) 219 (334) Cash and cash equivalents at the beginning of the period 7,585 7,366 7,700 Cash and cash equivalents at the end of the period 2,741 7,585 7,366 Change in cash and cash equivalents (4,844) 219 (334) Cash flow from operating activities At 31 December 2006, cash flow from operating activities totaled MAD11,233 million, a MAD2,807 million increase compared with December 31, This increase is principally the result of an improvement in net income and a reduction in working capital requirements due to increased debt. In 2005, cash flows from operating activities totaled MAD8,426 million, up MAD619 million compared with This was mainly due to improved earnings, partly offset by an increase in working capital requirements caused primarily by an increase in accounts receivable. Cash flows used in investing activities At December 31, 2006, cash flows used in investing activities amounted to MAD6,435 million compared with MAD3,119 million in This is mainly due to the fact that the capital expenditure program in 2006 was greater than in 2005 (+23%) and the acquisition of a 51% stake in Onatel for MAD2,476 million. At December 31, 2005, cash flows used in investing activities amounted to MAD3,119 million compared to MAD2,281 million in This increase is the result of a more substantial capital expenditure program in 2005 than in In 2007, Maroc Telecom will continue to pursue its international growth strategy. Indeed, in February 2007, Maroc Telecom acquired a 51% stake in Gabon Telecom for MAD61 million. Maroc Telecom will also continue its investment strategy in 2007, both in Morocco and Mauritania and in the recently acquired subsidiaries. A detailed breakdown of investments by segment is shown below. Cash flows used in financing activities At December 31, 2006, cash flows used in financing activities rose to MAD9,615 million from MAD5,098 million in 2005, due mainly to a dividend payout linked to the capital reduction for MAD3,516 million. The distribution of ordinary dividends was significantly higher in 2006 at MAD6,142 million compared with MAD4,424 million in At December 31, 2005, cash flows used in financing activities amounted to MAD5,098 million compared to MAD5,846 million in 2004, reflecting primarily the payment of a dividend in 2004 (MAD5,124 million including MAD2,374 million in extraordinary dividends). The payment of ordinary dividends increased in 2005 to MAD4,124 million compared with MAD2,750 million in

130 Capital expenditure The table below sets out Maroc Telecom s capital expenditure by segment for the periods specified. (in millions of Moroccan dirhams) Year ended December 31, Fixed-Line 1,533 1,439 1,366 Mobile 2,445 1,771 1,122 Total 3,978 3,210 2,488 Preliminary note The difference between tangible and intangible capital expenditure and net cash used in investing activities is due to the latter taking into account financial investments, sales of fixed assets and the repayment of long-term loans. In 2006, the difference between net cash used in investing activities and tangible and intangible investments was mainly due to the acquisition of securities for MAD2,481 million. In 2006, investments amounted to MAD3,978 million. In 2005, the difference between net cash used in investing activities and tangible and intangible investments was mainly the result of sales of property and securities (MAD88 million), purchases of securities (MAD13 million) and the repayment of housing loans by employees (MAD16 million). In 2005, capital expenditure amounted to MAD3,210 million. In 2004, the difference between net cash used in investing activities and tangible and intangible investments was mainly the result of sales of property and securities (MAD29 million) and the repayment of housing loans by employees (MAD18 million). In 2004, capital expenditure amounted MAD2,488 million, in accordance with the budget. Capital expenditure relating to the Mobile segment In 2006 and 2005, Maroc Telecom continued to invest in enhancing the mobile network s local reach and capacity. 424 new base transceiver stations (bts) were placed in service in 2006 and 70 replacement bts, and 430 in base station controller (bsc) and network switching subsystem (NSS) capacity was reinforced following an increase in traffic and in the number of clients in 2006 (up 2.5 million) and in 2005 (+1.9 million). A redeployment and extension program of the TRX started in 2002 has optimized the use of the radio access equipment (TRX). The group also invested in service platforms (including IN and SMS MMS, VMS systems etc.), and started up new platforms (see chapter 4). In 2004, capital expenditure was related to network and infrastructure development and construction, the implementation of a network monitoring center allowing remote inspection and supervision of all parts of the network (fixed-line, mobile and company networks together), and the development of network capacity and coverage (+450 bts). In 2007, the investments will be focused on increasing local reach and network capacity, the deployment of 3G equipment and the extension of service platforms. Capital expenditure relating to the Fixed-line and Internet segment In 2006, continued ADSL growth and the introduction of TV via ADSL required significant investments in access, core network and transmission equipment. These investments have enabled the Group to deal with the growth in the ADSL customer base. The capacity of the transmission network has been increased by almost 90%, and the Company has started laying a submarine cable between Assilah and Marseille. In 2005, the increase in ADSL users required capital expenditure in access lines, active equipment and transmission capacity. These investments led to a near doubling in backbone network capacity, a four-fold increase in DSL connection capacity (+350,000 accesses deployed), and increased reliability of wireline access. In 2004, capital expenditure related mainly to the optimization of the switching network and the extension of ADSL capacity. In 2007, investments will be focused on increasing the capacity due to DSL traffic and Mobile traffic using the fixed-line network, on service platforms and on completion of the submarine cable. Capital expenditure on information systems Maroc Telecom s expenditure on information systems is intended to: industrialize network planning, administration and management; optimize, integrate and increase the reliability of the Company s technical, commercial, human resource, administrative and financial processes. In the period from , the principal investments on information systems were: 2004: implementation of the first section of the Finance system (introduction of the first version of an integrated management software package), overhaul of the Fixedline system (introduction scheduled for early 2005) and optimization of data storage solutions; 2005: introduction of the Fixed-line system, changes to the Finances, Purchasing and HR systems and installation of cross back-up sites for Rabat-Casablanca; 2006: changes to the Fixed-line system (Fixed-line and 128

131 5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT Internet invoicing, set up and activation), continue installing back-up sites and further changes to the Finances systems. In 2007, expenditure on information systems will be shared roughly equally between the Fixed-line and Internet sales systems, the Mobile sales systems, the Network and Financial systems, automation systems and production platforms (back-up, monitoring ). Other non-current financial assets At December 31, 2006, other non-current financial assets included investments totaling MAD2,354 million in nonconsolidated companies (compared with MAD54 million in 2005 and MAD53 million in 2004) and loans to employees totaling MAD70 million (compared to MAD82 million in 2005 and MAD99 million in 2004) and an overdraft extended to Medi-1-Sat for the sum of MAD14 million refundable as from The Group s various financial investments and divestments over the past three years can be summarized as follows: In 2004, Maroc Telecom sold its stake in New Skies Satellite for MAD11 million, pursuant to the decision of the extraordinary general meeting of shareholders approving the sale of the company to the blackstone investment fund. In 2005, Maroc Telecom sold its stake in Intelsat for MAD62 million, pursuant to the decision of the extraordinary general meeting of shareholders, acquired a minority stake in the Medi-1-Sat fund for around MAD12 million and participated in the Sindibad fund capital increase (MAD1.4 million). In 2006, Maroc Telecom sold its stake in GSM Al-Maghrib for MAD13 million, pursuant to the decision of the shareholders meeting, participated for MAD10 million in Medi-1-Sat s rights issue increasing its share to 27% in the company, created Maroc Telecom belgium with a contribution of MAD17 million and acquired a 51% shareholding in Onatel the burkinabe operator for MAD2,476 million. Capital resources To date, Maroc Telecom has funded its activities mainly through its surplus cash. Accordingly, Maroc Telecom has not taken out any loans since 1996 and has adopted a policy of repaying outstanding debt ahead of schedule. Maroc Telecom repaid almost MAD2.3 billion of outstanding debt ahead of schedule between 2001 and These early redemptions allow Maroc Telecom to reduce its foreign exchange risk. At December 31, 2006, the outstanding balance of unpaid loans was MAD55 million including MAD53 million for Mauritel. The table below shows the breakdown of outstanding debt (excluding accrued interest) by currency for the periods specified: (in millions of Moroccan dirhams) Year ended December 31, Euro US Dollar Other currencies (mainly Mauritanian ouguiya) Moroccan dirham - 48 Outstanding debt Interest accrued Total borrowing Due to its cash flow from operating activities and despite the ordinary dividend and the one-off payout and its equity shareholdings, the Group has a positive cash position as follows: (in millions of Moroccan dirhams) Year ended December 31, Outstanding debt and accrued interests (a) Cash (b) 2,741 7,585 7,414 Net cash position (b) (a) 2,686 7,466 6,498 * Investment securities are treated as cash equivalents if their maturity does not exceed three months. In its reports to the market authorities, Vivendi states that certain of its bank loans and/or bond issues contain standard provisions under which Vivendi undertakes to ensure that its subsidiaries, including the Company, comply with certain commitments such as only carrying out investments, acquisitions or sales of assets in accordance with certain conditions, not granting loans to companies outside the Vivendi group and not providing security for assets in excess of certain defined amounts. The thresholds below which these operations are permitted are often determined on a global basis for all subsidiaries of the Vivendi group, and the Company may not be able to take full advantage of these exclusions in the event that other subsidiaries of Vivendi have already taken advantage of them. In addition, Vivendi loans contain financial ratios that it has undertaken to comply with, such as the maximum ratio of net debt to EbITDA, the minimum ratio of EbITDA to net financial costs and the maximum percentage of net debt taken out by its subsidiaries compared with the 129

132 consolidated Group net debt. These ratios are determined on a consolidated basis and take into account the indebtedness, the financial position and the results of Vivendi subsidiaries, including the Company. Consequently, Vivendi may exercise its power of control over the Company to prevent it from undertaking certain operations to the extent that financing of such operations would not comply with the commitments made by Vivendi with regard to its loans or would result in Vivendi breaching its financial ratio covenants. Not being a party to these loans or commitments, the Company is not capable of estimating the nature or the exact extent of their restrictions or terms contained within the documents, other than those documents that are publicly available. Maroc Telecom cannot guarantee that the Vivendi group has made other commitments that may have an impact on the activities of the Company and its financial resources (see 4.14 Risk factors ). Commitments Maroc Telecom s commitments include the balance of contracts made with suppliers and commitments relating to capital increases or financing requirements for companies in which Maroc Telecom holds a stake. These commitments amounted to MAD1,042 million at December 31, Maroc Telecom also had guarantees and warranties relating to equipment supply contracts for MAD205 million. The table below sets out these commitments (in million of Moroccan dirhams): Commitments given (in millions of Moroccan dirhams) Year ended December 31, Contract guarantees Securitized receivables (Daily receivables) Pledges, mortgages and real security interests Guarantees, security and warranties Other commitments* 1, Total 1, ,133 * balances of contracts with suppliers. Commitments received (in millions of Moroccan dirhams) Year ended December 31, Government guarantee on loans Guarantees, security and warranties 1, Total 1, ,292 Maroc Telecom had MAD66 million in mortgages (collateral and pledges) at December 31, 2006 compared with MAD80 million in 2005 and MAD96 million in

133 5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT Contractual obligations and commercial commitments The table below sets out the contractual obligations borne by Maroc Telecom at December 31, 2006, by maturity: (in millions of Moroccan dirhams) Total < 1 year 1-5 years > 5 years Long-term debts Finance lease obligations Operating leases* Irrevocable purchase obligations Other long-term commitments Total * long-term vehicle leases (excluding tax). Maroc Telecom has no lines of credit, letters of credit, warranties or buy-back obligations. Maroc Telecom entered into an investment agreement with the public authorities of the Kingdom of Morocco in 2006, applicable since April 30, 2006, whereby Maroc Telecom agreed to implement a capital expenditure program over three years of MAD7,410 million and create 150 new jobs during the period In return, the public authorities agreed to exonerate Maroc Telecom from customs duty for all capital goods imported. by December 31, 2006 Maroc Telecom s capital expenditure under this program totaled MAD2,836 million Disclosure of qualitative and quantitative information about market risks The group is exposed to various market risks connected with its business. Foreign exchange risk Maroc Telecom is exposed to changes in exchange rates as the breakdown of its foreign currency receipts differs from the breakdown of its foreign currency disbursements. Foreign currency receipts and disbursements represent a significant portion of the company s activity. Maroc Telecom s foreign currency receipts relate to revenues from international operations and its foreign currency disbursements relate to the servicing of debt, payments to suppliers (in particular concerning investments and purchases of handsets) and payment for interconnection with foreign operators. These disbursements are mainly denominated in euros. The portion of foreign currency disbursements denominated in euros, excluding Mauritel, was 73% at December 31, 2006, out of an aggregate of MAD6,320 million. These foreign currency disbursements exceed the amount of foreign currency receipts (MAD3,331 million in 2006). In addition, Maroc Telecom had debt of MAD119 million at December 31, 2006, denominated mainly in Mauritanian ouguiyas (see Cash and cash equivalents Capital resources ). Maroc Telecom cannot net its foreign currency disbursements and receipts, as Moroccan law allows it to retain only 20% of its telecom receipts in a foreign currency account. The remaining 80% are converted into Moroccan dirham. Consequently, Maroc Telecom s earnings may be affected by fluctuations in exchange rates, and in particular by fluctuations in the Moroccan dirham against the US dollar or the euro. Finally, Maroc Telecom could be exposed to risks connected with the conversion into Moroccan dirhams of the earnings and assets and liabilities of its non-moroccan subsidiaries in the event that they become significant for Maroc Telecom. In 2006, the euro rose 2.1% in relation to the Moroccan dirham (from MAD at December 31, 2005 to MAD at December 31, 2006). Over the same period, the US dollar 131

134 fell 8.6%, from MAD in 2005 to MAD in The table below sets out the Company s net foreigncurrency positions (excluding Mauritel) at December 31, (in millions) EURO USD Other currencies (Euro equivalent)* Assets Liabilities (161) 0 (6) Net assets (liabilities) (25) 59 (6) Commitments (58) (16) (3) Total net assets (liabilities) denominated in foreign currencies (83) 43 (9) * Assuming Euro1= MAD Nb: (1) the other main currencies are the Japanese Yen (JPY), the Swiss franc (CHF) and the livre sterling (GbP) (2) Exchange rate against in euro and US dollar are calculated by applying the currency-specific proportion of receipts and disbursements made during 2006 to the receivables and payables of foreign operators in Special Drawing Rights (SDR) at December 31, (3) As regards the balance of commitments relating to current agreements, the breakdown by currency is based on the balance observed for such contracts. The group does not use foreign currency hedging instruments. Assets denominated in foreign currencies are mainly receivables from foreign operators. Liabilities denominated in foreign currencies are mainly debts to foreign operators and suppliers. Commitments in foreign currencies are Maroc Telecom s commitments to foreign suppliers. Maroc Telecom is long on the US dollar and short on the euro. Most net foreign-currency assets are euro denominated, and so Maroc Telecom is more exposed to fluctuations in the exchange rate between the euro and the Moroccan dirham. A 1% rise in the euro and US dollar against the Moroccan dirham would have an impact at December 31, 2006 of: + MAD20 million on assets denominated in foreign currencies, - MAD19 million on liabilities denominated in foreign currencies, + MAD1 million on net liabilities, - MAD8 million on commitments, - MAD7 million on total liabilities denominated in foreign currencies. Conversely, a 1% decrease in the euro and US dollar against the Moroccan dirham would have an impact at December 31, 2006 of: - MAD20 million for assets denominated in foreign currencies, + MAD19 million on liabilities denominated in foreign currencies, - MAD1 million on net liabilities, + MAD8 million on commitments, + MAD7 million on total liabilities denominated in foreign currencies. Liquidity risk As regards the various loans taken out by the Company, it is not exposed to any risk of forced early redemption resulting from covenants or other clauses. In addition, the loans taken out by the Company are secured by the Moroccan government. The Company has not securitized any of its accounts receivable. 132

135 5. FINANCIAL REPORT CONSOLIDATED INCOME STATEMENT Interest-rate risk The table below sets out outstanding debt by creditor at December 31, 2006: (in millions of Moroccan dirhams) Interest rate Maturity December 31, December 31, December 31, % AbCI EUR13.9 m 08/95-02/ % 18/02/ AbCI EUR7.2 m 09/96-03/ % 28/03/ NATEXIS EUR2.7 m 12/95-06/ % 03/06/ HSbC CCF EUR10.5 m 01/96-07/ % 11/07/ HSbC CCF EUR11.5 m 09/95-03/ % 15/03/ KFWF EUR18.7 m 01/97-04/ % 09/04/ SEE USD69 m 07/98-01/ % 11/01/ SEE USD20.7 m 01/01-07/ % 10/07/ Mauritanian government (October 2000) 8.00% 18/01/ Others 8.00% bank overdrafts 48 Borrowings and other financial liabilities The table below sets out net cash position by maturity: Year ended December 31, 2006: (in millions of Moroccan dirhams) < 1 year 1-5 years > 5 years Total borrowings Facilities and overdrafts 0 Borrowings and other financial liabilities Cash and cash equivalents 2,741 2,741 Net cash position 2,697 (11) 0 2,686 Year ended December 31, 2005: (in millions of Moroccan dirhams) < 1 year 1-5 years > 5 years Total borrowings Facilities and overdrafts Borrowings and other financial liabilities Cash and cash equivalents 7,585 7,585 Net cash position 7,523 (57) 7,

136 Year ended December 31, 2004: (in millions of Moroccan dirhams) < 1 year 1-5 years > 5 years Total borrowings Facilities and overdrafts Borrowings and other financial liabilities Cash and cash equivalents 7,414 7,414 Net cash position 7,218 (183) (537) 6,498 All loans taken out by Maroc Telecom are fixed-rate loans. Consequently, Maroc Telecom is not exposed to any material impact from favorable or unfavorable changes in interest rates. Surplus cash is invested at market rates. Changes in interest rates on credit balances therefore have a significant impact on investment income: based on the average cash position at December 31, 2006, a 1% increase in the interest rate would lead to additional income of MAD37 million over a one-year investment period; Conversely, based on the average cash position at December 31, 2006, a 1% decrease in the interest rate would lead to a loss of income of MAD37 million over a oneyear investment period. Equity risk Maroc Telecom does not have a significant portfolio of listed equities. As a result, there is no risk relating to changes in the value of such securities Transition from individual financial statements to consolidated financial statements The consolidated financial statements are derived from the individual financial statements of Maroc Telecom and its subsidiaries, as prepared under Moroccan and Mauritanian generally accepted accounting principles. A number of adjustments are made to comply with consolidation rules and to bring the individual financial statements into compliance with the format required by IFRS. For the details of the transition to IFRS, please refer to part II of the financial statements below. The main adjustments to the income statement items are: The cancellation of revenues related to cancelled subscriptions between the date of cancellation and the end of subscription period; The recognition as consolidated operating expenses of retailers commissions. These costs were initially netted against revenues in the individual financial statements; The reclassification of non-current items to operating income, with the exception of variations in the value of fixed assets; The reclassification of the Fidel provision, which is instead netted against revenues; The reclassification under financial income of non-current financial items. The main adjustments to the balance sheet relate to current assets: SIM cards: reclassification of inventories under fixed assets; Non-activated handsets: handsets sold but not activated are restated to take into account the recognition of revenues upon activation. Regarding trade payables, the main restatement entails recording certain operating payables as provisions for liabilities and charges. The changes in presentation do not affect group earnings. Other consolidation adjustments include the elimination of statutory provisions, the determination of deferred taxes, and all consolidation-related operations (such as the elimination of investment securities). 134

137 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS 5.4 Consolidated Financial Statements In compliance with European regulation 1606/2002 of July 19, 2002, the consolidated financial statements of Maroc Telecom were prepared in accordance with IFRS as approved by or in the process of being approved by the European Union (EU) at year-end. The following elements are included for reference: the consolidated financial statements at December 31, 2004 prepared under French GAAP and the related auditors report are presented on pages 100 to 154 and on page 157 respectively of the annual report n R filed with the Autorité des marchés financiers on April 8, 2005; the consolidated financial statements at December 31, 2003 prepared under French GAAP and the related auditors report are presented on pages 122 to 159 and on page 208 respectively of the annual report n I filed with the Autorité des marchés financiers on November 8, The «IFRS 2004 Transition» report was published on September 9, This report on the transition to IFRS as regards 2004 financial information set out, as preliminary information, the expected quantifiable impact of the IFRS adoption on the balance sheet as the transition date (January 1, 2004), the financial position at December 31, 2004 and financial performance in

138 Consolidated balance Sheet at December 31, 2006, 2005 and 2004 (in millions of Moroccan dirhams) ASSETS Note Goodwill Other intangible assets 4 2,415 1,392 1,307 Property, plant and equipment 5 12,460 12,584 11,922 Investments in equity affiliates Other non-current financial assets 7 2, Deferred tax assets Non-current assets 18,095 14,788 14,021 Inventories Trade accounts receivable and other 10 6,928 7,115 5,829 Other current financial assets Cash and cash equivalents 12 2,741 7,585 7,414 Current assets 10,129 15,090 13,663 TOTAL ASSETS 28,224 29,878 27,684 (in millions of Moroccan dirhams) LIABILITIES Note Share capital 5,275 8,791 8,791 Retained earnings 4,247 4,595 3,811 Earnings for the fiscal year- group share 6,739 5,809 5,171 Equity attributable to equity holders of the parent 13 16,261 19,195 17,773 Minority interests Total equity 16,853 19,724 18,201 Non-current provisions borrowings and other non-current financial liabilities Deferred tax liabilities Non-current liabilities Trade accounts payable and other 16 10,278 9,380 7,561 Current income tax liabilities Current provisions borrowings and other current financial liabilities Current liabilities 11,147 9,890 8,602 TOTAL LIABILITIES AND EQUITY 28,224 29,878 27,

139 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Consolidated Income Statement for the years ended December 31, 2006, 2005 and 2004 (in millions of Moroccan dirhams) Note Consolidated revenues 17 22,615 20,542 17,408 Cost of purchases 18 (3,692) (3,879) (3,209) Payroll costs 19 (2,060) (2,056) (1,688) Sundry taxes and duties 20 (771) (680) (398) Other operating income and expenses 21 (2,686) (2,610) (1,781) Net depreciation, amortization and provisions 22 (3,363) (2,639) (2,735) Operating income 10,043 8,678 7,597 Other income (charges) from ordinary activities 7 4 Income from equity affiliates 23 (21) Earnings from continuing operations 10,029 8,695 7,627 Income from cash and cash equivalents Finance expense (7) (13) (29) Net finance costs Other financial income Other financial expense (3) (65) (5) Net financial items Tax expense 25 (3,339) (2,886) (2,574) Earnings 6,833 5,921 5,228 Attributable to the equity holders of the parent 6,739 5,809 5,171 Minority interests Earnings per share (in Moroccan dirhams) Net income-group share 6,739 5,809 5,171 Number of shares as of December ,095, ,095, ,095,340 Earnings per share Diluted earnings per share

140 Consolidated Statement of Cash Flows at December 31, 2006, 2005 and 2004 (in millions of Moroccan dirhams) Note Consolidated earnings (including minority interests) 6,833 5,921 5,228 Net depreciation, impairment and provisions 3,043 2,503 2,833 Non-cash expenses/income 74 (14) (29) Capital gains and losses (6) (33) (23) Net earnings after net finance costs and income tax 9,944 8,377 8,009 Net finance costs (142) (130) (171) Income tax expense (including deferred taxes) 3,339 2,886 2,574 Net earnings before net finance costs and income tax (A) 13,141 11,133 10,412 Tax paid (b) (3,152) (3,084) (2,420) Change in WCR related to operating activities (C) 1, (186) Cash flow from operating activities (D) = (A+B+C) 11,233 8,426 7,806 Purchase of PP&E and intangible assets (3,978) (3,210) (2,488) Proceeds from disposals of PP&E and intangible assets Purchase of non-consolidated investments (2,481) (13) Proceeds from disposals of non-consolidated investments Change in long-term debt (3) Effects of changes in scope of consolidation (*) Cash flow used in investing activities (E) (6,435) (3,119) (2,281) Dividends paid during the year (**) 13 (6,142) (4,424) (5,154) Principal payments on borrowings (79) (757) (853) Net interest paid & received Changes in share capital (share capital reduction) (3,516) Cash flow used in financing activities (F) (9,615) (5,098) (5,846) Foreign currency translation adjustments (G) (27) 11 (13) Change in cash and cash equivalents (D+E+F+G) 12 (4,844) 219 (334) ( * ). Mauritel has been fully consolidated by Maroc Telecom since July 1, Mobisud has been fully consolidated since November 1, ( ** ) Dividends paid:. MAD6,119 million paid by Maroc Telecom.. MAD23 million paid by Maroc Telecom to minority shareholders. 138

141 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Changes in Equity at December 31, 2006, 2005 and 2004 Share Other Cumulative Earnings & Attributable (in millions of Moroccan dirhams) Note Capital adjustments translation retained to equity Minority Total differences earnings holders of interests the parent Balance at January 1, ,791 8,965 17, ,823 Dividends 13 (5,124) (5,124) - (5,124) Earnings for the year 5,171 5, ,228 Income & charges recorded directly in equity (12) (18) (30) (30) (25) (55) Current charges and income 0 (12) (18) 5,141 5, ,173 Changes in scope of consolidation (*) Balance at December 31, ,791 (12) (18) 8,982 17, ,201 Dividends 13 (4,396) (4,396) (28) (4,424) Earnings for the year 5,809 5, ,921 Income & charges recorded directly in equity Current charges and income ,825 5, ,959 Changes in scope of consolidation (*) (8) (8) (4) (12) Balance at December 31, ,791 (12) (2) 10,404 19, ,724 Dividends 13 (6,121) (6,121) (31) (6,152) Earnings for the year 6,739 6, ,833 Income & charges recorded directly in equity (36) (36) (36) (34) (70) Current charges and income 0 0 (36) 6,703 6, ,763 Share capital reduction (3,516) 0 (3,516) 0 (3,516) Changes in scope of consolidation (*) Balance at December 31, ,276 (12) (37) 10,986 16, ,853 (*) Change in scope of consolidation: Mauritel has been fully consolidated by Maroc Telecom since July 1, Acquisition of an additional 0.527% stake in CMC, in the first quarter of Mobisud has been fully consolidated since November 1, Maroc Telecom s share capital comprises 879, 095, 340 ordinary shares. Ownership of these shares is as follows: Kingdom of Morocco: 34%; Vivendi: 51% via its wholly-owned subsidiary Société de Participation dans les Télécommunications (SPT); Other: 15% Retained earnings mainly comprise undistributed earnings of MAD3,424 million recorded at December 31, 2006 and current earnings attributable to the equity holders of the parent. It should be noted that the nominal value of shares decreased from MAD100 to MAD10 in 2004 and from MAD10 to MAD6 in The shares were fully paid up at December 31, There is no privilege, restriction or particular interest attached to the shares. In addition, the shares are not held by Maroc Telecom or by one or several of its subsidiaries. 139

142 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Accounting principles and valuation methods 1.SIGNIFICANTS EVENTS In February 2006, CMC acquired an additional 0.527% stake in Mauritel SA; In March 2006, the sale of 35% of GAM for MAD13 million generated a capital loss of MAD12 million; In May 2006, Maroc Telecom paid out MAD6,119 million in dividends; In May 2006, Maroc Telecom participated in the capital increase of Medi-1-Sat and increased its stake to 26.8% from 24.7% at December 31, 2005, for the sum of MAD10 million; In June 2006, Maroc Telecom launched TV over ADSL; In June 2006, Maroc Telecom decreased its share capital by MAD3,516 million; In June 2006, Maroc Telecom launched a voluntary redundancy plan, effective from 2006 through 2007 for a total cost of MAD300 million; In June 2006, the universal service executive committee granted Maroc Telecom a subsidy of MAD178 million for the completion of the universal service program proposed by Maroc Telecom for In respect of this amount, Maroc Telecom will be bound to pay MAD195 million to the universal service fund as its contribution for This amount was provisioned in the financial statements at December 31, 2006; At June 30, 2006, Mauritel SA implemented two voluntary redundancy plans involving 192 employees for a total cost of MAD29 million; In July 2006, Maroc Telecom belgique was set up. It is wholly owned by Maroc Telecom; In November 2006, Maroc Telecom was awarded a third generation mobile licence for a total cost of MAD372 million; In November 2006, Maroc Telecom acquired a 66% stake in SFR6, renamed Mobisud for an amount of MAD74 million, alongside its stake in SAHAM (18%) and SFR (16%); In December 2006, Maroc Telecom belgique s share capital increased MAD16.8 million; On December 29, 2006, Maroc Telecom acquired a 51% stake in Onatel for a total cost of MAD2,476 million, financed by cash and cash equivalents. New management was appointed by Maroc Telecom at the beginning of January ACCOUNTING PRINCIPLES AND VALUATION METHODS The group companies are consolidated on the basis of the full-year financial statements at December 31, 2006, with the exception of Medi-1-Sat whose financial statements were prepared at November 30, The financial statements and notes were approved by the executive committee on February 20, basis OF PREPARATION In accordance with European regulation 1606/2002 of July 19, 2002 concerning the adoption of International Financial Reporting Standards (IFRS), the consolidated financial statements of Maroc Telecom for the year ended December 31, 2006 have been prepared in accordance with the IFRS set out by the International Accounting Standards board (IASb) and effective at December 31, 2006, as approved by the European Union (EU). For comparison purposes, the 2006 financial statements present 2005 and 2004 financial information. The group has applied all of the new standards, interpretations and amendments published by the IASb and mandatory in the European Union from January 1, Restatement of 2005 and 2004 financial information was not required as its impact was immaterial STATEMENT OF COMPLIANCE The consolidated financial statements of Maroc Telecom group have been prepared in accordance with IFRS. In its consolidated financial statements at December 31, 2006, Maroc Telecom has included consolidated financial information for 2005 and 2004: 1. All mandatory IFRS and IFRIC interpretations at December 31, All these standards and interpretations have been adopted by the EU. 2. Early implementation as of January 1, 2004: IAS 32 and IAS 39 on financial instruments, Maroc Telecom is not concerned by any sections of IAS 39 not adopted by the EU. Maroc Telecom has consequently applied IAS 39 (see note 15) in full to its 2004 comparative financial statements and 2005 consolidated financial statements. 3. The following option, pending publication of an IASb or IFRIC text on the matter: Pending an IASb or IFRIC interpretation, Maroc Telecom does not accrue loyalty bonuses granted to customers for the replacement of their mobile phone that do not result in 140

143 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS an additional cost relative to the benefit granted to new customers at the inception date of a contract. Loyalty bonuses convertible into free services are accrued. The accounting methods selected in conformity with IFRIC D 20-IAS 18 interpretation relating to Customer Loyalty Program. Maroc Telecom did not opt for the early implementation of the following standards, amendments and interpretations: IFRS 7 Financial Instruments: Disclosures, this text has been applied since January 1, 2007; Amendment of IAS 1 Presentation of Financial Statementscapital information, mandatory since January 1, Nevertheless, Maroc Telecom, in the presentation of its accounts, is analysing the practical consequences and the impact of implementing these new standards basis OF PREPARATION The consolidated financial statements have been prepared in accordance with the historical cost principle, with the exception of certain asset and liability categories detailed below, in accordance with IFRS. The consolidated financial statements are presented in Moroccan dirhams and all figures are rounded up or down to the closest million unless otherwise stated. They include Maroc Telecom s financial statements as well as its subsidiaries financial statements after elimination of intra-group items and transactions Income statement Maroc Telecom prepares its consolidated income statement according to a format detailing revenue and expenses based on their nature. Operating income and earnings from continuing operations. Operating income comprises revenues, cost of purchases, payroll costs, sundry taxes and duties, other operating income and expenses as well as amortization, depreciation, impairment and net provisions. Earnings from continuing operations includes operating income, other income and expense from continuing operations (including impairment of goodwill and other intangible assets) as well as income (loss) from equity affiliates. Interest and other financial expense and income. Net interests include: Gross interest, which includes interest expenses relating to borrowings calculated at the effective interest rate; Financial income from cash and cash equivalents. Other financial expense and income primarily include foreign exchange gains and losses (other than relating to operating activities classified in operating income), and dividends received from non-consolidated interests, and the results of consolidated operations or companies that do not qualify as discountinued operations balance sheet Assets and liabilities expected to be realized in, or intended for sale or consumption in the entity s normal operating cycle, usually less than 12 months, are recorded as current assets or liabilities. If their maturity exceeds this period, they are recorded as non-current assets and liabilities Consolidated statement of cash flows Maroc Telecom prepares its consolidated statement of cash flows using the indirect method. Working capital requirements correspond to balance sheet items, which include trade receivables, inventories, provisions and accounts payable Use of estimates In connection with the preparation of its financial statements, Maroc Telecom must make estimates and certain assumptions. Maroc Telecom s management bases its estimates on past experience and on various other assumptions that it deems reasonable under the circumstances. These estimates permit an evaluation of the appropriateness of book value. The figures derived from such estimates and assumptions could differ if other estimates or assumptions had been used. The main items calculated on the basis of estimates are provisions for litigation, restructuring provisions and impairment of accounts receivable, inventories and deferred income. Management reviews its estimates and valuations regularly based on past experience and various other assumptions that it deems reasonable, which constitute the basis of its evaluations of the book value of its assets and liabilities. The impact of the change in estimates is booked in the current period and all subsequent periods Principles of consolidation The generic name Maroc Telecom refers to the group of companies of which Itissalat Al-Maghrib SA is the parent. A list of Maroc Telecom s major subsidiaries and affiliates is presented in note 2 Scope of consolidation at December 31, 2006, 2005 and The accounting methods described below were applied consistently to all of the periods presented in the consolidated financial statements, as well as in the preparation of the opening balance sheet at January 1, 2004 for the purpose of the IFRS transition. The accounting methods were applied in a uniform manner by all group entities. 141

144 Full consolidation All companies in which Maroc Telecom has a controlling interest, specifically when it has the power to direct the financial and operating policies of these companies to obtain benefits from their operations, are fully consolidated. A controlling position is assumed to exist where Maroc Telecom holds, directly or indirectly, a voting interest exceeding 50%, and where no other shareholder or group of shareholders exercises a significant right that would enable it to veto or to block ordinary decisions taken by Maroc Telecom. The subsidiaries financial statements are included in the consolidated financial statements from the date control is obtained to the date control ceases. A controlling position also exists where Maroc Telecom holds an interest of 50% or less in an entity, but control over more than 50% of the voting rights by virtue of an agreement with other investors, has the power to direct the financial and operating policies of the entity by virtue of a statute or contract, has the power to appoint or remove from office the majority of the members of the board of Directors or equivalent management body, or has the power to assemble the majority of voting rights at meetings of the board of Directors or equivalent management body. Proportionate consolidation Maroc Telecom uses proportionate consolidation for companies that are controlled jointly by the Group and a limited number of other shareholders under the terms of a contractual arrangement. Equity accounting Maroc Telecom accounts for affiliates over which it exercises significant influence under the equity method. Significant influence is assumed to exist where Maroc Telecom holds, directly or indirectly, at least a 20% voting interest in an entity, unless it can be clearly demonstrated that this is not the case. The existence of significant influence can be proven on the basis of other criteria, such as representation on the board of Directors or equivalent management body of the entity, participation in the process of policy definition, the existence of material transactions with the entity or exchange of management personnel. Transactions eliminated when preparing the consolidated financial statements Revenues, expenses and balance sheet items resulting from intra-group transactions are eliminated when preparing the consolidated financial statements Goodwill and business combinations In accordance with the provisions of IFRS 1 First time adoption of IFRS, Maroc Telecom decided not to restate business combinations prior to January 1, business combinations are recorded using the purchase method. Under this method, the assets acquired and the liabilities and contingent liabilities assumed are recognized at their fair value. At the acquisition date, goodwill is initially measured at cost, being the excess of the cost of the business combination over Maroc Telecom s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Subsequently, goodwill is measured at cost less accumulated impairment. Goodwill is allocated to each cash-generating unit, and is then subject to impairment tests each year, or more frequently when events indicate a risk of impairment. In the event of a loss in value, impairment is recorded under Other charges from ordinary activities. In the event of the acquisition of an additional interest in a subsidiary, the excess of the acquisition cost over the carrying amount of minority interests acquired is recognized as goodwill. In accordance with IFRS 3, goodwill is no longer amortized Foreign currency translation Foreign currency transactions are initially recorded in the functional currency at the transaction date exchange rate. At period end, monetary assets and liabilities denominated in a foreign currency are translated into the functional currency at the period-end exchange rate. All foreign currency adjustments are expensed for the period Translation of financial statements of foreign activities Assets and liabilities relating to foreign activities, including goodwill and fair value adjustments arising from consolidation, are translated into Moroccan dirhams at the period-end rate. Income and expense items are translated into Moroccan dirhams using rates that approximate the exchange rates at the dates of the transactions. Foreign currency translation adjustments resulting from the application of these different rates are recorded as a separate line item within shareholders equity Assets Other intangible assets Intangible assets acquired separately are recorded at cost, and intangible assets acquired in connection with a business combination are recorded at their fair value at the acquisition date. The historical cost model is applied to intangible assets subsequent to their initial recognition. Assets with a finite useful life are amortized. Useful life is reviewed at the end of each reporting period. Useful life is estimated between 2 and 5 years. Trade names, subscriber bases and market shares generated internally are not recognized as intangible assets. 142

145 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Licenses to operate telecom networks are recorded at historical cost and amortized on a straight line basis from the effective starting date of the service until maturity. Maroc Telecom has chosen not to apply the option provided in IFRS 1 to remeasure certain intangible assets at their fair value at January 1, The 3G licence of Maroc Telecom is recorded in intangible assets for a total cost of MAD372 million, which includes the licence fee (MAD300 million) and the cost of the contribution to frequency spectrum planning (MAD72 million). It is amortized over 25 years from the launch of the service. The 3G licence of Mauritel is recorded under intangible assets for a total cost of MAD10 million and is amortized over 15 years. Subsequent expenditure on intangible assets is only added to these assets if the probable future economic benefits specific to the asset to which they relate increase. All other expenditure is expensed in the period in which it is incurred Research and development costs Research costs are expensed when incurred. Development expenses are capitalized when the feasibility and profitability of the project can reasonably be considered certain. In compliance with IAS 38 Intangible assets, development costs are capitalized only after the technical and financial feasibility of the asset for sale or use have been established, where it is probable that the future economic benefits attributable to the asset will flow to the company and where the cost of the asset can be measured reliably. Research and development costs incurred by Maroc Telecom are not significant Property, plant and equipment Property, plant and equipment are carried at historical cost less accumulated depreciation and impairment. Historical cost includes the acquisition cost or production cost as well as the costs directly attributable to bringing the asset to the location and condition necessary for its use in operations. borrowing costs are recorded as expenses for the period in which they are incurred. When property, plant and equipment include significant components with different useful lives, they are recorded and depreciated separately. Property comprising land and buildings is derived in part from the contribution in kind granted in 1998 by the Moroccan government in connection with the transfer from ONPT to Maroc Telecom, when the latter was established. When these assets were transferred, the property titles could not be registered with the property registry. This situation was still unresolved at the end of December Although this uncertainty over the title of property remains, the risk is limited as the Moroccan government has guaranteed that Maroc Telecom can use the transferred property and there have been no significant incidents to date. The assets transferred by the Moroccan government on February 26, 1998 to set up Maroc Telecom as a public operator were recorded as a net amount in the opening balance sheet, as approved by: the Postal Services and Information Technology Act no ; the joint order no of the Telecommunications Minister and Minister of Finance, Commerce and Industry, approving the inventory of assets transferred to the Maroc Telecom group. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Useful lives are reviewed at the end of each reporting period and are determined as follows: buildings 20 years Civil engineering 15 years Network equipment: Transmission (Mobile) 8 years Switching 8 years Transmission (Fixed-line) 10 years Furniture and fittings 10 years Computer equipment 5 years Office equipment 10 years Transportation equipment 5 years Assets which have not yet been placed into service are recorded as work-in-progress. Assets financed by finance leases are capitalized at the lower of the value of future minimum lease payments and fair value, and the related debt is recorded in borrowings and other financial liabilities. These assets are depreciated on a straight-line basis over their estimated useful lives, with depreciation included in general depreciation expense. Maroc Telecom has chosen not to apply the option provided by IFRS 1 to remeasure property, plant and equipment at fair value at January 1, The book value of an item of property, plant, and equipment includes the replacement cost of a component of such an item if this cost is incurred, if it is probable that the future economic benefits associated with the asset will flow to Maroc Telecom and if the cost can be measured reliably. All maintenance costs are expensed when incurred Impairment of fixed assets Goodwill and intangible assets with an indefinite useful life are subject to an annual impairment test and are also tested whenever there is an indication that they may be impaired. The book value of other fixed assets is also subject to an impairment test whenever there is an indication that the book value may not be recoverable. The impairment test compares the carrying amount with its recoverable amount, 143

146 which is the greater of its fair value less selling costs and its value in use. The recoverable amount is determined for an individual asset unless the asset does not generate cash inflows that are largely independent from those of other assets or groups of assets. If this is the case, as for goodwill, the recoverable amount is determined for the cash-generating unit. Maroc Telecom has determined its fixed-line and mobile businesses as cash-generating units Financial assets Financial assets with a maturity of more than 3 months are classified in one of the following four categories: Assets recognized at fair value through profit and loss; Held-to-maturity financial assets; Loans and receivables; Available-for-sale financial assets. Financial assets recognized at fair value through profit and loss This category comprises financial assets bought in order to be resold in the very near term, and held for trading purposes. Profit and loss arising from changes in the fair value of assets in this category is recorded in the period during which they arise. The principal financial assets recognized at fair value through profit and loss comprise term deposits. Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial assets, other than loans and receivables, with fixed or determinable payments that the group intends and is able to hold to maturity. These assets are initially recognized at their fair value including attributable transaction costs. After initial recognition they are measured at amortized cost using the effective interest rate method. They are subject to impairment tests in the event of objective evidence of impairment. Impairment is booked if the asset's carrying amount is greater than the present value of estimated future cash flows. At December 31, 2006, Maroc Telecom has no held-to maturity financial assets. Loans and receivables This category comprises non-derivative assets where payment is fixed or determinable and which are not listed on any active market. These assets are recognized at amortized cost using the effective interest rate method. These assets are subject to an impairment test in the event that a loss in value is indicated. Impairment is booked if the carrying amount is greater than the estimated recoverable amount. This item includes mainly trade accounts receivable and loans to employees. Available-for-sale financial assets These assets include non-derivative assets that are classified as being either available for sale or that are not allocated to any other category of financial assets. Available-for-sale assets are recognized at fair value. Profit and loss resulting from available-for-sale assets is taken to equity until the financial asset is sold, redeemed or removed from the balance sheet in another way, or until it can be demonstrated that the investment is impaired indefinitely, at which time the accumulated gain or loss previously recorded in equity is expensed. For financial assets actively traded in organized public markets, fair value is determined by reference to the published market price at period end. If the fair value cannot be determined accurately, availablefor-sale assets are stated at cost. In the event of objective evidence that the investment is impaired indefinitely, irreversible impairment is expensed. When an available-for-sale financial asset generates interest, the interest is calculated in accordance with the effective interest method and is charged against income. The main available-for-sale assets are non-consolidated investments in unlisted companies Inventories Inventories comprise: Goods held for sale to customers upon line activation, comprising fixed and mobile handsets and accessories. Inventories are accounted for using the first-in, first-out method. Handsets delivered to distributors and not activated at year-end are recorded as inventories. Handsets not activated within six months from the delivery date are taken to revenues. Equipment and supplies corresponding to non-network equipment. These inventories are measured at their average acquisition cost. Stocks are measured with the weakest of their cost and their net amount of realization. An impairment loss is recognized if the value of an asset is higher of its actual value Trade accounts receivable and other This item comprises accounts receivable and other receivables, which are initially recognized at their fair value, and then at amortized cost less impairment. Accounts receivable include trade receivables and government receivables: Trade receivables: held against individuals, distributors, businesses and international operators; 144

147 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Government receivables: held against local authorities and the Moroccan government. Impairment is recorded if the carrying amount of the asset under consideration exceeds the present value of its estimated future cash flows Cash and cash equivalents Cash and cash equivalents include cash on hand, sight deposits, current accounts and short-term, highly liquid investments with a maturity of three months or less Stock options granted to employees On December 12, 2006, all employees of Maroc Telecom, with more than 6 months service at December 31, 2006, were given 15 Vivendi shares. These shares will be recorded in an individual share account on December 13, As these shares have been granted regardless of whether the employees will remain in post between the allocation period and the registration period in the individual account, the expense for Maroc Telecom was completely provisioned at December 31, 2006 and will be remeasured to present value in the next financial statements. The expense is calculated by multiplying the number of employees by the number of shares given, based on the share price at the date of attribution and a discount reflecting the absence of dividends for the first two years. The corresponding payroll cost is recorded as a financial liability which is measured at fair value at maturity on the basis of changes in the data used to calculate payroll costs Assets held for sale and discontinued operations A non-current asset or a group of assets and liabilities is held for sale when its carrying amount will be recovered principally through its divestiture and not through continuing utilization. To meet this definition, the asset must be available for immediate sale, and divestiture must be highly probable. These assets and liabilities are recognized as assets held for sale and liabilities associated with assets held for sale, and are not netted. The related assets recorded as assets held for sale are stated at the lower of fair value, net of divestiture fees, and cost less accumulated depreciation and impairment, and are no longer depreciated. An operation is considered as discontinued when the criteria for classification as an asset held for sale have been met, or when Maroc Telecom has sold the operation. Discontinued operations are presented as a separate line on the statement of earnings, comprising the earnings after tax of discontinued operations until divestiture and the gain or loss after tax on sale or fair value measurement, less costs to sell the assets and liabilities making up the discontinued operations. In addition, the cash flows generated by the discontinued operations are presented on a separate line of the consolidated statement of cash flows Financial liabilities Financial liabilities include borrowings, accounts payable and bank overdrafts. Borrowings All borrowings are initially accounted for at cost, corresponding to the fair value of the amount received, net of costs directly relating to the borrowing. The allocation of borrowings to current liabilities or noncurrent liabilities is based on contractual maturity. In the context of the first-time adoption of IFRS, Maroc Telecom did not discount borrowings with an interest rate of 0% since repayment by the company had been initiated a long time before and they were repaid in full in July The impact on financial expenses, equity and debt in 2004 and 2005 is presented in note 15. Derivative financial instruments Maroc Telecom currently does not use any derivative financial instruments or currency hedging instruments Provisions Provisions are recognized when, at the end of the reporting period, the Group has a legal, regulatory or contractual obligation as a result of past events, when it is probable that an outflow of resources (without any expected related inflow) will be required to settle the obligation, and when the obligation can be reliably estimated. Where the effect of the time value of money is material, provisions are determined by discounting expected future cash flows using a pre-tax discount rate that reflects current market assessments of the time value of money. If no reliable estimate can be made of the amount of the obligation, no provision is recorded and a disclosure is made in the Notes to the consolidated financial statements. Restructuring provisions are recorded when the Group has approved a formal and detailed restructuring program and has either started to implement the program or has announced the program publicly. Future operating expenses are not provisioned. No provision for pensions and post-retirement benefits for the Group s Moroccan companies have been recorded in the consolidated financial statements as pension expenses are covered by statutory pension plans set up for employees in Morocco Deferred taxes Deferred taxes result from temporary differences arising at period end between the tax basis of assets and liabilities and their carrying amount. They are accounted for using the liability method. 145

148 Deferred tax liabilities are recognized: for all taxable temporary differences, except where the deferred tax liability results from goodwill impairment that is not tax-deductible, or from initial recognition of an asset or liability in a transaction which is not a business combination and which, at the transaction date, does not impact either accounting earnings or taxable earnings or losses; and for taxable temporary differences arising from investments in subsidiaries, affiliates and joint ventures, except where the date on which the temporary difference reverses can be controlled and where it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences and for carry-forwards of tax losses and unused tax credits, if it is probable that a taxable profit will be available, or when a current tax liability exists, to make use of those deductible temporary differences, tax loss carry forwards and unused tax credits: except where the deferred tax asset associated with the deductible temporary difference is generated by initial recognition of an asset or liability in a transaction which is not a business combination, and which, at the transaction date, does not impact either accounting earnings, taxable earnings or taxable losses; for deductible temporary differences arising from investments in subsidiaries, affiliates and joint ventures, deferred tax assets are recorded to the extent that it is probable that the temporary difference will reverse in the foreseeable future, and that taxable profit will be available against which the temporary difference can be utilized. The carrying amount of deferred tax assets is reviewed at each period end, and reduced to the extent that it is no longer probable that a taxable profit will be available to allow the deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the expected tax rates for the year during which the asset will be realized or the liability settled, based on tax rates (and tax regulations) in force or substantially in force by the period end. Current tax and deferred tax is charged or credited directly to equity if the tax relates to items that are credited or charged directly to equity Trade accounts payable Trade accounts payable include other accounts payable. They are initially measured at fair value and subsequently at amortized cost Share-based compensation In accordance with IFRS 2, share-based compensation is recorded as a payroll cost at the value of the equity instruments granted, measured using a binomial model. However, the calculation of the share-based payment expensed depends upon whether the obligation is settled in Maroc Telecom s shares or in cash: If the instrument is settled in shares, the fair value of the instrument granted is measured and fixed at the grant date, then spread over the vesting period, according to the characteristics of equity-settled instruments.the obligation is recorded as a corresponding increase in equity; If the share-based payment transaction is settled in cash, the fair value is measured and fixed at the initial grant date, then remeasured at each year-end and adjusted for subsequent changes in the value of the vested rights. The expense is spread over the vesting period in accordance with the characteristics of the instruments. The corresponding obligation is booked as a non-current provision. Maroc Telecom chose the retrospective application of IFRS 2 from January 1, The grant of free shares by the parent campany led to the recognition of additional payroll costs and the corresponding liability measured at fair value Revenues Revenues from operations are reported when it is probable that future economic benefits will flow to the Group, and that these revenues can be reliably measured. Maroc Telecom group generates revenues from fixed and mobile telecommunications services, internet services, and the sale of products, which essentially comprise mobile and fixed-line handsets and multimedia equipment. Revenues from telephone subscriptions are recognized on a straight-line basis over the subscription contract period. Revenues from incoming and outgoing call traffic are recognized when the service is rendered. For prepaid services, revenues are recognized as calls are made. Revenues from fixed-line and internet and mobile services comprise: income from domestic and international outgoing and incoming calls under postpaid plans, which is recorded when generated; income from subscriptions; income from prepaid services, which is recognized as calls are made; income from data transmission services provided to professionals and internet service providers as well as to other telecommunications operators; income from advertising in printed and electronic directories, which is recognized when the directories are published. 146

149 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Revenues from the sale of handsets, net of point-of-sale discounts and connection charges, are recognized on activation of the line. Customer acquisition and loyalty costs for mobile and fixed-line services, principally consisting of rebates on the sale of equipment to customers through distributors, are recognized as a deduction from revenues. Sales of services provided to subscribers managed by Maroc Telecom on behalf of content providers (mainly special-rate numbers), are accounted for net of related expenses. When the sale is made via a third party distributor supplied by Maroc Telecom and involves a discount compared with the public sale price, revenues are recorded as gross revenues and commissions granted are recognized as operating expenses Cost of purchases Cost of purchases comprises the purchase of mobile and fixed-line handsets and interconnection costs Other income (expenses) from operations This item comprises commissions to distributors, network maintenance expenses, advertising, marketing and promotion costs and expenses linked to the voluntary redundancy plan Net finance costs Net finance costs include interest expense on loans calculated using the effective interest rate method and interest income on investments. Investments are recognized in the consolidated statement of earnings when they are acquired Income tax expenses Income tax expenses include income tax payable and deferred tax expense (or income). Tax is expensed unless it applies to items recognized as equity CONTRACTUAL ObLIGATIONS AND CONTINGENT ASSETS AND LIAbILITIES Once a year, Maroc Telecom and its subsidiaries prepare detailed records on all contractual obligations, commercial and financial commitments and contingent obligations, to which they are party or exposed. These detailed records are updated on a regular basis by the departments concerned and reviewed by senior management. The assessment of off-balance sheet commitments relating to suppliers of fixed assets is carried out in the following way: Variation of minimum commitments and settlements relating to the principal framework contracts and their endorsements (higher than MAD50 million) Variation between firm orders and delivery for all the other contracts. Commitments arising from fixed asset contracts are based solely on the contracts included in the reporting system. In addition, commitments arising from real estate rental contracts are estimated on the basis of one month s expense given that virtually all termination clauses require one month s notice SEGMENT DATA A segment is a distinguishable component of the group that is engaged in providing a product or service or a group of related products or services (business segment), or in providing a product or service in a specific economic environment (geographical segment) that generates significant revenue from external customers, and that is subject to risks and rewards that are different from those of other business segments business segment data The group s business is divided into fixed-line, internet and mobile segments. Revenues from each business segment include revenues from the provision of telephone services to customers and subscribers as well as inter-segment transactions. Intersegment transactions are conducted at market price. Operating income reflects the difference between operating income and expenses. Costs are allocated directly to the relevant segments or alternatively by using cost allocation ratios based on economic criteria. Capital expenditure is directly allocated to the relevant segments. Fixed assets used by several segments are allocated in proportion to dedicated assets. The classification of the balance sheet by business segment was in part based on estimates. The classification used is based on reasonable assumptions. The following items of the balance sheet are allocated proportionally between the two activities: For items comprising elements that can be allocated directly to a segment and elements shared by both segments: the shared part of these items is divided proportionally in respect of the amounts allocated directly to these items. For items comprising solely shared elements: these amounts are allocated in a way that takes into account the type of items involved (e.g. employee-related liabilities are divided proportionally based on the number of employees in each business segment) Geographical data Information by geographical area is the second level of segment data and comprises the two geographical areas in which Maroc Telecom is present: Morocco and other. 147

150 2.6. NET CASH FLOW This item includes cash and cash equivalents less borrowings, and excludes short-term financial assets (term deposits) with a maturity exceeding three months EARNINGS PER SHARE Earnings per share, as presented in the consolidated statement of earnings, are calculated by dividing earnings for the period by the average number of shares outstanding over the period. Diluted earnings per share are calculated by dividing the: the earnings attributable to the equity holders of the parent; by the average number of shares outstanding over the period, plus the average number of shares that would have been issued upon conversion of all instruments that can potentially be converted into ordinary shares. At December 31, 2006, there were no instruments that could potentially be converted into ordinary shares. 148

151 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Note 2. Scope of consolidation at December 31, 2006, 2005 and 2004 Company name Legal form % group % capital Consolidation Address interest held method Maroc Telecom SA 100% 100% FC Avenue Annakhil Hay Riad Rabat - Morocco Compagnie Mauritanienne de Communication (CMC) SA December 31, % 80% FC December 31, % 80% FC Avenue Roi Fayçal Nouakchott - Mauritania Mauritel SA SA December 31, % 52% FC December 31, % 51% FC Avenue Roi Fayçal 7000 Nouakchott - Mauritania Mauritel Mobiles SA December 31, % 52% FC December 31, % 51% FC Av. Charles de Gaulle, Ilot Nouakchott - Mauritania Mobisud SA December 31, % 66% FC 55, avenue Hoche, Paris - France Medi-1-Sat SA December 31, % 27% EM Zone franche, lot n 31 bp Tanger - Morocco GSM Al-Maghrib (GAM) SA December 31, December 31, % 35% EM 17, Immeuble la Régence, Lotissement la Colline II, Sidi Maârouf Casablanca - Morocco Maroc Telecom is a Moroccan corporation, its main activity being the sale of telecommunications goods and services. Its registered office is located at Avenue Annakhil Hay Riad Rabat, Morocco. Maroc Telecom is fully consolidated by Vivendi. Maroc Telecom acquired Mauritel SA and its subsidiary, Mauritel Mobiles SA, in April 2001, through a shareholders agreement conferring participating veto rights to the Mauritanian government. Those veto rights were effective until June 30, Mauritel group has been fully consolidated in the financial statements of Maroc Telecom group since July 1, During the first quarter, Maroc Telecom acquired 0.527% of Mauritel. In March 2006, Maroc Telecom sold a 35% stake in GSM Al- Maghrib. Prior to this date the company was accounted for using the equity method. Mobisud has been fully consolidated since November 1, At the end of December 2006, Maroc Telecom held 26.8% of Medi-1-Sat, up from 24.7% at the end of December because of a lack of activity in 2005, Medi-1-Sat has only been accounted for using the equity method since Other companies in which Maroc Telecom holds a stake (see note 7) have not been consolidated as their impact on the group s financial statements is immaterial. 149

152 Note 3. Goodwill at December 31, 2006, 2005 and 2004 December 31, December 31, December 31, Mauritel Mobisud Net total Goodwill is subject to impairment tests each year or more frequently when events indicate a risk of impairment. Impairment of goodwill is tested for each identifiable cash generating unit (CGU). The impairment of goodwill test compares the carrying amount of each CGU with discounted expected future cash flows. CGUs correspond to businesses within each business segment (fixed-line and mobile). Valuations are based on the following main assumptions: The impairment of goodwill test is based on a 3 year business plan; The terminal growth rate is estimated at 2.53%. This assumption takes into account the level of inflation in the country, and the growth potential in the telecommunications market and Moroccan economy due to the oil industry; Mauritel s discount rate calculated using the weighted average cost of capital is estimated at 12%. (in millions of Moroccan dirhams) beginning Impairment Translation Other End of period adjustment period December 31, Mauritel December 31, (8) 129 Mauritel 137 (8) 129 December 31, Mauritel Mobisud Mobisud has been fully consolidated since November 1, In the first quarter of 2006, Maroc Telecom acquired 0.527% of Mauritel. Note 4. Other intangible assets at December 31, 2006, 2005 and 2004 (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Patents, trademarks, and similar rights Mobile License Other intangible assets 1, Net total 2,415 1,392 1,307 "Other intangible assets" includes primarily telecommunications network equipment, software and work in progress. Intangible assets in progress increased considerably in 2006 due to a large volume of investments in intangibles relating to: mobile network (IN platform; new value added services; network software upgrades); fixed-line network (ADSL; optical fibres; corporate networks); information systems (GISR Lot2 and WIAM). The item Mobile license includes the 2G license of Mauritel acquired in 2000 and two 3G licences acquired respectively by Maroc Telecom and Mauritel. 150

153 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Year ended 2006 (in millions of Moroccan dirhams) 2005 Acquisitions Disposals Translation Changes in Reclas & additions and adjustment scope of sification withdrawals consolidation Gross 3,128 1,149 (7) (26) ,625 Patents, trademarks and similar rights (1) Mobile license (17) Other intangible assets 2, (7) (8) ,222 Amortization and impairment (1,737) (564) (2,210) Patents, trademarks and similar rights (262) (135) (396) Mobile license (79) (15) (88) Other intangible assets (1,396) (414) 5 79 (1,726) Net total 1, (7) (14) ,415 Year ended 2005 (in millions of Moroccan dirhams) 2004 Acquisitions Disposals Translation Changes in Reclas & additions and adjustment scope of sification withdrawals consolidation Gross 2, (15) ,128 Patents, trademarks and similar rights Mobile license Other intangible assets 1, (15) ,330 Amortization and impairment (1,201) (519) 15 (3) 0 (29) (1,737) Patents, trademarks and similar rights (176) (85) 0 (261) Mobile license (61) (15) (3) 0 (79) Other intangible assets (963) (419) 15 (29) (1,396) Net total 1,307 (377) ,392 Year ended 2004 (in millions of Moroccan dirhams) Jan. 1, Acquisitions Disposals Translation Changes in Reclas- Dec.31, 2004 & additions and adjustment scope of sification 2004 withdrawals consolidation Gross 1, (26) (13) ,507 Patents, trademarks and similar rights Mobile license (13) Other intangible assets 1, (26) 76 1,898 Amortization and impairment (842) (324) 25 4 (62) 0 (1,200) Patents, trademarks and similar rights (92) (78) (6) (176) Mobile license (8) 4 (56) (61) Other intangible assets (750) (238) 25 (963) Net total 1,003 (64) (1) (9) ,307 The reclassification column concerns movements of intangible assets between line items and the restatement of retired assets that were not adjusted in the individual financial statements. 151

154 Note 5. Property, plant and equipment at December 31, 2006, 2005 and 2004 (in millions of Moroccan dirhams) Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004 Land buildings 1,544 1,500 1,711 Technical plant, machinery and tooling 6,810 6,336 6,427 Transportation equipment Office equipment, furniture and fittings Other property, plant and equipment 2,425 3,078 2,076 Net total 12,460 12,584 11,922 The majority of other property, plant and equipment includes technical installations in progress relating to the telecommunications network. The audit of work in progress led to a decrease in this item in 2006 despite increased capital expenditure. Year ended 2006 (in millions of Moroccan dirhams) 2005 Acquisitions Disposals Translation Changes in Reclassi and additions and adjustment scope of fication withdrawals consolidation Gross 30,140 2,829 (276) (91) 1 (745) 31,858 Land (1) (1) buildings 3, (2) (5) 311 4,048 Technical plant, machinery and tooling 20, (71) 1,962 22,015 Transportation equipment (22) (2) Office equipment, furniture and fittings 1,900 7 (3) ,127 Other property, plant and equipment 3,396 2,700 (252) (9) (3,258) 2,578 Depreciation and impairment (17,557) (2,188) (285) (19,398) Land 0 0 buildings (2,232) (273) 1 2 (2,503) Technical plant, machinery and tooling (13,678) (1,827) (15,205) Transportation equipment (74) (10) 21 2 (60) Office equipment, furniture and fittings (1,254) (243) 2 19 (1,476) Other property, plant and equipment (318) (153) Net total 12, (254) (52) 1 (461) 12,460 Year ended 2005 (in millions of Moroccan dirhams) 2004 Acquisitions Disposals Translation Changes in Reclassi and additions and adjustment scope of fication withdrawals consolidation Gross 27,432 3,067 (48) 55 0 (365) 30,140 Land buildings 3, ,733 Technical plant, machinery and tooling 18, (17) 45 1,245 20,014 Transportation equipment (5) Office equipment, furniture and fittings 1,736 4 (22) ,900 Other property, plant and equipment 2,316 2,946 (4) 3 (1,865) 3,396 Depreciation and impairment (15,510) (2,161) 29 (21) (17,557) Land buildings (1,975) (256) (1) (2,232) Technical plant, machinery and tooling (12,209) (1,567) 17 (18) 98 (13,678) Transportation equipment (63) (14) 4 (1) (74) Office equipment, furniture and fittings (1,023) (245) 8 (1) 7 (1,254) Other property, plant and equipment (240) (78) (318) Net total 11, (19) 34 0 (260) 12,

155 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Year ended 2004 (in millions of Moroccan dirhams) Jan. 1, Acquisitions Disposals Translation Changes in Reclassi- Dec and additions and adjustment scope of fication 31, withdrawals consolidation 2004 Gross 24,762 2,228 (316) (63) 1,029 (208) 27,432 Land 886 (1) buildings 3,543 7 (3) ,687 Technical plant, machinery and tooling 16, (195) (53) 777 1,513 18,635 Transportation equipment (39) (2) Office equipment, furniture and fittings 1,556 2 (28) (2) ,736 Other property, plant and equipment 2,270 2,011 (54) (3) 123 (2,031) 2,316 Depreciation and impairment (13,078) (2,342) (372) (15,510) Land buildings (1,708) (256) 1 (13) (1,976) Technical plant, machinery and tooling (10,300) (1,800) (322) (12,209) Transportation equipment (99) (13) 66 1 (19) (63) Office equipment, furniture and fittings (749) (256) 1 (19) (1,023) Other property, plant and equipment (222) (18) (240) Net total 11,684 (114) (58) (39) 657 (208) 11,922 The reclassification column concerns movements of property, plant and equipment between line items. Note 6. Investment in equity affiliates at December 31, 2006, 2005 and Principal investments in equity affiliates at December 31, 2006, 2005 and 2004 % interest Value of equity affiliates (in millions of Moroccan dirhams) Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Medi-1-Sat 26.8% 9 GSM Al-Maghrib 35.0% 35.0% 22 8 Net total Sale of Maroc Telecom s stake in GSM Al-Maghrib during the first quarter of In 2005, Maroc Telecom invested in Medi-1-sat. The campany was consolidated for the first time in 2006 because of a lack of activity in Financial information relating to equity affiliates at December 31, 2006, 2005 and 2004 (in millions of GSM Al-Maghrib Moroccan dirhams) Dec. 31, Dec. 31, Dec. 31, Revenues 1,373 1,117 Operating income 56 4 Net earnings 28 NS Total assets and liabilities (in millions of Medi-1-Sat Moroccan dirhams) Dec. 31, Dec. 31, Dec. 31, 2006 ( * ) Revenues Operating income (45) (1) Net earnings (46) 0 Total assets and liabilities ( * ) On the basis of provisional data at November 30, 2006, prepared at January 8, Information at December 31, 2006 was not available when Maroc Telecom s 2006 financial statements were prepared. 153

156 Note 7. Other non-current financial assets at December 31, 2006, 2005 and 2004 (in millions of Note Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Non-consolidated investments 7.1 2, Other financial assets (a) Net total 2, (a) Other financial assets mainly include loans granted to employees, which amounted to MAD70 million and a loan to Medi-1-Sat for MAD14 million, to be repaid from At December 31, 2006 financial assets had the following maturities: (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Due within one year Due between 1 and 5 years Due after 5 years Net total At year-end 2004, the amount due within one year (MAD20 million) assumed the early repayment of part of the loans granted to employees benefiting from the voluntary redundancy plan. At year-end 2006 and 2005, these assumptions were only partially confirmed. 7.1 Non-consolidated investments Year ended 2006 % Gross Impairment Net carrying Earnings Total interest amount equity Casanet (1) 100% Arabsat NS ND ND Autoroute du Maroc NS ND ND Thuraya NS ND ND Sindbad investment fund 10% ND ND Onatel 51% 2,476 2,476 ND ND Matelca (2) 50% NS NS NS ND ND MVNO belgium (3) 100% ND ND Others NS 0 0 ND ND Total 2, ,534 Year ended 2005 % Gross Impairment Net carrying Earnings Total interest amount equity Casanet (1) 100% Arabsat 1% ,548 Autoroute du Maroc NS ND 2 Thuraya NS ND ND Sindbad investment fund 10% (1) 14 Medi-1-Sat 25% ND ND Matelca (2) 50% NS NS NS ND ND Others NS NS NS ND ND Total

157 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Information concerning non-consolidated interests was not available when Maroc Telecom s 2005 financial statements were prepared. Therefore, the data presented above concern Year ended 2004 % Gross Impairment Net carrying Earnings Total interest amount equity Casanet (1) 100% Matelca (2) 50% NS NS NS ND ND Arabsat 1% ,548 Intelsat NS ,585 20,530 Autoroute du Maroc NS NS 2 Thuraya NS ND ND Sindbad investment fund 10% 1 1 (1) 14 Others NS 2 2 ND ND Total (1) Casanet s business activity relates to the maintenance of Maroc Telecom s internet portal (Menara). Casanet invoices the related costs to Maroc Telecom. (2) Matelca was not included in the scope of consolidation, since it is in liquidation. (3) An MVNO in belgium was created in 2006 and the business has not started yet. 7.2 Explanatory note of consolidation of Onatel Group As recent reliable financial information was unavailable at the acquisition date (financial statements at September 30, 2006 in local GAAP), Onatel was only consolidated from January 1, For information purposes and with the exception of corrections to be made later, the principal aggregates of the Onatel group were summarized as follows: balance Sheet Items Sept. 30, (in millions of Moroccan dirhams) 2006 TOTAL ASSETS 2,521 Total consolidated net equity in local GAAP 550 Price of acquisition 2,476 Goodwill 1,926 borrowings AND DEbT 730 Cash and cash equivalents 140 NET CASH POSITION (590) Revenues From 01/01 to 30/09/2006 (in millions of Fixed-line Mobile Eliminations Total Moroccan dirhams) Consolidated Revenues (65)

158 Note 8. Change in deferred taxes at December 31, 2006, 2005 and 2004 (in millions of Moroccan dirhams) December 31, 2006 December 31, 2005 December 31, 2004 Assets Liabilities Net equity Change in deferred taxes (in millions of Dec. 31, Dec. 31, Statement Equity Change in Translation Dec. 31, Moroccan dirhams) of income impact scope of adjustment 2006 impact consolidation Assets (85) 6 (1) 445 Liabilities Net assets (90) 0 6 (1) 268 The change in scope in 2006 related to including the net equity of Mobisud. (in millions of Jan. 1, Dec. 31, Statement Equity Change in Translation Dec. 31, Moroccan dirhams) of income impact scope of adjustment 2005 impact consolidation Assets Liabilities Net assets (13) Deferred tax assets and liability components (in millions of Moroccan dirhams) December 31, 2006 December 31, 2005 December 31, 2004 Deferred tax assets Impairment deductible in later periods Other 22 5 Deferred tax liabilities Restatement of revenues Other Net assets

159 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Note 9. Inventories at December 31, 2006, 2005 and (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Inventories Impairment (87) (72) (68) NET TOTAL Inventories at December 31,2006 essentially comprise: MAD191 million mobile handsets; MAD103 million multimedia handsets; MAD29 million fixed-line handsets; MAD101 million goods sold. Changes in current asset inventories are recorded as cost of goods sold. The impairment of inventories is recorded in Allowances net amortization, depreciation and provision. Note 10. Receivables at December 31, 2006, 2005 and déc. 1 jan. (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Accounts receivable 5,901 6,167 4,683 Other receivables and accruals 1, ,146 NET TOTAL 6,928 7,115 5, Accounts receivable (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Trade receivables 8,415 8,498 7,186 Government receivables 1,473 1,363 1,075 Impairment of receivables (3,987) (3,694) (3,578) NET TOTAL 5,901 6,167 4,683 Trade receivables include receivables collected from GAM, SFR and Casanet. The details of these transactions are set out in note 30 concerning related parties. The increase in the impairment of trade receivables and related accounts is due to the increased customer base and a more restrictive policy of provisionning of accounts receivable Other receivables and prepaid expenses (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Trade payables, advances and downpayments Employee accounts Tax receivables Other receivables Accruals NET TOTAL 1, ,146 Advances, downpayments, trade payables, receivables from employees, government receivables and other receivables are due in less than one year. Employee accounts comprise advances granted to employees, net of write-downs. As these loans are granted to many employees, under particular conditions, and concern non significant amounts, Maroc Telecom judged that it was not relevant to provide details of their specific elements (repayment date, early repayment options, conditions of the instruments, interest rates ). Impairment is recorded under Impairment of other receivables. It amounted to MAD2 million and is included in net allowances and writebacks recorded on the income statement. Tax receivables mainly comprise VAT items. Accruals essentially relate to prepaid expenses for transport operating leases and insurance policies. Note 11. Short term financial assets at December 31, 2006, 2005 and 2004 (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Term deposits > 90 days Short-term investments TOTAL Short term financial assets include term deposits which have a maturity exceeding three months and which do not meet the Group s definition of highly liquid investments. 157

160 Note 12. Cash and cash equivalents at December 31, 2006, 2005 and 2004 (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Cash 1,123 5,112 7,155 Cash equivalents 1,618 2, TOTAL 2,741 7,585 7,414 Change in cash and cash equivalents (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Cash flow from operating activities 11,233 8,426 7,806 Cash flow used in investing activities (6,435) (3,119) (2,281) Cash flow used in financial activities (9,615) (5,098) (5,846) Foreign currency translation adjustments (27) 11 (13) Change in cash and cash equivalents (4,844) 219 (334) Cash and cash equivalents at the beginning of the period 7,585 7,366 7,700 Cash and cash equivalents at the end of the period 2,741 7,585 7,366 Change in cash and cash equivalents (4,844) 219 (334) Cash flow from operating activities The increase in cash flow from operating activities in 2006 compared to 2005 mainly related to an improvement in net income, and a decrease in capital working requirements due to the increase in debt items. The increase in cash flow from operating activities in 2005 compared to 2004 was mainly due to an improvement in net income less the rise in working capital requirements primarily due to the effect of an increase in trade receivables. Cash flow used in investing activities The increase in cash flow used in investing activities in 2006 compared to 2005 rose mainly on one hand due to the investment plan for 2006 which was 23% higher than in 2005 and on the other hand due to the acquisition of a 51% stake in Onatel for MAD2,476 million. The increase in cash flow used in investing activities in 2005 compared to 2004 resulted mainly from the investment plan Cash flow used in financing activities The increase in cash flow used in financing activities in 2006 compared to 2005 was due primarily to the dividend payout related to Maroc Telecom s capital reduction for an amount of MAD3,516 million. In addition, the ordinary dividend payout increased considerably in 2006 to MAD6,142 million compared with MAD4,424 million in The decrease in cash flow used in financing activities in 2005 compared with 2004 was primarily due to the dividend payout in 2004 which totalled MAD5,154 million including exceptional dividends of MAD2,374 million. Note 13. Dividends 13.1 Dividends (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Dividends received from equity affiliates (a) Dividends paid by consolidated companies to their minority shareholders. Mauritel Other Dividends paid by Maroc Telecom to shareholders (b). Moroccan government 2,080 1,499 3,331. Vivendi 3,121 2,242 1,793. Other ,119 4,396 5,124 (*) Total dividend payout (a)+(b) 6,142 4,424 5,124 ( * ) Includes an exceptional dividend of MAD2,374 million for the year ended December 31, The payment period of dividends by Mauritel is long because of Mauritanian taxation Dividends proposed for the year ended December 31, 2006 On March 1, 2006, date of the Supervisory Board meeting which approved Maroc Telecom s 2006 consolidated financial statements and appropriation of earnings, Maroc Telecom s Supervisory Board proposed the distribution of a MAD7.88 per share dividend to shareholders, corresponding to a total payout of MAD6,929 million. 158

161 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Note 14. Provisions at December 31, 2006, 2005 and 2004 Provisions for liabilities mainly relate to disputes with employees and third parties. They are evaluated on a case-by-case basis. Provisions for contingent liabilities are analyzed as follows: (in millions of Moroccan dirhams) December 31, 2006 December 31, 2005 December 31, 2004 Non-current provisions Provisions for life annuities Other provisions Current provisions Provisions for voluntary redundancy plan Provisions for employees Provisions for disputes with third parties Other provisions TOTAL Year ended 2006 (in millions of Moroccan dirhams) 2005 Charges Utilised Change in Translation Releases 2006 scope of adjustment consolidation Non-current provisions 35 4 (2) 0 (1) 0 36 Provisions for life annuities Other provisions 10 1 (2) (1) 8 Current provisions (24) 0 (2) (9) 388 Provisions for voluntary redundancy plan (2) 304 Provisions for employees 53 2 (15) (14) 26 Provisions for disputes with third parties (3) Other provisions 29 9 (3) (2) (10) 23 TOTAL (26) 0 (2) (9) 424 The provision for employee-related expenses corresponds to Maroc Telecom s commitment to pay life annuities to its current and former employees for work-related accidents, and other related expenses. The allowance of MAD300 of restructuring provisions corresponds to the voluntary redundancy plan launched by Maroc Telecom in The other current provisions correspond mainly to the Mauritel group, and relate to litigation with the tax authorities and the telecommunications regulatory authority. 159

162 Year ended 2005 (in millions of Moroccan dirhams) 2004 Charges Utilised Change in Translation Releases 2005 scope of adjustment consolidation Non current provisions (1) 35 Provisions for life annuities 26 (1) 25 Other provisions Current provisions (201) 0 0 (19) 101 Provisions for voluntary redundancy plan (161) 6 Provisions for employees 57 7 (1) (10) 54 Provisions for disputes with third parties 52 4 (37) (6) 13 Other provisions (2) (3) 29 TOTAL (201) 0 1 (20) 136 In 2005, provisions for litigation with third parties were reduced by MAD37 million, primarily due to the settlement of litigation with Continental. The provision for employee-related expenses corresponds to Maroc Telecom s commitment to pay life annuities to its current and former employees for work-related accidents, and other related expenses. The MAD161 million reversal of restructuring provisions corresponds to the voluntary redundancy plan launched by Maroc Telecom in A change to provisions of MAD6 million is recorded in the 2005 financial statements. Year ended 2004 (in millions of Moroccan dirhams) January 1, Charges Utilised Change in Translation Releases Dec. 31, 2004 scope of adjustment 2004 consolidation Non current provisions Provisions for life annuities Other provisions 6 6 Current provisions (1) 7 (1) (247) 288 Provisions for voluntary redundancy plan Provisions for employees 59 8 (10) 57 Provisions for disputes with third parties (1) (237) 52 Other provisions (1) 18 TOTAL (1) 13 (1) (247) 320 In 2004, the MAD237 million reversal of the provision for litigation with third parties concerns the settlement of litigation with Meditel over interconnection tariffs. Other litigation mainly consisted of a dispute with a supplier, and the 2004 provision for the latter was justified by ongoing legal proceedings. The provision for employee-related expenses corresponded to Maroc Telecom s commitment to pay life annuities to its current and former employees for work-related accidents and other related expenses. The restructuring provision corresponded to the voluntary redundancy plan launched by Maroc Telecom at the end of

163 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Note 15. Borrowings and other financial liabilities at December 31, 2006, 2005 and Net cash position (in millions of Moroccan dirhams) December 31, 2006 December 31, 2005 December 31, 2004 Borrowings due less than one year Borrowings due more than one year Facilities and overdrafts 48 Borrowings and other financial liabilities Cash and cash equivalents 2,741 7,585 7,414 Net cash position 2,686 7,466 6, Net cash position by maturity The breakdown by maturity is based on the repayment terms and conditions of the borrowings. Year ended December 31, 2006 (in millions of Moroccan dirhams) < 1 year 1 to 5 years > 5 years TOTAL Borrowings Facilities and overdrafts 0 Borrowings and other financial liabilities Cash and cash equivalents 2,741 2,741 Net cash position 2,697 (11) 0 2,686 Year ended December 31, 2005 (in millions of Moroccan dirhams) < 1 year 1 to 5 years > 5 years TOTAL Borrowings Facilities and overdrafts Borrowings and other financial liabilities Cash and cash equivalents 7,585 7,585 Net cash position 7,523 (57) 7,466 Year ended December 31, 2004 (in millions of Moroccan dirhams) < 1 year 1 to 5 years > 5 years TOTAL Borrowings Facilities and overdrafts Borrowings and other financial liabilities Cash and cash equivalents 7,414 7,414 Net cash position 7,218 (183) (537) 6,

164 Maroc Telecom did not discount borrowings with an interest rate of 0% since the company initiated talks to repay them a long time ago and they were repaid in full in early August If the debt had been discounted the impact on the consolidated balance sheet and the consolidated income statement would have been as follows: (in millions of Moroccan dirhams) December 31, December 31, January 1, Balance sheet Total equity o/w earnings (290) (12) Deferred tax liabilities Borrowings and other financial liabilities (447) (465) Income statement Interest and other financial charges and income (447) (18) Income tax expense (290) (12) Table of analysis (in millions of Moroccan dirhams) Interest rate Maturity Dec. 31, Dec. 31, Dec. 31, % ABCI EUR13.9 m 08/95-02/ % 18/02/ ABCI EUR7.2 m 09/96-03/ % 28/03/ NATEXIS EUR2.7 m 12/95-06/ % 3/06/ HSBC CCF EUR10.5 m 01/96-07/ % 11/07/ HSBC CCF EUR11.5 m 09/95-03/ % 15/03/ KFWF EUR18.7 m 01/97-04/ % 9/04/ SEE USD69 m 07/98-01/ % 11/01/ SEE USD20.7 m 01/01-07/ % 10/07/ Mauritanian government (October 2000) 8.00% 18/01/ Others 8.00% Bank overdrafts 48 Borrowings and other financial liabilities Currency risk Maroc Telecom is exposed to variations in exchange rates as the breakdown of its receipts in foreign currencies differs from the breakdown of its disbursements in foreign currencies. Receipts and disbursements in foreign currencies account for a significant portion of its revenues. Interest rate risk Maroc Telecom s debt is entirely at fixed interest rates. Consequently, Maroc Telecom is not siginificantly exposed to favourable or unfavourable changes in interest rates. 162

165 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Note 16. Accounts payable at December 31, 2006, 2005 and 2004 (in millions of Dec. 31, Dec. 31, Dec. 31, Moroccan dirhams) Trade accounts payable 5,318 5,126 3,674 Employee related liabilities Tax liabilities and other payables 3,002 2,658 2,521 Accruals 1,403 1, TOTAL 10,278 9,380 7,561 Trade accounts payable and related accounts include debts due from GAM, SFR, Vivendi Universal, Vivendi Telecom International, Canal+ Group and Casanet. Details of these transactions are presented in note 30 concerning related parties. Tax liabilities and other payables mainly includes tax and VAT payables. It also includes payables relating to obligations arising from Maroc Telecom s corporate mission. Accruals mainly includes prepaid income of MAD1,350 million corresponding to subscriptions invoiced in advance, SIM cards sold but not used (whether activated or not), handsets sold but not activated and provisions relating to loyalty programs. In 2006, Maroc Telecom revalued the unactivated prepaid cards held by third party distributors by MAD109 million. Note 17. Revenues for the years ended December 31, 2006, 2005 and 2004 Exercice clos le 31 décembre (in millions of Year ended December 31 Moroccan dirhams) Published Mobile gross revenues 14,684 12,772 9,684 Sale of goods Sale of services 13,715 11,858 9,014 Fixed-line and internet gross revenues 12,613 11,949 11,133 Sale of goods Sale of services 12,512 11,876 11,001 Total consolidated gross revenues 27,297 24,721 20,817 Elimination of inter-segment transactions (4,682) (4,179) (3,409) Total consolidated revenues 22,615 20,542 17,408 (in millions of Year ended December 31 Moroccan dirhams) Published Gross revenues. Maroc Telecom 26,300 23,815 20,390. Mauritel Total consolidated gross revenues 27,297 24,721 20,817 Elimination of inter-segment transactions (4,682) (4,179) (3,409) Total consolidated revenues 22,615 20,542 17,408 Revenues correspond to services provided to customers and subscribers, based on calls made and effective rates. This item also includes reciprocal fixed/mobile services which can be analysed as inter-segment transactions that are eliminated for consolidation purposes. Note 18. Purchases for the years ended December 31, 2006, 2005 and 2004 (in millions of Year ended December 31 Moroccan dirhams) Cost of handsets 1,466 1,771 1,154 Domestic and international interconnection charges 1,892 1,784 1,491 Other Total 3,693 3,879 3,209 The item Other mainly includes fuel and electricity, phone cards and other purchases of consumables. Note 19. Payroll and payroll-related costs for the years ended December 31, 2006, 2005 and 2004 (in millions of Year ended December 31 Moroccan dirhams Wages 1,709 1,819 1,489 Payroll taxes Wages and taxes 1,982 2,046 1,688 Share-based compensation Payroll costs 2,060 2,056 1,688 Average headcount 11,764 12,360 12,

166 This item includes payroll costs for the period, excluding redundancy costs, which are recognized as other operating expenses. On December 12, 2006, all of Maroc Telecom s employees with six months seniority at December 31, 2006, were granted 15 free Vivendi shares. These shares will be registered in an Individual share account at December 13, As the shares were granted without the condition of presence between the allocation period and the registration period in the individual account, the charge for Maroc Telecom was completely provisioned on December 31, 2006 and will be added in the next financial statements. As the corresponding obligation is a financial liability, it will be remeasured at fair value at the end of the next two fiscal years, or when the shares are issued. The amount of the obligation is calculated by multiplying the number of employees present at June 30, 2006 (11,252) by the number of shares granted (15), by the share price at the grant date (Euro29.39 at December 12, 2006) and by a discount to reflect the absence of dividends for the first two years (91.75%).The latter will be reviewed at the end of the next two fiscal years. Note 20. Taxes, duties and fees for the years ended December 31, 2006, 2005 and 2004 (in millions of Year ended December 31 Moroccan dirhams) Taxes and duties Fees Total Taxes, duties and fees include local taxes (patents, urban taxes), the tax for occupation of public land and other taxes (registration taxes, motor tax). Fees include amounts paid to the telecommunications regulatory authority with respect to universal service and training. The change in fees is mainly due to the change in business levels that serve as the basis for calculating the research training contribution. Note 21. Other operating expenses for the years ended December 31, 2006, 2005 and 2004 (in millions of Year ended December 31 Moroccan dirhams) Communication Commissions Other including: 1,504 1, Rental expenses Maintenance and repair Audit and advisory fees Postage and banking services Voluntary redundancy plan Other Total 2,686 2,610 1,781 The change in item Other of other operating expenses between 2006 and 2005 is explained primarily by: + MAD85 million: leased lines + MAD180 million: impact of exchange difference (+102 in 2005 and -77 in 2006); + MAD59 million: payments of intermediaries and fees (SOX, due diligence ); + MAD28 million: travel and assignments related to assessing acquired companies or in view of acquisitions. Note 22. Net depreciation, impairment and provisions for the years ended December 31, 2006, 2005 and 2004 (in millions of Year ended December 31 Moroccan dirhams) Depreciation and impairment of fixed assets 2,752 2,673 2,666 Impairment of accounts receivable Impairment of inventories Impairment of other receivables 5 35 Provisions 290 (184) (73) Total 3,363 2,639 2,735 The increase in the impairment of accounts receivable is due to growth in the customer base and a more restrictive policy of provisioning for accounts receivable. The change in allowance for expenses provisions is mainly explained by the constitution of a provision of MAD300 million relating to the voluntary redundancy plan launched in

167 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS and which will be effective in 2007 and a reversal of MAD161 million in Allowances and reversals relating to the voluntary redundancy plan are presented in detail in note 29. Note 23. Income from equity affiliates for the years ended December 31, 2006, 2005 and 2004 (in millions of Year ended December 31 Moroccan dirhams) Mauritel 33 GAM (9) 14 (3) Medi-1-Sat (12) Total (21) Mauritel group has been fully consolidated since July 1, Medi-1-Sat has been accounted for by the equity method since January 1, GSM Al-Maghrib was sold in the first quarter of 2006 for MAD13 million, generating a capital loss of MAD12 million offset by positive results of MAD3 million in the first quarter of Other financial income and expense (in millions of Year ended December 31 Moroccan dirhams) Other financial expense (3) (65) (5) Other financial income Other financial income and expense 1 (18) 4 The item other financial expense represents foreign exchange loss during the last three fiscal years. Other financial income includes income from the sale of the non-consolidated investments as well as disposal results. Note 25. Income taxes for the year ended December 31, 2006, 2005 and 2004 (in millions of Year ended December 31 Moroccan dirhams) Income tax 3,249 2,871 2,560 Deferred taxes Current tax 3,339 2,886 2,574 Consolidated effective tax rate* 33% 33% 33% * Income tax/earnings before taxes. Note 24. Interest and other financial charges and income for the years ended Dec.31, 2006, 2005 and Cost of debt (in millions of Year ended December 31 Moroccan dirhams) Income from cash and cash equivalents Interest expense on loans (7) (13) (29) Cost of net debt Between 2005 and 2006, cost of financial debt raised to MAD142 million from MAD130 million. This was mainly due to the increase in investment income. The decline in income from investments was due to the reduced interest rate on term deposits and sight deposits. Due to the early repayment of financing debts, interest expense decreased in 2005 compared with (in millions of Year ended December 31 Moroccan dirhams) Earnings 6,833 5,921 5,228 Goodwill impairment Income tax 3,339 2,886 2,574 Consolidated earnings before tax 10,172 8,807 7,802 Moroccan statutory tax rate 35% 35% 35% Theoretical income tax 3,560 3,082 2,731 Impact of change(s) in tax rates 63 (27) (12) Other differences (284) (170) (145) Effective income tax 3,339 2,886 2,574 Oher differences primarily include the 50% tax exemption on the proportion of revenues from international activities, which changed between 2005 and The statutory deferred tax rate is 25% in Mauritania compared with 35% in Morocco. 165

168 Note 26. Minority interests for the years ended December 31, 2006, 2005 and 2004 (in millions of Year ended December 31 Moroccan dirhams) Mauritel Mobisud (8) Minority interests reflect the interests of shareholders other than Maroc Telecom in Mauritel and Mobisud group s earnings. The marked change between 2005 and 2004 is due to the full consolidation of Mauritel since July 1, Total Minority interests Note 27. Earnings per share for the year ended December 31, 2006, 2005 and Earnings per share Basic Diluted Basic Diluted Basic Diluted Earnings (in millions of Moroccan dirhams) Earnings attributable to the equity holders of the parent 6,739 6,739 5,809 5,809 5,171 5,171 Adjusted earnings attributable to the equity holders of the parent 6,739 6,739 5,809 5,809 5,171 5,171 Number of shares (in millions) Earnings per share (in Moroccan dirhams) Change in the number of shares in number of shares Weighted average number of shares outstanding over the period 879,095, ,095, ,095,340 Adjusted weighted average number of shares outstanding over the period 879,095, ,095, ,095,340 Potential dilutive effect of financial instruments outstanding Weighted average number of shares after potential dilutive effect 879,095, ,095, ,095,340 It should be noted that the nominal value of the shares decreased from MAD100 to MAD10 in 2004 and from MAD10 to MAD6 in All shares were fully paid up at December 31,

169 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Note 28. Segment data Breakdown of balance sheet items by business segment 2006 (in millions of Moroccan dirhams) Fixed-line Mobile Unallocated Total Maroc (A) (B) (C) Telecom Group Non-current assets 7,468 7,408 3,220 18,095 Current assets 4,525 2,823 2,780 10,129 Total assets 11,993 10,231 6,000 28,224 Total equity 36,069 36,069 Non-current liabilities ,020 1,057 Current liabilities 4,667 5, ,147 Total liabilities and equity 4,694 5,999 37,580 48,273 Acquisition of tangible and intangible assets 1,533 2,445 3, (in millions of Moroccan dirhams) Fixed-line Mobile Unallocated Total Maroc (A) (B) (C) Telecom Group Non-current assets 8,020 6, ,788 Current assets 5,064 2,397 7,629 15,090 Total assets 13,084 8,481 8,313 29,879 Total equity 19,724 19,724 Non-current liabilities Current liabilities 4,770 4, ,891 Total liabilities and equity 4,778 4,704 20,397 29,879 Acquisition of tangible and intangible assets 1,439 1,771 3, (in millions of Moroccan dirhams) Fixed-line Mobile Unallocated Total Maroc (A) (B) (C) Telecom Group Non-current assets 7,506 5, ,021 Current assets 3,999 2,205 7,459 13,663 Total assets 11,505 8,065 8,114 27,684 Total equity ,201 18,201 Non-current liabilities Current liabilities 4,021 3, ,602 Total liabilities and equity 4,028 3,720 19,936 27,684 Acquisition of tangible and intangible assets 1,366 1,122-2,488 (C) Includes mainly taxes, cash, financial assets, borrowings and net equity. 167

170 28.2. Breakdown of balance sheet by geographical area (in millions of Moroccan dirhams) Morocco (a) 21,008 20,192 18,216 Other (b) 1,216 1,375 1,355 Total segment assets (a) + (b) 22,224 21,567 19, Breakdown of earnings by business segment Year ended December 31, 2006 (in millions of Moroccan dirhams) Fixed-line Mobile Eliminations Total Consolidated revenues 12,613 14,684 (4,682) 22,615 Operating income 3,139 6,904 10,043 Net depreciation and impairment 1,324 1,428 2,752 Voluntary redundancy plan Year ended December 31, 2005 (in millions of Moroccan dirhams) Fixed-line Mobile Eliminations Total Consolidated revenues 11,949 12,772 (4,179) 20,542 Operating income 3,284 5,394 8,678 Net depreciation and impairment 1,356 1,317 2,673 Voluntary redundancy plan Year ended December 31, 2004 (in millions of Moroccan dirhams) Fixed-line Mobile Eliminations Total Consolidated revenues 11,133 9,684 (3,409) 17,408 Operating income 3,791 3,806 7,597 Net depreciation and impairment 1,427 1,239 2,666 Voluntary redundancy plan

171 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Segment earnings by geographical area Year ended December 31, 2006 (in millions of Moroccan dirhams) Morocco Other Eliminations Total Consolidated revenues 21, (50) 22,615 Operating income 9, ,043 Net depreciation and impairment 2, ,752 Voluntary redundancy plan Year ended December 31, 2005 (in millions of Moroccan dirhams) Morocco Other Eliminations Total Consolidated revenues 19, (31) 20,542 Operating income 8, ,678 Net depreciation and impairment 2, ,674 Voluntary redundancy plan Year ended December 31, 2004 (in millions of Moroccan dirhams) Morocco Other Eliminations Total Consolidated revenues 17, (15) 17,408 Operating income 7, ,597 Net depreciation and impairment 2, ,666 Voluntary redundancy plan

172 Note 29. Restructuring provisions for the years ended December 31, 2006, 2005 and 2004 (in millions of Moroccan dirhams) Maroc Telecom Mauritel Group Total Maroc Redundancy benefits Telecom Group Balance at January 1, Changes in scope of consolidation and adjustments of allocation of acquisition price Addition - Utilization - Release - Balance at December 31, Changes in scope of consolidation and adjustments - of allocation of acquisition price - Addition - - Utilization - Release - Balance at December 31, Other restructuring costs Balance at January 1, Changes in scope of consolidation and adjustments - of allocation of acquisition price - Addition Utilization - Release - Balance at December 31, Changes in scope of consolidation and adjustments - of allocation of acquisition price - Addition 6 6 Utilization - Release (161) (161) Balance at December 31, Changes in scope of consolidation and adjustments - of allocation of acquisition price - Addition Utilization (2) (2) Release Balance at December 31, Maroc Telecom launched a voluntary redundancy plan in The initial provision totalled MAD161 million. In 2005, the total cost amounted to MAD474 million, MAD468 million of which was used for 912 people and MAD6 million in additional provisions recorded in the financial statements at December 31, In 2006, another voluntary redundancy plan was launched, and the related provisions were increased to MAD300 million. 170

173 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Note 30. Transactions with related parties Compensation of executive officers, Group management and directors in 2006, 2005 and 2004 For the year ended December 31, 2006, members of the Management Board received MAD22 million. For the year ended December 31, 2005, members of the Management Board received MAD20 million. For the year ended December 31, 2004, members of the Management Board received MAD19 million. (in millions of Moroccan dirhams) Short-term benefits (1) Post-employment benefits (2) Other long-term benefits (3) Redundancy benefits (4) Share- based compensation (5) Total (1) Salaries, compensation, incentive plans and social security contributions, holiday pay, Directors fees and non-monetary benefits. (2) Including pension and post-retirement benefits, life insurance and medical care. (3) Long-service leave, sabbatical leave, long service benefits, jubilees, deferred compensation, incentive plans and bonuses (if payable wholly within 12 months or more after the end of the period). (4) Redundancy pay. (5) Stock options and other share-based compensation Equity affiliates Medi-1-Sat: Medi-1-Sat was created in Its business activity includes: satellite transmission and broadcasting of news, educational programs, sports and entertainment programs; broadcasting of advertising; all cable and satellite TV activity; all operations related to satellite image broadcasting, notably setting up and broadcasting TV programs. To ensure good managment in accordance with the shareholders agreement, Maroc Telecom granted Medi-1-Sat a loan of MAD14 million. The main operations with Medi-1-Sat and the amounts due by Medi1-Sat or Maroc Telecom are detailed below: (in millions of Moroccan dirhams) 2006 Consolidated revenues Expenses Receivables 14 Payables GSM Al-Maghrib: During 2002 and 2003, Maroc Telecom concluded agreements with GSM Al-Maghrib relating to the marketing of the mobile, fixed, internet and multimedia services of Maroc Telecom. During 2004, the framework agreement was updated though the execution of several amendments relating in particular to the payment of fees by Maroc Telecom to GSM Al-Maghrib marketing. During 2006, 2005 and 2004, Maroc Telecom s main related party was GSM Al-Maghrib (GAM), which has been equityaccounted since July 1, In March 2006, Maroc Telecom sold its stake in GSM Al-Maghrib. The main transactions with GAM and sums due by the latter or by Maroc Telecom are detailed as follows: (in millions of Moroccan dirhams) Consolidated revenues 1,283 1,078 Expenses 21 8 Receivables Payables Other related parties Casanet During 2003, Maroc Telecom concluded several agreements with Casanet covering: the maintenance of Maroc Telecom s Menara internet portal; the supply of development services and hosting of Maroc Telecom s mobile portal; the hosting of IAM s Elmanzil website; the maintenance of new WAP applications on the Menara portal and the production of content relating to these applications; the marketing of internet access over leased lines. (in millions of Moroccan dirhams) Consolidated revenues Expenses Receivables Payables Vivendi Universal SFR Vivendi Telecom International- Groupe Canal + In 2001, Itissalat Al-Maghrib entered into a management services agreement with Vivendi Telecom International (VTI), 171

174 which provides Maroc Telecom with technical assistance in the following fields: strategy and organization; development; sales and marketing; finance; purchasing; human resources; information systems; regulation and interconnection; infrastructure and networks. In addition, with a view to further strategic cooperation, Maroc Telecom has entered into transactions with SFR (the leading French private mobile operator), Canal + group and the Vivendi Universal group. These transactions are summarized as follows: Year ended December 31, 2006 (in millions of Vivendi Vivendi Telecom SFR Canal + Moroccan dirhams) International Group Consolidated revenues 114 Expenses Receivables 31 Payables Year ended December 31, 2005 (in millions of Vivendi Universal SFR Vivendi Telecom Moroccan dirhams) International Consolidated revenues 413 Expenses Receivables 35 Payables Al Akhawayn University The Supervisory Board meeting of December 21, 2004, authorized Itissalat Al-Maghrib to conclude an agreement with Al Akhawayn University to set up a global framework of cooperation to carry out joint actions in areas of common interest concerning scientific and technical research, in particular R&D and consulting. In accordance with this agreement, each year, two scholarships will be paid by Itissalat Al-Maghrib to two students chosen from company employees children. At December 31, 2006, Maroc Telecom recorded an expense of MAD3 million for this purpose. At December 31, 2005, no charge related to the agreement was recorded in the company s financial statements. Note 31. Contractual obligations and contingent assets and liabilities Contractual obligations and commercial commitments recorded in the balance sheet (in millions of Total Due less than Due Due more than Moroccan dirhams) 1 year 1-5 years 5 years Long-term debts Capital lease obligations Operating leases * Irrevocable purchase obligations Other long-term commitments Total * long-term vehicle leases (excluding tax) Other commitments given and received relating to operations Commitments given In 2006 Guarantees on equipment sale contracts. At the end of 2006, these commitments amounted to MAD205 million, compared with MAD236 million in 2005, and are mostly current. A guarantee given relating to the participation of Maroc Telecom in the bid for Gabon Telecom s privatization for an amount of MAD11 million. Supplier orders, which amounted to MAD910 million at the end of 2006, compared with MAD613 million at the end of 2005, and are mostly current. These orders mainly relate to investments in property, plant and equipment. Operating leases with terms of between 3 and 10 years for MAD10 million at the end of December The amount recorded corresponds to one month s expense reflecting the termination clause, which includes a one-month notice period. Long-term contracts for the lease of space segments for MAD117 million. Sindibad investment fund amounting to MAD2 million in 2006 compared to MAD2 million in Stake acquired in Medi-1-Sat for MAD42 million. 172

175 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS CMC group has agreed to retrocede to Socipam, a civil company comprising the employees of the Mauritanian subsidiaries, its 0.527% interest in Mauritel SA bought in February The terms and conditions governing this commitment are the following: possible buyback during 5 years, required by Socipam, of 5,592 shares sold to CMC for MAD7.8 million; by tranche of 100 shares; at a unit price which will increase every year from the agreement concluded between Mobisud and SFR whereby Mobisud is committed to paying an advance of MAD84 million in January 2007 for its interest in the Enhanced Service Provider (ESP). (SFR provides transmission and other services to Mobisud over its GSM and UMTS networks throughout mainland France). SFR will repay MAD72 million of the advance when Mobisud signs up 75,000 customers. Mauritel s commitment to the government to invest MAD160 million in the third generation license, MAD32 million of which within one year and the remaining amount subsequently. Maroc Telecom is exempt from customs duty on all capital goods imported, due to an investment agreement with the public authorities of the Kingdom of Morocco, whereby Maroc Telecom agrees to carry out a capital expenditure program over three years from 2006 to 2009 for MAD7.4 billion and create 150 new jobs. At December 31, 2006, the remaining capital expenditure program amounted to roughly MAD4.6 billion. If Maroc Telecom does not make these investments, it will have to pay the cutoms duty outstanding on all the goods imported, plus penalties for late payment. In 2005 Guarantees on equipment sale contracts. At the end of 2005, these commitments amounted to MAD236 million compared to MAD226 million in 2004, and were mostly current. Suppliers orders, which amounted to MAD613 million at the end of 2005, compared with MAD903 million at the end of 2004, and were mostly current. These orders mainly relate to investments in property, plants and equipment. Operating leases with terms of between 3 and 10 years amounted to MAD9 million at the end of December The amount recorded corresponds to one month s expense, given the termination clause, which includes a one-month notice period. Sindibad investment fund amounted to MAD2 million in 2005 compared with MAD4 million in Stake acquired in Medi-1-sat for MAD 65 million. Maroc Telecom is exempt from customs duty on all capital goods imported, due to an investment agreement with the public authorities of the Kingdom of Morocco, whereby Maroc Telecom agrees to carry out a capital expenditure program over three years from 2003 to 2005 for MAD7 billion and to create 300 new jobs. At December 31, 2005, this capital expenditure program had been completed. Commitments received In 2006 Guarantees of MAD1,152 million in 2006, compared with MAD705 million in Moroccan government guarantee on group loans for MAD1 million compared to MAD11 million at the end of This guarantee matures at the same time as the loans. The agreement concluded between Mobisud and SFR by which Mobisud is committed to pay an advance of MAD84 million in January 2007 for its interest in the Enhanced Service Provider (ESP). (SFR provides transmission and other services to Mobisud over its GSM and UMTS networks throughout mainland France). SFR will repay MAD72 million when Mobisud signs up 75,000 customers. Commitments received relating to capital increase of Mobisud: From SFR MAD9 million before December 31, 2007 and MAD9 million before December 31, 2008; From Saham MAD10 million before December 31, 2007 and MAD10 million before December 31, 2008; In July 2006, Maroc Telecom was awarded by the regulator ( ANRT) a mobile license (3G) for 25 years (from July 2006 to July 2031) for MAD300 million (27 million Euros) paid in the fourth quarter of In July 2006, Mauritel SA was awarded by the regulator (ARE) a third generation license for 15 years (from July 2006 to July 2021) for MAD10 million. Maroc Telecom is exempt from customs duty on all capital goods imported, due to an investment agreement with the public authorities of the Kingdom of Morocco, whereby Maroc Telecom agrees to carry out a capital expenditure program over three years from 2006 to 2009 for MAD7.4 billion and create 150 new jobs. At December 2006, the amount of capital expenditure outstanding amounted to roughly MAD4.6 billion. If Maroc Telecom does not carry out these investments, it will have to pay the cutoms duty outstanding on all the goods imported, plus penalties for late payment. In 2005 Guarantees of MAD705 million in 2005, compared with MAD598 million in Moroccan government guarantee on group loans for MAD11 million at the end of 2005, compared with MAD

176 million at the end of This guarantee matures at the same time as the loans. Maroc Telecom is exempt from customs duty for all capital goods imported, due to an investment agreement with the public authorities of the Kingdom of Morocco, whereby Maroc Telecom agrees to carry out a capital expenditure program over three years from 2003 to 2005 for MAD7 billion and to create 300 new jobs. At December 31, 2005, this capital expenditure program had been completed Collateral and pledges In 2006 Pledge of MAD66 million at December 31, 2006 compared to MAD80 million at December 31, In the event of the disposal, within a two-year period of over 65% of GSM Al-Maghrib s share capital for a price above MAD293 per share, Air Time is committed to repaying the capital gain exceeding 65% to Maroc Telecom. With regard to GSM Al-Maghrib s receivables, Air Time is committed to paying the arrears for MAD22 million within less than one year. In 2005 Collateral and pledges include mortgages amounting to MAD80 million at December 31, 2005 compared with MAD96 million at December 31, Note 32. Post-balance sheet events On February 9, 2007, acquisition of a 51% stake in Gabon Telecom for 61 million euros. As financial information at the date of acquisition was not available, it was not possible for Maroc Telecom to provide the fair value of the assets acquired and liabilities assumed or the elements constituting goodwill. 174

177 5. FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENTS STATUTORY AUDITORS REPORTS - CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2006 These are free translations into English of the auditors reports to the consolidated financial statements issued in the French language and are provided solely for the convenience of English speaking readers. The auditors reports to the consolidated financial statements include information specifically required by French law in all audit reports, whether qualified or not, and this is presented below in the opinion on the consolidated financial statements. This information includes an explanatory paragraph discussing the auditors assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion and review report on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account line items or on information taken outside of the consolidated financial statements. These reports should be read in conjunction with, and construed in accordance with, French law and international generally accepted auditing standards. The management report of the group referred to in the final paragraph of the auditors reports to the consolidated financial statements is not included in this document. To the Shareholders, In compliance with the assignment entrusted to us in your general meetings, we have audited the accompanying consolidated financial statements of Itissalat Al-Maghrib SA (IAM) for the year ended December 31, The consolidated financial statements have been approved by the Management Board. Our role is to express an opinion on these consolidated financial statements based on our audit. I - OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS We conducted our audit in accordance with international generally accepted auditing standards. These standards require us to plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion set out hereafter. We certify that the consolidated financial statements give a true and fair view of the assets and liabilities, and of the financial position as well as the results of operations of the Group of individuals and entities included in the consolidation, in accordance with IFRS, as adopted by the EU. Without prejudice to the opinion above, we draw your attention to the following items explained in the notes to the consolidated financial statements: the estimates used for segment information (notes 2.5 and 28); note 2 ( ) and Note 5 related to Property, Plant and Equipment: as of December 31, 2006, the majority of the land and buildings transferred by the ONPT at the time of the incorporation of IAM, had been formally registered or are under requisition, although the process continues for properties that have not yet been registered with the property office. II - SPECIFIC VERIFICATION We have also carried out the verification of the information given in the management report of the group. We have no comments to make as to its fair presentation and its conformity with the consolidated financial statements. Casablanca, March 2, 2007 Statutory Auditors Abdelaziz ALMECHATT Samir AGOUMII 175

178 5.5 INDIVIDUAL FINANCIAL STATEMENTS Balance sheet ASSETS Gross Depreciation, Amorti- Net (in thousands of Moroccan dirhams) zation and Provisions CAPITALIZED COSTS (A) Start up costs Deferred costs Bond redemption premiums INTANGIBLE ASSETS (B) 4,228,295 2,058,296 2,169,999 1,147, ,673. Research and development costs Patents, trademarks, rights and similar rights 3,739,883 2,039,401 1,700,482 1,035, ,770. Goodwill 21,093 18,895 2,198 4,628 7,954. Other intangible assets 467, , , ,949 PROPERTY, PLANT AND EQUIPMENT (C) 31,839,824 20,084,393 11,755,431 11,841,635 11,579,536. Land 971, , , ,206. Buildings 3,984,283 2,481,819 1,502,464 1,460,823 1,673,648. Technical plant, machinery and tooling 21,977,729 15,675,625 6,302,103 5,805,749 6,323,553. Vehicles 75,587 71,194 4,393 7,207 11,874. Office equipment 2,374,668 1,693, , , ,368. Other property, plant and equipment 11,048-11,048 11,048 11,048. Work in progress 2,444, ,375 2,282,181 2,922,512 1,905,838 FINANCIAL ASSETS (D) 3,113,635 41,886 3,071, , ,188. Long term loans 83,399-83,399 80,101 96,159. Other financial receivables 1,989-1,989 1,967 1,968. Equity investments 3,028,247 41,886 2,986, , ,061. Other investments and securities UNREALISED FOREIGN EXCHANGE LOSSES (E) ,802 3,574. Decrease in long term receivables , Increase in long term debt ,574 TOTAL I (A+B+C+D+E) 39,181,800 22,184,575 16,997,225 13,511, ,970 INVENTORIES (F) 423,670 89, , , ,675. Merchandise 322,395 56, , , ,635. Raw materials and supplies 101,275 32,798 68,476 69, ,039. Work in progress Intermediary and residual goods Finished goods CURRENT RECEIVABLES (G) 11,081,455 4,451,224 6,630,232 6,796,268 5,537,046. Trade payables, advances and downpayments 254, ,288 49, ,353. Accounts receivable and related accounts 10,102,868 4,407,706 5,695,162 5,920,324 4,505,133. Employees 25,207 4,120 21,087 9,514 13,164. Tax receivable 532, , , ,779. Shareholders' current accounts ,697. Other receivables 64,977 39,397 25,580 34,422 65,218. Accruals 101, , , ,702 MARKETABLE SECURITIES (H) 1,400,000-1,400,000 5,041, ,000 UNREALIZED FOREIGN EXCHANGE LOSSES (I) (Current items) 63,166-63,166 97,936 78,825 TOTAL II (F+G+H+I) 12,968,291 4,540,448 8,427,844 12,199,697 6,355,546 CASH AND CASH EQUIVALENTS 854, ,254 2,232,865 6,998,032. Checks 9,375-9, ,599 7,340. Bank deposits 839, ,851 1,996,828 6,979,847. Petty cash 5,028-5,028 10,439 10,845 TOTAL III 854, ,254 2,232,865 6,998,032 TOTAL GENERAL I+II+III 53,004,345 26,725,023 26,279,322 27,944,366 26,149,

179 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS SHAREHOLDERS' EQUITY AND LIABILITIES (in thousands of Moroccan dirhams) NET SHAREHOLDERS' EQUITY (A) 15,628,890 18,334,674 16,858,251. Share capital (1) 5,274,572 8,790,953 8,790,953. Less : Capital subscribed and not paid-in Paid-in capital Premium of merger, contribution Revaluation difference Statutory reserve 879, , ,806. Other reserves 2,546,122 2,792,726 1,688,019. Retained earnings (2) Unllocated income (2) Net income of the year (2) 6,929,101 5,871,900 5,728,473 QUASI EQUITY (B) ,332. Investment subsidies Regulated provisions ,332 LONG TERM DEBT (C) 2,029 11, ,815. Debenture bonds Other long term debt 2,029 11, ,815 PROVISIONS (D) 28,400 27,485 29,077. Provisions for contingencies 46 2,802 3,574. Provisions for losses 28,355 24,682 25,504 UNREALIZED FOREIGN EXCHANGE GAINS (E) ,291. Increase in long term receivables Decrease in long term debt ,291 TOTAL I (A+B+C+D+E) 15,659,319 18,373,598 17,968,766 CURRENT LIABILITIES (F) 9,890,079 8,955,490 7,557,245. Accounts payable and related accounts 5,025,705 4,891,925 3,485,423. Trade receivables, advances and downpayments 248,829 89, Payroll costs 467, , ,539. Social security contribution 78,525 53,920 54,375. Tax payable 2,506,014 2,324,953 2,404,552. Shareholders' current accounts Other payables 468, , ,351. Accruals 1,095, , ,005 OTHER PROVISIONS FOR CONTINGENCIES AND LOSSES (G) 689, , ,675 UNREALIZED FOREIGN EXCHANGE GAINS (CURRENT ITEMS) (H) 40, ,072 24,090 Total II (F+G+H) 10,620,003 9,570,768 8,133,010 BANK OVERDRAFTS ,772. Discounted bills Treasury loans Bank loans and overdrafts ,772 Total III ,772 TOTAL GENERAL I+II+III 26,279,322 27,944,366 26,149,

180 INCOME STATEMENT (excluding VAT) (in thousands of Moroccan dirhams) I- OPERATING INCOME 21,733,218 19,882,077 17,656,644 Sales of goods 829, , ,804 Sales of manufactured goods and services rendered 20,407,427 18,355,382 16,154,813 Operating revenues 21,236,468 19,309,597 16,764,617 Change in inventories Self-constructed assets - 9,710 97,917 Operating subsidies Other operating income 19,751 24,138 34,517 Operating write-backs; expense transfers 476, , ,593 TOTAL I 21,733,218 19,882,077 17,656,644 II- OPERATING EXPENSES 11,564,577 11,108,858 9,851,038 Cost of goods sold 1,343,139 1,817,714 1,193,680 Raw materials and supplies 2,299,185 2,063,516 2,187,874 Other external expenses 2,559,357 2,245,697 1,775,006 Taxes (except corporate income tax) 303, , ,586 Payroll costs 1,958,220 1,946,026 1,604,513 Other operating expenses 4, Operating allowances for amortization 2,483,137 2,336,352 2,272,029 Operating allowances for provisions 613, , ,349 TOTAL II 11,564,577 11,108,858 9,851,038 III- OPERATING INCOME I-II 10,168,641 8,773,218 7,805,606 IV- FINANCIAL INCOME 326, , ,591 Income from equity investments 23,667 9, Foreign exchange gains 63, ,681 53,232 Interest and other financial income 138, , ,342 Financial write-backs; expense transfers 100, , ,169 TOTAL IV 326, , ,591 V- FINANCIAL EXPENSES 130, , ,823 Interest on loans 366 2,293 25,023 Foreign exchange losses 66,905 75,780 96,945 Other financial expenses Financial allowances 63, ,144 87,855 TOTAL V 130, , ,823 VI- FINANCIAL INCOME IV - V 195, , ,767 VII- ORDINARY INCOME III + VI 10,364,160 8,967,660 7,978,374 VIII- EXTRAORDINAY INCOME 466, , ,371 Proceeds from disposal of fixed assets 20,244 61,849 28,842 Subsidies received Write-backs of investment subsidies Other extraordinary income 74,258 94,362 82,863 Extraordinary write-backs; expense transfers 371, , ,667 TOTAL VIII 466, , ,371 IX- EXTRAORDINARY EXPENSES 794,245 1,121, ,940 Net book value of disposed assets 12,606 43,577 5,546 Subsidies Other extraordinary expenses 45, ,061 77,756 Regulated provisions Extraordinary allowance for depreciation and provisions 735, , ,638 TOTAL IX 794,245 1,121, ,940 X- EXTRAORDINARY INCOME VIII - IX (327,933) (314,588) 267,431 XI- INCOME BEFORE TAX VII + X 10,036,227 8,653,071 8,245,805 XII- CORPORATE INCOME TAX 3,107,127 2,781,171 2,517,331 XIII- NET INCOME XI - XII 6,929,101 5,871,900 5,728,473 XIV- TOTAL INCOME ( I+IV+VIII) 22,525,531 21,063,236 19,023,606 XV- TOTAL EXPENSES ( II+V+IX+XII) 15,596,431 15,191,336 13,295,132 XVI- NET INCOME (Total income - Total expenses) 6,929,101 5,871,900 5,728,

181 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS STATEMENT OF OPERATING DATA OPERATING STATEMENT (in thousands of Moroccan dirhams) Sales of goods 829, , , Cost of goods sold 1,343,139 1,817,714 1,193,680 I = GROSS MARGIN ON SALES (514,097) (863,498) (583,875) II + PRODUCTION FOR THE YEAR : (3+4+5) 20,407,427 18,365,092 16,252,730 3 Sales of manufactured goods and services rendered 20,407,427 18,355,382 16,154,813 4 Change in inventories Self-constructed assets - 9,710 97,917 III - COST OF CURRENT YEAR PRODUCTION 4,858,542 4,309,214 3,962,880 6 Raw materials and supplies 2,299,185 2,063,516 2,187,874 7 Other external expenses 2,559,357 2,245,697 1,775,006 IV = ADDED VALUE (I+II-III) 15,034,787 13,192,380 11,705, Operating subsidies Taxes 303, , , Payroll costs 1,958,220 1,946,026 1,604,513 V = GROSS OPERATING SURPLUS 12,772,910 10,978,569 9,857,875 = NET LOSS FROM OPERATIONS Other operating income 19,751 24,138 34, Other operating expenses 4, Operating write-backs; expense transfers 476, , , Operating allowances 3,097,019 2,768,120 2,846,379 VI = OPERATING INCOME 10,168,641 8,773,218 7,805,606 VII + / - FINANCIAL INCOME 195, , ,767 VIII = ORDINARY INCOME 10,364,160 8,967,660 7,978,374 IX + / - EXTRAORDINARY INCOME (327,933) (314,588) 267, CORPORATE INCOME TAX 3,107,127 2,781,171 2,517,331 X = NET INCOME 6,929,101 5,871,900 5,728,473 CASH EARNINGS (in thousands of Moroccan dirhams) Net income + Profit 6,929,101 5,871,900 5,728,473 - Loss Operating allowances (1) 2,486,809 2,336,352 2,273, Financial allowances (1) 46 4,208 9, Extraordinary allowances (1) 435, , , Operating write-backs (2) , Financial write-backs (2) 2,802 21,748 66, Extraordinary write-backs (2), (3) 369, , , Proceeds on disposal of fixed assets 20,244 61,849 28, Net book value of disposed assets 12,606 43,577 5,546 I CASH EARNINGS 9,471,463 8,269,080 7,361, Dividends 6,118,504 4,395,477 5,123,557 II NET CASH EARNINGS 3,352,959 3,873,604 2,238,301 (1) Excluding allowances related to current assets and liabilities and cash. (2) Excluding write-backs relating to current assets and liabilities and cash. (3) Including write-backs of investments subsidies. 179

182 STATEMENT OF CASH FLOWS SELECTED BALANCE SHEET DATA Year Year Change (a-b) LINE ITEMS Uses Sources (In thousands of Moroccan dirhams) (a) (b) (c) (d) 1 Equity and long term liabilities 15,659,319 18,373,598 2,714,279 2 Less long term assets 16,997,225 13,511,804 3,485,421 3 WORKING CAPITAL (1-2) (A) (1,337,906) 4,861,794 6,199,699 4 Current assets 7,027,844 7,158, ,513 5 Less current liabilities 10,620,003 9,570,768 1,049,235 6 WORKING CAPITAL REQUIREMENT (4-5) (B) (3,592,160) (2,412,412) 1,179,747 7 NET CASH (A-B) 2,254,254 7,274,206 5,019,952 USES AND SOURCES I - LONG TERM FINANCING SOURCES (In thousands of Moroccan dirhams) Uses Sources Uses Sources Uses Sources Net cash earnings (A) 3,352,959 3,873,604 2,238,301 Cash earnings 9,471,463 8,269,080 7,361,858 Dividends 6,118,504 4,395,477 5,123,557 DISPOSALS AND REDUCTIONS OF FIXED ASSETS (B) 292,172 82,238 95,245 Reduction of intangible assets 7,424-1,027 Reduction of property, plant and equipment 254,138 4,330 57,687 Disposal of property, plant and equipment 7,149 1,834 17,754 Disposal of financial assets 13,095 60,016 11,088 Write-backs of long term receivables 10,367 16,059 7,689 INCREASE IN SHAREHOLDERS' EQUITY AND QUASI EQUITY (C) Increase in equity, capital contribution Investments subsidies INCREASE IN LONG TERM DEBT (D) 1, (Net of redemption premiums) - - TOTAL (I) LONG TERM RESOURCES (A+B+C+D) 3,646,242 3,955,842 2,333,546 II - LONG TERM USES FOR THE YEAR ADDITIONS & INCREASE IN FIXED ASSETS (E) 6,319,402 3,465,343 2,366,898 Acquisitions of intangible assets 1,071,497 83, ,641 Acquisitions of property, plant and equipment 2,674,391 2,902,907 2,100,587 Acquisitions of financial assets 2,559,827 12,971 - Increase in long term receivables 13,687-84,671 Increase in property, plant and equipment (*) - 466,161 - REIMBURSEMENT OF EQUITY (F) 3,516, REIMBURSEMENT OF LONG TERM DEBT (G) 10, , ,969 CAPITALIZED COSTS (H) TOTAL (II) STABLE USES (E+F+G+H) 9,845,941 4,266,845 3,114,868 III - CHANGE IN WORKING CAPITAL REQUIREMENT - 1,179, , ,689 IV - CHANGE IN CASH AND CASH EQUIVALENTS - 5,019, , ,633 TOTAL 9,845,941 9,845,941 4,390,791 4,390,791 3,114,868 3,114,868 (*) reclassification of advances and prepaids from account 3411 to 2397 reclassification of cables and spare parts. 180

183 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS A1: ADDITIONAL DISCLOSURES ACCOUNTING POLICIES The company s financial statements have been prepared in accordance with generally accepted accounting principles, and in particular with principles related to historical cost, independence, conservatism, consistency of methods and no offsetting. Property, plant and equipment and intangible assets The assets transferred by the Moroccan government on February 26, 1998, to set up Maroc Telecom as a public operator, were recorded as a net amount in the opening balance sheet, which was approved by: the Postal Services and Information Technology Act N and; the joint order no of the Telecommunications Minister and Minister of Finance, Commerce and Industry, approving the inventory of assets transferred to Maroc Telecom group. Assets acquired subsequently are recorded at their acquisition or production cost, which for networks essentially comprises design and planning costs, construction costs, site development cost, network rollout costs, customs duties and internal costs related to network development. Financial expenses corresponding to interest payments on loans to finance the production of property, plant and equipment are not included in production costs during the construction period. Network maintenance charges are expensed. Assets are depreciated in a consistent way according to their nature (intangible vs. tangible) and their use (e.g. transmission, network equipment). Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets, which are as follows:. Intangible assets: 4 to 5 years except goodwill (no amortization). Property, plant and equipment:. Buildings 20 years. Civil engineering 15 years. Network equipment: - Transmission (Mobile) 8 years - Switching 8 years - Transmission (Fixed-line) 10 years. Other plant and equipment. Furniture and fittings 10 years. Computer equipment 5 years. Office equipment 10 years. Transportation equipment 5 years Whenever necessary, an additional provision is recorded for technical obsolescence, reduction in the estimated useful life or impairment of the asset. Assets which have not yet been brought into service are recorded as work-in-progress. Financial assets Non-consolidated investments are reported at their acquisition value. A provision for impairment is recorded whenever the carrying value is higher than the value in use. The provision is determined based on the Group s proportionate share in the equity of the non-consolidated investment, which is adjusted, where appropriate, to account for the company s growth and earnings outlook. Other financial assets, which include receivables, loans and deposits, are recorded on the basis of their nominal value, with provisions recorded, where appropriate, for collection risk. Inventories Inventories consist of: mobile and fixed-line telephones and accessories held for sale to customers upon line activation; technical equipment required for network rollout and maintenance other than cable and spare parts. Inventories of mobile and fixed-line telephones and accessories are accounted for using the first-in, first-out method and a provision for impairment is recorded for both the risk of obsolescence and excess inventory. Technical equipment inventories are measured at their average acquisition cost (including customs duties and other costs) and are written down based on their value in use or obsolescence. Accounts receivable Accounts receivable are reported at nominal value. Trade receivables: Impairment provisions are recorded to cover collection risk, which is estimated based on the age of the receivable. Government receivables: Provisions are recorded to cover the risk of the Moroccan government not recognizing 181

184 these receivables. These provisions are evaluated statistically. Other receivables: Where appropriate, other receivables are provisioned in line with the estimated collection risk. Accruals (assets) This caption mainly includes prepaid expenses. Receivables and payables in foreign currencies Receivables in foreign currencies are translated into the reporting currency using the exchange rate at the transaction date. At period end, receivables and payables in foreign currencies are translated using the exchange rate at the closing date, and the unrealized gain or loss is recorded on the balance sheet under Accruals (assets or liabilities). Unrealized losses are accrued in full. Cash and investment securities Cash and investment securities are made up of immediately available liquid assets and short-term investments, and are recognized at cost. Regulated provisions Regulated provisions comprise: provisions for employee housing; provision for investments in capital goods and machinery. in accordance with the fiscal regulations at the end of the year. Provisions for contingent liabilities These include long term provisions for contingent liabilities and other provisions for contingent liabilities. Long term provisions for liabilities and charges correspond to provisions related to translation adjustments and life annuities. Other provisions for contingent liabilities include provisions for reorganization and loyalty programs, and provisions to cover liabilities or litigation outstanding at period end. These provisions are evaluated on the basis of the state of procedures underway and estimated risks at period end. No provision for pension and post-retirement benefits has been recorded in the consolidated financial statements as pension expenses are covered by statutory pension plans set up for employees in Morocco. Accruals (liabilities) This item mainly contains deferred income concerning prepaid subscriptions and unused prepaid minutes sold. Revenues Revenues are recorded on the basis of consumption by subscribers and customers at the end of the period, net of customer acquisition and loyalty costs. Sales of goods and services are related to outgoing and ingoing communications at the time they take place (communication and access charges). Subscription fees are recognized every month in advance under deferred income on the balance sheet, then reported in revenues for the period. For prepaid services, revenues are recognized as and when consumption takes place. They also include revenues from advertisements in paper and electronic telephone directories, which are recognized when the advertisements are published. Sales of merchandise relate to revenues from handset sales, which are recognized at the time of delivery or line activation. Customer acquisition and loyalty costs include discounts to new customers and promotions (free airtime granted to new customers). Discounts on mobile phones are deducted from revenues at the time the mobiles are delivered to the customer or the distributor. Discounts granted to distributors as remuneration for services rendered are mainly recognized in revenues at the time of delivery. Other income Other income from operations include: Expenses transfered (mainly telecommunication costs specific to IAM, recognized under Other operating expenses) Reversal of operating provisions (provisions for impairment of inventories and provisions for liabilities and charges). 182

185 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS Other expenses Aside from rental expenses, maintenance charges, advertising expenses and general expenses, other expenses include: ANRT fees related to frequency assignment in compliance with Act Order of February 25, 1998; costs related to the universal service obligation in accordance with Act and Order of October 9, 2000; costs related to research, training and telecommunication standardization in accordance with Act and Order of October 9, Financial instruments Maroc Telecom does not use financial instruments or currency hedges. 183

186 A1: MAIN VALUATION METHODS USED BY THE COMPANY VALUATION METHODS USED BY THE COMPANY Year ended December 31, 2006 I- FIXED ASSETS A. ENTRY VALUATION 1. Capitalized costs 2. Intangible assets 3. Property, plant and equipment 4. Financial assets B. VALUE ADJUSTMENTS 1. Amortization methods 2. Methods used to calculate provisions for depreciation 3. Methods used to calculate unrealized foreign exchange losses II- CURRENT ASSETS A. ENTRY VALUATION 1. Inventories 2. Receivables 3. Investment securities B. VALUE ADJUSTMENTS 1. Methods used to calculate provisions for depreciation 2. Methods used to calculate unrealized foreign exchange losses SEE NOTES TO FINANCIAL STATEMENTS III- EQUITY AND LONG TERM LIABILITIES 1. Revaluation methods 2. Methods used to calculate regulated provisions 3. Long term debt 4. Methods used to calculate provisions for contingencies and liabilities 5. Methods used to calculate unrealized foreign exchange gains IV- CURRENT LIABILITIES (excluding bank overdrafts) 1. Revaluation methods 2. Methods used to calculate regulated provisions 3. Long term debt V- CASH AND CASH EQUIVALENTS 1. Cash 2. Bank overdrafts 3. Methods used to calculate provisions for depreciation A2: EXCEPTIONS Year ended December 31, 2006 JUSTIFICATION EFFECT OF EXCEPTIONS TYPE OF EXCEPTION OF EXCEPTION ON ASSETS AND LIABILITIES, FINANCIAL POSITION AND NET INCOME I- EXCEPTIONS FROM ACCOUNTING PRINCIPLES NONE NONE II- EXCEPTIONS FROM VALUATION METHODS NONE NONE III- EXCEPTIONS FROM PREPARATION AND PRESENTATION RULES FOR SELLECTED DATA NONE NONE 184

187 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS A3: CHANGES IN METHODS Year ended December 31, 2006 JUSTIFICATION EFFECT OF EXCEPTIONS DESCRIPTION OF CHANGES OF CHANGES ON ASSETS AND LIABILITIES FINANCIAL POSITION AND NET INCOME Changes affecting valuation methods N O N E N O N E Changes affecting presentation rules N O N E N O N E B1: CAPITALIZED COSTS Year ended December 31, 2006 MAIN ACCOUNT HEADING AMOUNT 2110 Start up costs NONE 2116 Prospecting costs NONE 2118 Other start up costs NONE 2120 Deferred costs NONE TOTAL 185

188 B2: NON-FINANCIAL ASSETS INCREASE DECREASE Year ended December 31, 2006 (in thousands of Moroccan dirhams) GROSS BALANCE Self-constructed GROSS BALANCE DESCRIPTION CARRIED FORWARD Acquisition assets Transfer Disposal Withdrawal Transfer YEAR END CAPITALIZED COSTS Start up costs Deferred costs Bond redemption premiums INTANGIBLE ASSETS 2,711,712 1,071,497-1,157,551-7, , ,295. Research and development costs Patents, trademarks, rights 2,584, ,155, ,883 and similar rights. Goodwill 19, , ,093. Other intangible assets 108,288 1,071, , , ,319 PROPERTY, PLANT 29,875,959 2,674,391-2,797,091 6, ,745 3,249,601 31,839,824 AND EQUIPMENT. Land 956, ,714 1, ,953. Buildings 3,674, ,997 1, ,984,283. Technical plant, machinery and tooling 19,749,644 1,085-2,226, ,977,729. Vehicles 78, ,151 3, ,587. Office equipment 2,129,703 3, , ,374,668. Other property, plant 11, ,048 and equipment. Work in progress 3,276,331 2,669, ,745 3,249,601 2,444,

189 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS B2 Cont: DEPRECIATION SCHEDULE Year ended December 31, 2006 (in thousands of Moroccan dirhams) OPENING ALLOWANCES DEPRECIATION OF ACCUMULATED DESCRIPTION PERIOD OF THE YEAR ( * ) DISPOSED ASSETS DEPRECIATION YEAR END CAPITALIZED COSTS * Start up costs * Deferred costs * Bond redemption premiums INTANGIBLE ASSETS 1,563, ,044-2,057,758 * Research and development costs * Patents, bonds, rights and related rights 1,549, ,828-2,038,864 * Goodwill 14,679 4,216-18,895 * Other intangible assets PROPERTY, PLANT AND EQUIPMENT 17,571,709 2,220,177 4,434 19,787,452 * Land * Buildings 2,147, , ,414,770 * Plant and machinery 13,902,099 1,707,104-15,609,203 * Vehicles 70,903 3,965 3,673 71,194 * Furniture and fittings 1,451, ,600-1,692,284 * Other property, plant and equipment * Work in progress (*) Of which extraordinary allowances: - Asset retirements MAD39 m - Delayed placing in service MAD192 m Total of extraordinary allowances MAD231 m B3: GAINS OR LOSSES ON DISPOSALS OR WITHDRAWALS OF FIXED ASSETS Year ended December 31, 2006 (in thousands of Moroccan dirhams) Disposal or Main Gross Accumulated Net book Proceeds from Gains Losses withdrawal date account amount depreciations value disposal of assets & 232 2, ,837 4,549 2, ,673 3,673-2,600 2, ,769-10,769 13,095 2,326 TOTAL 17,040 4,434 12,606 20,244 7,

190 B4: EQUITY INVESTMENTS Year ended December 31, 2006 (in thousands of Moroccan dirhams) % Derived from latest selected Business Share Interest in Overall Net financial data of issuer company Income segment Capital share capital acquisition book recorded in price value Closing Net Net Income date equity income Statement MATELCA Study and realization of submarines cables Dec. 31, 06 - ARABSAT Operation and commercialization of telecommunications systems 5,094, ,454 6,454 Dec. 31, ADM Building and operation of Moroccan road network 4,438, ,000 - Dec. 31, 06 - THURAYA Regional satellite operator 5,312, ,872 9,872 Dec. 31, 06 - CASA@NET Internet Service Provider 14, ,174 18,174 Dec. 31, 06 - CMC Financial Holding 396, , ,469 Dec. 31, 06 22,971 FONDS AMORCAGE "Capital- amorçage" fund SINDBAD 27, ,836 - Dec. 31, 06 - Medi-1-Sat Media (Satellite television company) 80, ,573 21,573 Dec. 31, 06 - Mobisud SA Telecommunication 112, ,685 73,685 Dec. 31, 06 - Maroc Telecom Belgique SA Telecommunication 16, ,754 16,754 Dec. 31, 06 - Onatel Telecommunication 204, ,459,380 2,459,380 Dec. 31, 06 - TOTAL 3,028,247 2,986,361 23,667 B5: PROVISIONS Year ended December 31, 2006 (in thousands of Moroccan dirhams) DESCRIPTION OPENING ALLOWANCES WRITE-BACKS CLOSING BALANCE Operating Financial Extraordinary ( * ) Operating Financial Extraordinary ( * ) BALANCE 1- Provisions for depreciation of fixed assets 504, , , ,365 2-Regulated provisions Provisions for contingencies and losses 27,485 3, ,802-28,400 SUB-TOTAL (A) 531,987 3, ,803-2, , ,765 4-Provisions for depreciation of current assets 4,048, , , ,540,448 (excluding cash and cash equivalents) 5-Other provisions for contingencies and losses 460,207 44,960 63, ,000 78,973 97,936 1, ,555 6-Provisions for depreciation of cash and cash equivalents SUB-TOTAL (B) 4,508, ,210 63, , ,503 97,936 1,870 5,230,003 TOTAL (A+B) 5,040, ,882 63, , , , ,810 5,597,768 ( * ) Of which: ( * ) Of which: Amortization MAD16 m Depreciation of inventories class 2 MAD134 m Spare parts MAD111 m Delayed placing in service of work in progress MAD71 m Delayed placing in service of work in progress MAD243 m Total MAD205 m MAD370 m 188

191 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS B6: RECEIVABLES Year ended December 31, 2006 (in thousands of Moroccan dirhams) RECEIVABLES TOTAL BREAKDOWN BY MATURITY OTHER BREAKDOWN Due in more Due in less Matured Amounts in Amounts due : Amounts due: Amounts than one year than one year but not foreign Government & related parties in notes recovered currency social security FIXED ASSETS 85,388 73,809 11, Long term loans 83,399 71,820 11, Other financial receivables 1,989 1, CURRENT ASSETS 11,081,455 18,780 5,729,911 5,332,765-1,980, Trade payables, advances and downpayments 254, , Accounts receivable and related accounts 10,102,868-4,813,620 5,289,248-1,448, Employees 25,207-21,087 4, Tax receivable 532, , , Shareholders' current accounts Other receivables 64,977-25,580 39, Accruals 101,947 18,780 83, B7: LIABILITIES Year ended December 31, 2006 (in thousands of Moroccan dirhams) LIABILITIES TOTAL BREAKDOWN BY MATURITY OTHER BREAKDOWN Due in more Due in less Matured but Amounts in Amounts due: Amounts due: Amounts than one year than one year not recovered foreign Government and related parties in notes currency social security LONG TERM DEBT 2,029-2, Debenture bonds Other long term debt 2,029-2, CURRENT LIABILITIES 9,890,079 22,535 9,830,667 36,877-2,506,014-54,001. Accounts payable and related accounts 5,025,705 22,535 5,003, ,001. Trade receivables, advances and downpayments 248, , Employee 467, , Social security 78,525-78, Tax payable 2,506,014-2,506, ,506, Shareholders' current accounts Other payables 468, ,472 36, Accruals 1,095,066-1,095, B8: GUARANTEES GIVEN OR RECEIVED Year ended December 31, 2006 (in thousands of Moroccan dirhams) Amount covered Description Date and place Purpose Net book value THIRD PARTIES by garantee (1) of registration (2) (3) of the garantee given at closing date. Guarantees given. Guarantees received Guarantees received are Long term loans 83,399 (1) from employees ( 1) Collateral : 1-Mortgage : 2-Pledge : 3-Warrant : 4- Others : 5- (To specify) ( 2 ) State if the guarantee is given to a company or to a person (guarantees given) (related parties, associates, employees) ( 3 ) State if the guarantee is received from a person other than the debtor (guarantees received) 189

192 B9: FINANCIAL COMMITMENTS RECEIVED OR GIVEN EXCLUDING LEASING TRANSACTIONS Year ended December 31, 2006 (in thousands of Moroccan dirhams) Amounts Amounts COMMITMENTS GIVEN Year end Previous year - Investments not yet realized * Investment commitment 4,573,675 - * Property, plant and equipment 1,022, ,712 4,573, ,712 - Guarantees from banks * Documentary credit 142, ,288 * Endorsements 60,502 60,842 * Guarantees 13, , ,130 - Equity investments * Fonds Amorçage Sindbad 2,164 2,164 * Medi-1-Sat ( capital increase ) 24,456 34,464 * Medi-1-Sat ( quasi capital) 17,352 30,635 * Mobisud ( capital increase ) 73, ,753 67,263 - Partenership commitment with Association Forum de Casablanca 10,500 12,000 10,500 12,000 - Operating lease obligations (*) 9,459 9,014 TOTAL 4,927, ,118 (*) 2 to 15 year rent contract with tacit renewal. The amount indicated is related to one months notice. Amounts Amounts COMMITMENTS RECEIVED Year end Previous year. Endorsements and guarantees 1,079, ,218. Other commitments received. Commitment by the Moroccan government to social welfare. Commitment on payment of arrears by the Moroccan Goverment. Commitment by Air Time/GAM on payment of GAM arrears 22, Commitment by Air Time/GAM to transfer the gain from disposal on MAD293 per share on portion above 65% of the capital. Commitment on loans by the Moroccan Goverment ,371 TOTAL 1,102, ,589 B10: ASSETS LEASED Year ended December 31, 2006 Items Date of Duration Est.value Theoretical Accumulated Installments Installments Residual Comments first of contract of assets asset installments of outstanding price installment in months at date depreciation current less than more than at end of of contact period year one year one year contrat ( 1) ( 2) ( 3) ( 4) ( 5) ( 6) ( 7) ( 8) ( 9) ( 10) ( 11) VOID VOID 190

193 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS B11: INCOME STATEMENT ITEMS Year ended December 31, 2006 (in thousands of Moroccan dirhams) Item CURRENT YEAR 2006 PREVIOUS YEAR 2005 OPERATING INCOME 21,733,218 19,882, Sales of goods - -. Sales of goods in Morocco 829, ,215. Sales of goods abroad - -. Other sales of goods Total 829, , Sales of manufactured goods and services rendered. Sales of manufactured goods in Morocco. Sales of manufactured goods abroad. Sales of rendered services in Morocco 20,407,427 18,355,382. Sales of rendered services abroad. Royalties for patents, brands, rights.... Other sales of manufactured goods and services rendered - - Total 20,407,427 18,355, Change in Inventories - -. Change in manufactured goods inventory - -. Change in rendered services inventory - -. Change in product inventory WIP - - Total /718 Other operating income. Directors' fees received - -. Rest of line item (other revenues) 19,751 33,849 Total 19,751 33, Operating write-backs, expense transfers. Write-backs 152, ,199. Expense transfers 324, ,431 Total 476, ,631 FINANCIAL INCOME 738. Interest and other financial income. Interest and similar income 49,845 63,368. Revenues from receivables from controlled entities - -. Net revenues from disposal of marketable securities 87,010 76,391. Other interest and financial income 1,175 3,093 Total 138, ,

194 B11: INCOME STATEMENTS ITEMS Year ended December 31, 2006 (in thousands of Moroccan dirhams) POSTE CURRENT YEAR 2006 PREVIOUS YEAR 2005 OPERATING EXPENSES 611 Cost of goods sold. Cost of goods 1,422,480 1,708,733. Change in inventory (+,-) (79,341) 108,981 Total 1,343,139 1,817, Raw materials and supplies. Raw materials - -. Change in raw material inventory. Supplies and packaging 279, ,403. Change in supplies and packaging inventory (6,646) (6,165). Cost of materials and supplies not stocked 167, ,951. Cost of works, studies and services 1,859,093 1,715,328 Total 2,299,185 2,063, /614 Other external expenses. Rent and rental expenses 324, ,243. Leasing installments - -. Maintenance and repair 471, ,494. Insurance premiums 21,941 31,445. Payments of external staff 53,783 42,922. Payments for intermediaires and fees 270, ,518. Fees for patents, brand, rights , ,003. Transportation 10,447 6,772. Travel and entertainment expenses 81,957 53,507. Other external expenses 879, ,793 Total 2,559,357 2,245, Payroll costs. Payroll 1,695,081 1,724,380. Social security 263, ,608. Other payroll costs - 38 Total 1,958,220 1,946, Other operating expenses. Directors fees Losses on uncollectible receivables - -. Other operating expenses - - Total FINANCIAL EXPENSES Other financial expenses - -. Net losses on disposal of marketable securities - -. Other financial expenses - - Total EXTRAORDINARY EXPENSES. Other extraordinary expenses 9, Contract cancallation payments and forfeiture of deposit - -. Paid back tax (other than income tax) - -. Penalities and tax fines 1, Uncollectible receivables - -. Other extraordinary expenses 34, Total 45,

195 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS B12: RECONCILIATION OF NET INCOME AND TAX INCOME Year ended December 31, 2006 (in thousands of Moroccan dirhams) I DETERMINATION OF INCOME AMOUNT AMOUNT I NET INCOME. Net profit 6,929,101. Net loss II TAX ADJUSTMENTS TO ADD 3,463, Ordinary 3,164,543 - Income tax ,107,127 - Amortization exceeding MAD POP Paris expenses (IAM branch) 1,510 - Unrealized foreign exchange gains ,369 - Gifts exceeding MAD100 per unit 3,638 - Grants in cash or kind 11, Extraordinary 299,194 - Provisions & amortization 263,390 - Tax penalities 1,543 - Prior period expenses 34,261 III TAX DEDUCTIONS 498, Ordinary 179,393 - Unrealized foreign exchange gains ,140 - POP Paris income (IAM branch) 1,282 - Revenues from equity investments 22, Extraordinary 318,942 - Allowance on net capital gains from disposal 3,130 - Provisions & amortization 315,812 - Reversal of provision for restructuring - TOTAL 3,463, ,335 IV GROSS TAXABLE INCOME - Gross profit 9,894,503 - Gross taxable loss V LOSS CARRIED OVER - VI TAXABLE INCOME - Net taxable profit 9,894,503 - Net taxable loss EXEMPTION OF 50% OF EXPORT REVENUES 355,949 * CORPORATE INCOME TAX 3,107,

196 B13: DETERMINATION OF ORDINARY INCOME AFTER TAX Year ended December 31, 2006 (in thousands of Moroccan dirhams) I DETERMINATION OF INCOME AMOUNT Ordinary income from income statement (+) 10,364,160 Add-backs on ordinary operations 57,416 Deduction of ordinary operations 179,393 Ordinary income theoretically taxable (=) 10,242,183 Theoretical tax on ordinary income ( - ) 3,584,764 Exemption of 50% on export revenues (368,457) Ordinary income after tax (=) 7,147,853 II - INDICATION OF THE TAX STATUS AND ADVANTAGES GRANTED IAM has an income tax exemption on 50% of its international revenues. BY THE INVESTMENT CODES OR BY SPECIFIC LEGAL REGULATIONS B14: VALUE ADDED TAX Year ended December 31, 2006 (in thousands of Moroccan dirhams) Opening Operations VAT returns Closing DESCRIPTION balance balance (1+2-3) A / Invoiced VAT 1,987,127 3,618,962 3,541,911 2,064,177 B / Recoverable VAT 433,617 1,265,421 1,223, ,040 * On expenses 280, , , ,522 * On assets 153, , , ,518 C / VAT PAYABLE (VAT CREDIT) 1,553,510 2,353,540 2,317,912 1,589,137 VAT = (A-B) 194

197 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS C1: SHAREHOLDING STRUCTURE Year ended December 31, 2006 Surname, first name or Address STOCKS HELD Nominal value CAPITAL AMOUNT (in MAD) business name of Previous Current of each stock Subscribed Called Fully paid main shareholders (1) year year or share (in dirhams) / Kingdom of Morocco represented by 299,771, ,892, ,793,354 1,793,354 1,793,354 Mr. Fathallah Oualalou, Minister of the Economy, Finance and Privatization 2 / Societe de Participation dans les Telecom- 448,338, ,338, ,690,031 2,690,031 2,690,031 munications represented by Mr. Jean Bernard Levy 3 / Mr. Fathallah Oualalou / Mr. Jean Bernard levy / Mr. El Mostafa Sahel / Mr. Jacques Paul Espinasse / Mr. Robert de Metz / Mrs. Françoise Colloc'H / Mr. Franck Esser / Mr. Jean-Rene Fourtou / Mr. Abdelaziz Talbi / Mr. Chakib Benmoussa / Other shareholders 130,985, ,864, , , ,186 (1) If the number of shareholders is less than or equal to 10, the company should list all the shareholders. Otherwise, the company may list only the 10 major shareholders. C2: APPROPRIATION OF YEAR-END INCOME Year ended December 31, 2006 (in thousands of Moroccan dirhams) AMOUNT AMOUNT A. SOURCE OF INCOME B. INCOME APPROPRIATION (Decision of march 30, 2006). Statutory reserve 0. Retained earnings at December 31, Other reserves 266,303. Net income to be allocated 0. Directors' profit sharing 0. Net income of the year 5,871,900. Dividends 6,118,504. Retained reserves 512,907. Other allocations 0. Other reserves 0. Retained earnings 0 TOTAL A 6,384,807 TOTAL B 6,384,

198 C3: INCOME AND OTHER SIGNIFICANT CHARACTERISTICS OF COMPANY OVER THE LAST THREE YEARS (in thousands of Moroccan dirhams) DESCRIPTION YEAR YEAR YEAR NET EQUITY OF THE COMPANY Shareholders' equity and quasi equity 17,123,583 18,334,674 15,628,890 less capitalized costs OPERATIONS AND INCOME FROM PERIOD Revenues excluding tax 16,764,617 19,309,597 21,236,468 Income before tax 8,245,805 8,653,071 10,036,227 Corporate income tax 2,517,331 2,781,171 3,107,127 Dividends 5,123,557 4,395,477 6,118,504 Unappropriated income 1,252,512 1,332, ,303 (reserves or to be allocated) EARNINGS PER SHARE (in dirhams) Earnings per share for period (*) Dividends per share (*) (*) The nominal value decreased from MAD100 in 2003 to MAD10 in 2004 and MAD6 in

199 5. FINANCIAL REPORT INDIVIDUAL FINANCIAL STATEMENTS C4: TRANSACTIONS IN FOREIGN CURRENCIES DURING THE PERIOD Year ended December 31, 2006 (in thousands of Moroccan dirhams) DESCRIPTION Entry Out-going Exchange value Exchang value. Permanent financing. Gross assets 4,548,368. In-flow of assets 15,633. Repayment of long term debt 10,158. Dividends paid. Income 3,315,175. Expenses 1,761,308 TOTAL IN-FLOWS 3,330,808 TOTAL OUT-FLOWS 6,319,834 FOREIGN CURRENCY BALANCE 2,989,027 TOTAL 6,319,834 6,319,834 C5: DATE OF FINANCIAL STATEMENTS AND SUBSEQUENT EVENTS I. DATES. Closing date (1) December 31, Date of the financial statements (2) January 16, Date of rectifying declaration (1) Proof in case of change of closing date (2) Proof in case regulated delay of three months is extended forecast for preparation of financial statements II. EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS RELATED TO THIS PERIOD AND KNOWN BEFORE THE FIRST RELEASE OF THE FINANCIAL STATEMENTS Dates Indication of events NONE 197

200 REPORT OF THE STATUTORY AUDITORS ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2006 In compliance with the assignment entrusted to us, we have audited the accompanying financial statements of Itissalat Al-Maghrib (IAM) for the fiscal year ended December 31, 2006, which include the balance sheet, the income statement, the management accounts, the cash flow statement and the additional disclosures for the year. These financial statements, which show capital and reserves of MAD 15,628,890 thousand, including a net profit of MAD6,929,101 thousand, are the responsibility of the Management of the company. It is our responsibility, based on our audit, to express an opinion on these financial statements. We conducted our audit in accordance with the auditing standards generally accepted in Morocco. These standards require that we plan and perform such tests and procedures so as to obtain reasonable assurance that the financial statements are free from material misstatement. An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the accounting policies used and significant estimates made by Management in the preparation of the financial statements, and an evaluation of the overall adequacy of the presentation of these statements. We believe that our audit provides a reasonable basis for the opinion expressed below. I. OPINION ON THE FINANCIAL STATEMENTS In our opinion, the financial statements referred to in the first paragraph give a true and fair view of Itissalat Al-Maghrib s assets, liabilities and financial position as of December 31, 2006, as well as of its results and cash flows for the year then ended, in accordance with the accounting principles generally accepted in Morocco. Without prejudice to the opinion above, we draw your attention to the following items: As of December 31, 2006, the majority of the land and buildings transferred by the ONPT at the time of the incorporation of IAM, had been formally registered or were under requisition, although the process continues for properties that have not yet been registered with the property office. II. SPECIFIC CONTROLS AND INFORMATION We also performed the specific verifications required by law. In particular, we ensured that the information contained in the Management Board s Report to the Supervisory Board was consistent with the Company s financial statements. We draw your attention to the fact that during 2006, Itissalat Al-Maghrib (IAM) carried out: the acquisition of 66% of Mobisud for MAD0.28 million, increased to MAD73.6 million following the capital increase of this company; the acquisition of 51% of Onatel, the incumbent operator in Burkina Faso, for MAD2,459 million; the creation of a 100% owned subsidiary in Belgium, Maroc Telecom Belgique SA, with a capital of MAD16.7 million. Casablanca, March 2, 2007 Statutory Auditors ABDELAZIZ ALMECHATT SAMIR AGOUMI 198

201 REPORT OF THE STATUTORY AUDITORS SPECIAL REPORT OF THE STATUTORY AUDITORS ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2006 As statutory auditors of the company, we present our report on related-party transactions. In compliance with Article 58 of Moroccan Law n 17-95, we have been informed of all the related party transactions that are subject to the prior approval of the Supervisory Board. 1. Related-party transactions concluded during 2006 fiscal year 1.1. Current account advance During 2006 fiscal year, for financial needs, Itissalat Al-Maghrib concluded an agreement with Medi-1-Sat, under which it committed to grant Medi-1-Sat an advance of 2,800,000, recorded in a current account advances. In 2006, Maroc Telecom paid the first tranche of this advance for amount of 1,200,000 (MAD13,282,800). As of December 31, 2006, interest receivable recorded by Itissalat Al-Maghrib related to this agreement amounted to MAD382, Contract with Media Overseas On February 24, 2006, IAM s Supervisory Board approved the agreement entered into over the period with Media Overseas, a subsidiary of Canal + Group, concerning the launch of a TV via ADSL offer. Pursuant to this agreement, operations are performed with Multitv Afrique, a subsidiary of Media Overseas. Itissalat Al-Maghrib recorded an expense of MAD4,357,610 for this purpose. Itissalat Al-Maghrib recorded a fixed asset related to this agreement of MAD89,495. As of December 31, 2006, the balance of Multitv Afrique in Itissalat Al-Maghrib s books amounted to a liability of MAD33, Sale of property Itissalat Al-Maghrib s Supervisory Board approved on September 4, 2006 the sale of a housing property to one member of the Management Board. 1.4 Current account advance On December 19, 2006, the Supervisory Board approved the current account advance agreement between IAM and Mobisud. At December 31, 2006, no payment had yet been made under this agreement. 2. Related-party transactions concluded in previous years that were still effective during this year 2.1. Management Services Agreement with Vivendi Telecom International (VTI) During 2001, Itissalat Al-Maghrib entered into a Management Services Agreement with Vivendi Telecom International (VTI), under which the latter and its subsidiaries provide Itissalat Al-Maghrib with technical assistance in the following fields: Strategy and organization; development; sales and marketing; finance; purchasing; human resources; information systems; regulation and interconnection; infrastructure and networks. This related-party transaction also concerns Vivendi group and its subsidiaries. In accordance with the terms of this agreement, the fees (exclusive of tax) agreed to be paid by Itissalat Al- Maghrib amounted to MAD95,002,576 in The balance payable amounted to MAD62,096,523 as of December 31, Agreement with Mauritel SA During fiscal year 2001, Mauritel S.A concluded an agreement with Itissalat Al-Maghrib under which the latter provides services, technical assistance and transfer of equipment to Mauritel SA. 199

202 The amount charged by Itissalat Al-Maghrib to Mauritel SA was MAD 12,512,851 exclusive of tax for As of December 31, 2006, the balance of Mauritel s account in Itissalat Al-Maghrib s books was negative and amounted to a liability of MAD19,755, Agreement with Casanet During fiscal year 2003, Maroc Telecom concluded several agreements with Casanet that related to: the maintainance of Maroc Telecom s Internet portal Menara ; the supply of development services and hosting of Itissalat Al-Maghrib s Mobile portal; the hosting of Itissalat Al-Maghrib s website El Manzil ; the maintenance of new WAP applications on the Menara portal; the production of the IPTV web site; the commercialisation of leased line internet access; etc. As of December 31, 2006, total expenses recorded by Itissalat Al-Maghrib under this agreement amounted to MAD27,483,055 exclusive of tax. As of December 31, 2006, the amount of incomes recorded by Itissalat Al-Maghrib under this agreement amounted to MAD5,457,381 exclusive of tax. As of December 31, 2006, the balance of Casanet s account in Itissalat Al-Maghrib s books amounted to MAD17,180,726, and a liability of MAD10,713, Agreement with GSM Al-Maghrib (GAM) During fiscal years 2002 and 2003, Itissalat Al-Maghrib concluded agreements with GSM Al-Maghrib relating to the marketing of the mobile, fixed, Internet and multimedia services of Itissalat Al-Maghrib. During fiscal years 2004 and 2005, the framework agreement was updated through several amendments relating in particular to the payment conditions of fees by Itissalat Al-Maghrib to GSM Al-Maghrib. Maroc Telecom sold its stake in this company at the end of March On March 2006, the amount charged by Itissalat Al-Maghrib to GAM was MAD150,337,499 exclusive of tax, and the amount charged by GAM to Itissalat Al-Maghrib was MAD1,607,658 exclusive of tax. As of March 31, 2006, the balance of GSM Al-Maghrib s accounts in Itissalat Al-Maghrib s books amounted to a debit of MAD51,307,744, and a credit of MAD12,664, Related-party transactions with Al Akhawayn University The Supervisory Board of December 21, 2004, authorized Itissalat Al-Maghrib to conclude an agreement with Al Akhawayn University, to set up a global framework of cooperation to carry out joint actions in domains of common interest of scientific and technical research, in particular those of Research and Development and Research and Consulting. In accordance with this agreement, each year, two scholarships will be paid by Itissalat Al-Maghrib to two students chosen from children of the company s employees. At December 31, 2006, the amount of expenses recorded by Itissalat Al-Maghrib relating to this agreement was MAD3,100,963. As of December 31, 2006, the balance of Al Akhawayn University s account in Itissalat Al-Maghrib s books was positive and amounted to MAD518,300. Casablanca, March 2, 2007 Statutory Auditors Samir AGOUMI Abdelaziz ALMECHATT 200

203 5. FINANCIAL REPORT REPORT OF THE MANAGEMENT BOARD 5.6 REPORT OF THE MANAGEMENT BOARD In accordance with Article 141 of Act of August 30, 1996 and with the agenda that has been communicated to you, we are honored to present the report of the Management Board of Itissalat Al-Maghrib ( Maroc Telecom ), with the aim of presenting the company s business activity and financial results for 2006, submitting for your approval the financial statements for the period ended December 31, 2006, and submitting for your approval a bond issuance plan and a share buyback program in a view to stabilize the share price Highlights According to the latest estimates, Morocco s real GDP growth should reach 8.1% in 2006, due to favorable weather conditions which doubled cereal production, and to the positive contribution from non-agricultural activities. By developing innovative solutions that meet customer expectations and by using state-of-the-art technology, Maroc Telecom strengthened its leadership position in 2006: the Mobile customer base grew by 30%, totaling 10.7 million customers. By gaining more than 2/3 new clients on the market, Maroc Telecom increased its market share by 0.4 point to 66.9% (1) ; the Fixed-line customer base decreased slightly by 5.6%, at 1,266 million lines, mainly due to the reduction in the residential customer base; the Internet customer base continued to show strong growth (+55.2%) totaling 391,000 accesses, driven by ADSL which accounts for 98% of accesses. In 2006, Maroc Telecom launched various projects concerning its corporate image and structure such as: the modification of its visual identity in January 2006 and a revamped brand architecture; a new internal organization, with the Mobile business and Fixed-line & Internet business grouped together into a single entity, the Services department, and sales teams were set up within the regional divisions; a new voluntary redundancy plan to be finalized during 2007; a provision of MAD300 million has been recorded in the 2006 financial statements to cover the cost of this plan. In addition, Maroc Telecom was very active internationally in 2006 with: the launch on December 1, 2006 of an MVNO (Mobile Virtual Network Operator) in France, under the Mobisud brand, in partnership with SFR and Saham. Maroc Telecom also created a subsidiary in Belgium which is due to launch an MVNO in 2007; the acquisition on December 29, 2006, of a 51% stake in Onatel, Burkina Faso s incumbent operator by means of an international invitation to tender; the acquisition of 51% of Gabon Telecom in February 2007, Gabon s incumbent operator. On the regulatory side, 2006 was marked by the following events: three new 3G mobile licenses were granted to Maroc Telecom, Medi Telecom and Wana (Maroc Connect); Maroc Telecom submitted its proposals to the ANRT for carrier pre-selection, interconnection to fixed-line and mobile networks (including leased lines) and partial unbundling which has applied since January 8, All of these proposals were approved by the ANRT in January 2007, except the proposal concerning the interconnection of the mobile network; the ANRT set the dates for the portability of numbers according to the following agenda: portability of mobile numbers by January 1, 2007 at the latest (postponed until February 1, 2007); portability of Fixed-line numbers by March 31, 2007 at the latest; the ANRT decided to set new interconnection charges between the two first operators and the new operator, Wana; ANRT s universal service executive committee validated part of the program proposed by Maroc Telecom for 2006, for the sum of MAD188 million. Business activity Customer base 2006 was marked by a reduction in the Fixed-line customer base and the strong increase in the Mobile and Internet customer bases. (1) Source: ANRT (at December 31, 2006) 201

204 The table below shows the development of Maroc Telecom s various customer bases: As of December 31 and in thousands Change 05/06 Number of Mobile customers* 6,306 8,237 10, % Prepaid 6,050 7,908 10, % Postpaid** % Number of fixed-line subscribers*** 1,309 1,341 1,266 (5.6%) Number of internet customers**** % o/w ADSL % * Mobile customers include customers with prepaid cards and postpaid subscribers according to the ANRT definition and 2005 data are reprocessed according to this definition. ** Including no commitment rate plans in 2005 and 2006 *** Not including Maroc Telecom in-house lines **** Internet customers are IP accounts opened with Maroc Telecom (subscribers and pay-as-you-go customers). Mobile 2006 was a year of strong growth for the mobile business: the active customer base gained 4.7 million customers gross (2.4 million net) to reach 10.7 million, corresponding to a market share of 66.9% (1), compared with 66.5% at December 31, Gross revenues (2) for the mobile business in Morocco reached more than MAD14 billion, an increase of 15% compared with After interconnection costs and cost of sales, gross profit was more than MAD10.9 billion, up 22% relative to ARPU fell 9.3% to MAD111 in 2006 compared with This decrease was mainly due to the strong increase in the customer base and the reduction in call charges. ARPU dropped 13.1% over the last quarter of the year partly affected by year-end promotional offers and the revaluation of nonactivated prepaid phone cards sold to distributors. With the increase in the customer base and the reduction in access costs, the churn rate is now 20.3% (+8.1 points compared with 2005). Maroc Telecom confirmed its market share in 2006 by developing innovative offers, extending unlimited offers to all rate plans, introducing a SIM card at MAD30 (including MAD10 in call credit), new offers for businesses and several new promotional offers Maroc Telecom remains the leading player for text messaging (SMS) with the total number of outgoing SMS messages on the Maroc Telecom network reaching more than 1.4 billion in 2006 up 23% compared with Fixed-line and Internet The number of fixed lines totaled 1,266 million lines at December 31, 2006, down 5.6% compared with the previous year. This was mainly due to the consolidation of the residential customer base. To build customer loyalty and attract new customers, in September 2006 Maroc Telecom launched Phony, new unlimited Fixed-line telecommunications offer enabling customers to make unlimited calls to all Maroc Telecom fixedline national and local numbers. The success met by these offers stabilized the customer base over the fourth quarter. In 2006, the company continued its actions to promote Internet use in Morocco, with further price cuts and regular promotional offers. The number of Internet users reached 391,000 at December 31, 2006, including 384,000 ADSL subscribers. At December 31, 2006 the number of ADSL lines accounted for almost 35% of fixed lines (excluding public telephony). In 2006, Fixed-line and Internet gross revenues (2) in Morocco, totaled MAD12.3 billion, up almost 6% compared with This growth was mainly due to strong momentum on the public telephony segment (revenues up almost 15%), growth in incoming international traffic (+11%), the confirmed success of ADSL services and strong performance in data services to businesses and operators (revenues up 13%), stimulated by the price cuts offered since the beginning of the year. On the voice segment, the average monthly invoice per customer increased by almost 3% in (1) Source : ANRT (December 31, 2006). (2) Gross revenues include intersegment transactions between Maroc Telecom s Fixed-line and Mobile businesses. These transactions include interconnection and operator leased lines. 202

205 5. FINANCIAL REPORT REPORT OF THE MANAGEMENT BOARD Human Resources Maroc Telecom s headcount rose slightly to 11,212 at December 31, 2006, compared with 11,178 at the end of The company continues to regard staff training as a priority and in 2007 organized 35,149 training days which benefited 22,399 employees, representing an average of 3 training days per employee. In 2006, the Group took a closer look at its sales force aiming to increase professionalism to provide better customer service. More than half of sales staff underwent an individual evaluation carried out by an external consultant mainly assessing their professional and behavioral skills. This operation helped optimize the redeployment of staff and training programs in order to meet Maroc Telecom s sales requirements. Maroc Telecom signed two new agreements in 2006 with the unions which mainly cover points such as the levels of certain employee benefits and other advantages, and salary increases. Subsidiaries and investments Maroc Telecom carried out a very aggressive international development strategy in 2006: The Group owns a 66% stake in Mobisud, an MVNO which was launched in France on December 1, 2006 using SFR s network. Pursing its strategy to capture traffic between Europe and Maghreb countries, Maroc Telecom also created a subsidiary in Belgium, which is due to launch an MVNO in the first half of 2007; Maroc Telecom acquired a 51% stake respectively in the incumbent operator of Burkina Faso, Onatel on 28 December 2006 and of Gabon, Gabon Telecom on 9 February 2007 via an international invitation to tender. CMC, which is 80% owned by Maroc Telecom, acquired 0.527% of Mauritel SA s share capital from Socipam, a nontrading company created by the staff of the Mauritanian subsidiaries. In addition, Maroc Telecom sold its 35% shareholding in GSM Al-Maghrib for MAD13 million on March 29, Maroc Telecom s investments at December 31, 2006 can be summarized as follows: Companies Gross investment Share (in thousands of MAD) (in %) Onatel 2,459, Compagnie Mauritanienne de Communications 399, Mobisud SA 73, Medi-1-Sat 21, Casanet 18, Maroc Telecom Belgique SA 16, Autoroutes du Maroc (ADM) 20, Thuraya 9, Arabsat 6, Fonds d amorçage Sindbad 2, Matelca Earnings from operations from the main subsidiaries and investments: Mauritel: In 2006, CMC-Mauritel reported MAD997 million in gross revenues, up 10% compared with Fixed-line: gross revenues were down 6.9% in 2006 to MAD309 million, and the customer base shrank 6.2% to 37,447 lines. Mobile: gross revenues (2) in 2006 grew 19.9% to MAD688 million, with a 29.2% increase in the customer base at 601,221 customers. Mauritel s operating income totaled MAD295 million in 2006, up 10.9%, and 21.9% eliminating the effect of the voluntary redundancy plan for the Fixed-line business (MAD29 million). This strong performance was mainly due to robust Mobile activity, whose operating income rose 24.6%. Casanet: In 2006, the Menara portal, which is maintained by Casanet, remained the preferred point of Internet access for Moroccans. Casanet s provisional 2006 revenues totaled more than MAD35 million, up 23% and its provisional earnings reached more than MAD6 million, up 21%. Mobisud: In 2006, Mobisud, a virtual mobile operator specifically aimed at people living in France with ties in Maghreb countries, after only one month in operation at December 31, 2006 recorded revenues of MAD0.4 million and an operating loss of MAD-35 million, which included all the start-up costs. (2) Gross revenues include intersegment transactions between Maroc Telecom s Fixed-line and Mobile businesses. These transactions include interconnection and operators leased lines. 203

206 Changes in the individual company financial statements and earnings The presentation rules and valuation methods used to prepare these documents comply with current regulations and generally accepted accounting principles. The table below presents a summary of changes in Maroc Telecom s main financial indicators: (in millions of Moroccan dirhams) Change 2006/2005 Revenues 16,765 19,310 21, % Operating income 7,806 8,773 10, % Corporate income tax 2,517 2,781 3, % Earnings 5,729 5,872 6, % Capex 2,282 2,986 3, % Income statement Once again, Maroc Telecom posted excellent results. Revenue amounted to MAD21.2 billion, whilst operating income reached MAD10.2 billion and earnings totaled MAD6.9 billion. Revenue Maroc Telecom s revenue for the year ended December 31, 2006, amounted to MAD billion, up 10.0% compared with Operating income and earnings Operating income increased by 15.9% compared with 2005 from MAD8.773 billion to MAD billion. Net financial income remained stable at MAD196 million in Net extraordinary items were negative at MAD328 million, mainly due to expenses linked to the voluntary redundancy plan for MAD300 million. Income before corporate income tax amounted to MAD billion, resulting in earnings of MAD6.929 billion. Balance sheet data At December 31, 2006, total assets were MAD billion, compared with MAD billion a year earlier. Assets at December 31, 2006 Net fixed assets amounted to MAD billion, representing 65% of total assets and compared with MAD billion a year earlier. Intangible assets totaled MAD2.170 billion in 2006, compared with MAD1.148 billion in Gross tangible assets increased by 18% and investments amounted to MAD3.745 billion, up 25% compared with Net tangible assets dropped by MAD87 million, from MAD billion in 2005 to MAD billion in Financial assets totaled MAD3.072 billion compared with MAD519 million in 2005 mainly due to the acquisition of Onatel. Current assets were slightly down by 2% at MAD7.028 billion compared with MAD7.159 billion in 2005, mainly due to an increase in provisions for trade receivables. Accounts receivable amounted to MAD5.695 billion. Cash, including short-term investments, totaled MAD2.254 billion at December 31, 2006, compared with MAD7.274 billion in 2005, after an extraordinary dividend (ordinary dividend and a capital reduction) and the acquisition of Onatel. Liabilities and shareholders equity Taking into account 2006 earnings of MAD6.929 billion, Maroc Telecom s net equity was MAD billion at December 31, Long-term debt fell to MAD2 million at December 31, 2006 from MAD11 million at the end of At December 31, 2006, current liabilities represented 40% of total liabilities and were up 11% to MAD billion, mainly due to an increase in trade payables, resulting from increased handset purchases and network investments, and to the increase in deferred income (up MAD383 million) and restructuring provisions (MAD300 million). Changes in the consolidated financial statements and earnings Scope of consolidation The scope of consolidation for the Maroc Telecom group s financial statements includes Maroc Telecom and the following companies: Mauritel SA and Mauritel Mobiles, in which Maroc Telecom holds a 51.5% stake via the holding company 204

207 5. FINANCIAL REPORT REPORT OF THE MANAGEMENT BOARD Compagnie Mauritanienne de Communications ( CMC ). Since July 1, 2004 when the Mauritanian government s veto rights expired Mauritel has been fully consolidated in Maroc Telecom s financial statements. Mobisud SA, a company governed by French law, in which Maroc Telecom holds a majority stake of 66%, has been fully consolidated since November 1, Medi-1-Sat, in which Maroc Telecom owns 27%, is accounted for by the equity method. GSM Al-Maghrib, a distributor in which Maroc Telecom owned 35% of the share capital until it sold its stake in March 2006 was accounted for by the equity method until the date of the disposal. Casanet, which is wholly-owned by Maroc Telecom is not consolidated, as the main part of Casanet s activity, which concerns the maintenance of Maroc Telecom s Menara Internet portal, is carried out together with Maroc Telecom. Due to the absence of reliable financial statements (financial statements for the period ending September 30, 2006 drawn up under local accounting standards which contained reservations) and to the fact that management teams from Maroc Telecom were not operational until the beginning of 2007, Onatel will only be fully consolidated as from January 1, Comparability of financial statements The consolidated financial statements have been used by the Company as a means of communication with financial markets since its shares were listed on the Casablanca and Paris stock exchanges. In this context, Maroc Telecom s consolidated financial statements for the years ended December 31, 2004, 2005 and 2006 are prepared in compliance with applicable International Financial Reporting Standards (IFRS). Maroc Telecom prepared its 2006 and 2005 consolidated financial statements in accordance with: 1.All mandatory IFRS and IFRIC (International Financial Reporting Interpretations Committee) standards and interpretations at December 31, All these standards and interpretations have been adopted by the EU. 2.By anticipation from January 1, 2004: IAS 32 and IAS 39 on financial instruments. Maroc Telecom is not concerned by any sections of IAS 39 not adopted by the EU. Maroc Telecom has consequently applied IAS 39 in full to its 2004 financial statements and its 2005 consolidated financial statements. 3. The following principle, pending publication of an IASB or IFRIC text on the matter: Pending a final IFRIC interpretation, Maroc Telecom does not accrue loyalty bonuses granted to customers that do not result in an additional cost. These bonuses are not considered to be a greater benefit than those benefits granted to new customers at the inception date of a contract. Loyalty bonuses convertible into free services are accrued. The accounting method used is compliant with the proposed IFRIC Interpretation D20/IAS 18 on Customer Loyalty Programmes. Summary of the consolidated income statement The table below sets out Maroc Telecom s main consolidated indicators: (in millions of Moroccan dirhams) 2004* Change 2006/2005 Consolidated revenues 17,408 20,542 22, % Operating income 7,597 8,678 10, % Financial income % Earnings 5,228 5,921 6, % Earnings attributable to the equity holders of the parent 5,171 5,809 6, % Net cash position 6,498 7,466 2,686 (64.0%) * excluding CMC Mauritel group for the first six months of the year. 205

208 Maroc Telecom consolidated revenues as at December 31, 2006 amounted to MAD22,615 million up 10.1% due to strong performance from all activities. In 2006, Fixed-line and Internet gross revenues (2) in Morocco, totaled MAD12,613 million, up 5.6% compared with This growth was mainly due to strong momentum on the public telephony segment (revenues up almost 15%), growth in incoming international traffic (+11%), the confirmed success of ADSL services and strong performance in data services to businesses and operators (revenues up 13%), stimulated by the price cuts offered since the beginning of the year. On the voice segment the average monthly invoice per customer increased by almost 3% in Mobile gross revenues (2) in 2006 rose 15% to MAD14,684 million compared with 2005, due to the strong increase in the customer base (3) (excluding Mauritel) which totaled almost million customers, representing a 30% increase compared with 2005 and a net increase of almost 2.5 million customers over the year. Other operating income and expenses grew by less than 6% to MAD billion. This slight increase was mainly due to: a 5% drop in purchases mainly due to a slight decrease in the volume of handsets purchased and an 11% reduction in the unit purchase price; stable personnel costs; other operating income and expenses rose by 3%, mainly due to mobile commissions linked to prepaid top-up card sales and stepped-up sales efforts to increase the customer base, and due to maintenance and repair costs linked to network development. despite the 13% increase in taxes, duties and fees due higher ANRT fees, which are calculated based on revenues and MAD35 million in stamp duty linked to the capital reduction carried out in Maroc Telecom consolidated operating income totaled MAD10,043 million in 2006, up 15.7% compared with 2005, which includes a MAD300 million provision for a new voluntary redundancy plan, which is comparable to the restructuring charge in Earnings attributable to the equity holders of the parent rose 16% compared with 2005 at MAD6,739 million in The Group s net cash position totaled MAD2,686 million. (2) Gross revenues include intersegment transactions between Maroc Telecom s Fixed-line and Mobile businesses. These transactions include interconnection and operator leased lines. (3) The active customer base which includes prepaid customers having made or received a voice call in the last three months and postpaid customers who have not terminated their contracts, in compliance with the ANRT definition. Outlook for 2007 Based on current market conditions and insofar as no major event of an extraordinary nature disrupts Maroc Telecom s business, consolidated revenues growth should exceed 6% and consolidated operating income should grow by more than 10% in 2007 supported by continued growth in the mobile and ADSL activities and maintaining leadership on the Fixedline market. These targets do not take into account the contribution from the acquisitions of Onatel and Gabon Telecom in December 2006 and February Proposal of allocation of earnings We put forward for your approval the following allocation of earnings: Allocation of 2006 earnings (in thousand of Moroccan dirhams) Net income for the year 6,929,101 Legal reserve - Regulated reserve - Optional reserve - Ordinary dividend 6,927,271 Retained earnings 1,829 The total dividend payment is MAD7.88 for each share with dividend rights. Ordinary dividends paid out with respect to the previous three years were as follows: Number of shares 87,909, ,095, ,095,340 Dividend/share (dirhams) Total payment (thousand of dirhams) 2,750,000 4,395,477 6,118,504 The nominal share value was reduced in 2004 from MAD100 to MAD10 and from MAD10 to MAD6 in Regulated related-party agreements in accordance with Article 95 of Act We also ask you to approve transactions carried out during the year ended December 31, 2006 in view of fulfilling regulated related-party agreements provided in Article 95 of the Moroccan Act on limited-liability corporations, 206

209 5. FINANCIAL REPORT REPORT OF THE MANAGEMENT BOARD properly authorized by your Supervisory Board and that continued over the past year. The statutory auditors have been informed that these agreements continued over the past year, and they have stated so in their report. The statutory auditors have stated, in their general report, that they have conducted the assignment entrusted to them. Plan for the issuance of bonds and similar securities We submit for your approval a plan for the issuance of bonds and similar securities in Morocco in Moroccan dirhams. The purpose of this issuance is to enable Maroc Telecom to carry out its external growth strategy. The maximum nominal amount of these bonds issued may not exceed MAD5 billion or the equivalent value of that amount, with or without specific collateral, in such proportions, at such times and under such interest rates and redemption terms as it may deem appropriate, We also propose that you confer on the Management Board all powers to carry out such issuance plans with the option of subdelegating them to the Chairman. The present authorization is valid for a period of five years from this date. Share buyback program with a view to stabilize the share price We submit for your approval a share buyback of program with a view to stabilize the share price, in accordance with Articles 279 and séq. of Act no on public limited companies. The share buyback is limited to 3% share capital for a period of eighteen months, to be implemented in one or several transactions, on the stock market or otherwise, namely by purchasing company shares or using options, with a view to stabilize the share price. The maximum amount of the authorized share buyback program may not exceed MAD4 billion. We also propose that you confer on the Management Board all powers to place orders on the stock market, sign any contracts of sale or transfer, enter into any other agreements, option contracts, perform any disclosures and any necessary formalities, with the option of subdelegating such powers. This authorization should enable Maroc Telecom to set up liquidity contracts with stock brokers with the aim of: Helping to ensure the liquidity of Maroc Telecom shares on the Casablanca and Paris stock exchanges; Stabilizing the share price by trading against excessive market trends, whether upward or downward; However, the orderly functioning of the stock market must not be disrupted by these two targets. 207

210 6 CORPORATE GOVERNANCE 6.1 MANAGEMENT AND SUPERVISORY BOARDS Composition and functioning of the Management Board Name (Age) Current office Date of appointment Expiry of term of office and main duties Abdeslam AHIZOUNE Chairman First appointed February 20, * (51) Renewed on March 4, 2005 Arnaud CASTILLE Managing Director First appointed February 24, * (34) Administration and Finance with effect on April 1, 2006 Janie LETROT Managing Director First appointed June 29, * (52) Regulation, Communication and International Development Larbi GUEDIRA Managing Director First appointed February 20, * (52) Services Renewed on March 4, 2005 Mohammed HMADOU Managing Director First appointed February 20, * (53) Networks Renewed on March 4, 2005 * The members of Management board s terms office were renewed at the time of Supervisory Board meeting held on the first of March 2007, for a period of two years, up to Biographies and duties of the members of the Management Board Mr. Abdeslam AHIZOUNE Mr. Abdeslam Ahizoune was appointed Chairman of the Management Board of Maroc Telecom in February He is also a member of the Management Board of Vivendi (since April 2005). Mr. Ahizoune is a member of the Board of Directors of Mauritel SA, Mauritanian s incumbent operator and of the following organizations: Mohammed V Foundation for Solidarity, Mohammed VI Foundation for the Environment, the Lalla Salma Association Against Cancer and Al Akhawayne University. In 2006, Mr. Ahizoune was elected Chairman of Directors Board of Mobisud SA, the Mobile Virtuel Network Operator (MVNO) in France, and member of Directors Board of Onatel, the incumbent operator in Burkina Faso. Also he was elected President of the Royal Moroccan Federation of Athletics (FRMA). At the beginning of 2007, Mr. Ahizoune was elected director of Gabon Telecom, the incumbent operator in Gabon. In addition, Mr. Ahizoune has a part time employment contract with Vivendi, and takes part in determining Vivendi s international development strategy. Mr. Ahizoune served as Chairman and Chief Executive Officer of Maroc Telecom (between February 1998 and 2001), He held the position of Minister of Telecommunications (between August 1997 and 1998), Managing Director of the Office National des Postes et Télécommunications (ONPT) (between February 1995 and August 1997), Minister of Postal and Telecommunications Services and Managing Director of the ONPT (between August 1992 and February 1995) and Director of Telecommunications in the Ministry of Postal and Telecommunications Services (between 1983 and 1992). From 1982, Mr. Ahizoune held a number of positions in the Postal and Telecommunications Services department and then in the ONPT. Mr. Ahizoune holds an engineering degree from the École Nationale Supérieure des Télécommunications in Paris, France (1977). Mr. Larbi GUEDIRA Mr. Larbi Guedira is Managing Director of Maroc Telecom s Services Segment, and served previously as Executive Director of the Commercial Segment, Executive Director of Telecommunications and Chief Financial Officer and Regional Director for Casablanca. In addition, Mr. Guedira serves as Director of CMC, Mauritel SA, Mauritel Mobiles and Matelca. He also served as President of the National Association of Telecommunications Engineers (Association Nationale des Ingénieurs des Télécommunications) between 2000 and Mr. Guedira holds a Diplôme d Etudes Supérieures Spécialisées (DESS) in Management from the University of 208

211 6. CORPORATE GOVERNANCE MANAGEMENT AND SUPERVISORY BOARDS Lille, and he is a Fellow of the Ecole Nationale Supérieure des Télécommunications in Paris, having received his Master s Degree in Mathematics from Paris XI (Orsay). Mr. Mohammed HMADOU Mr. Mohammed Hmadou is Managing Director of Maroc Telecom s Network. He previously served as Director of Subsidiaries and Interests, Director of Operations and Executive Director of Infrastructure Segment until In addition, he serves as a Director at CMC, Mauritel SA, Mauritel Mobiles, Casanet and Matelca. Previously, Mr. Hmadou served as Managing Director of the National Company of Telecommunications (Société Nationale des Télécommunications). Mr. Hmadou holds an engineering degree from the Ecole Nationale Supérieure des Télécommunications in Paris. Mr. Arnaud CASTILLE Mr. Arnaud Castille was appointed as a member of Maroc Telecom s Management Board and Managing Director, Administration & Finance on April 1, Since September 2001 he had been Director of Management Control at Maroc Telecom. Previously he held positions as Head of Administration and Finance of Bouygues, then Accounts Manager in the consultancy firm CSC Peat Marwick. He started his career as an auditor with Ernst & Young. Arnaud Castille is 34 years old. Mr. Castille holds a Masters degree in Management and a Diplôme d Etudes Supérieures Spécialisées (DESS) in Company Finance from the Paris Dauphine University and is a graduate of INSEAD s International Executive Programme. Mrs. Janie LETROT Mrs. Janie Letrot, Managing Director Regulation, Communication and International Development, was appointed as a member of Maroc Telecom s Management Board on June 29, From January 1999 to July 2001 Mrs. Letrot was Vivendi Group s General Delegate in Morocco, and joined Maroc Telecom as Director, Regulation and Public Relations before being promoted to Director, Regulation and Communication. Previously Mrs. Letrot had been Civil Administrator in the French Ministry of Finance, Commercial Advisor and Financial Advisor to the Economic Mission of the French Embassy in Rabat and then Economic and Financial Advisor to the Permanent Mission of France to the United Nations in New York. Mrs. Janie Letrot holds a degree in History and Geography from the Paris-Sorbonne University, she is a graduate of the Ecole Nationale d Administration in Paris. Mrs. Janie Letrot has been nominated Knight of the National Order of Merit. Duties and responsibilities of the Management Board The Management Board is responsible for managing and conducting the operations of the Company, under the supervision of the Supervisory Board. The Board is composed of five members who collectively manage the Company s operations. The Board members may allocate management tasks among them, subject to the approval of the Supervisory Board. Its decisions are taken by a majority of the votes of its members that are present or represented. Messrs. Larbi Guedira and Mohammed Hmadou represent the interests of the Government of the Kingdom of Morocco, while Messrs. Abdeslam Ahizoune, Arnaud Castille and Mrs. Janie Letrot represent the interests of Vivendi. Within a period of three months following the close of the fiscal year, the Management Board must prepare the financial statements and deliver them to the Supervisory Board, so that the latter may conduct its audit procedure. Likewise, the Management Board must provide a management report to the Supervisory Board before presenting the same to the ordinary general shareholders meeting, so that the Supervisory Board may provide its comments, if any, on the report. Rights and obligations of the members of the Management Board In accordance with Moroccan law, the Management Board is vested with the most comprehensive powers to act in all circumstances on behalf of the Company; the Board exercises these powers within the limits of the Company s corporate purpose and subject to those powers that legally belong to the Supervisory Board and to the shareholders. With respect to relationships with third parties, the Company remains bound by the actions of the Management Board that do not diverge from the Company s corporate purpose, unless the Company can prove that the third party knew that such action was outside such purpose or, taking the circumstances into account, it could not have ignore it; the publication of the bylaws alone is sufficient to constitute such proof. The provisions of the Company s bylaws limiting the powers of its Management Board are not opposable to third parties. Except with the special waiver granted by the Supervisory Board, the members of the Management Board, upon the vote of a 75% qualified majority of its members, are required to be employees of the Company and present in Morocco for more than 183 days each year. 209

212 6.1.2 Composition and roles of the Supervisory Board Composition of the Supervisory Board as at March 9, 2007 Name (Age) Current Office Date of appointment Expiry of term of office Principal post or occupation Fathallah OUALALOU Chairman Shareholders Meeting Ordinary General Assembly of Minister of Finance (64) of February 20, 2001 Shareholders called to approve and Privatization the financial statements for 2006 Jean-Bernard LEVY Vice-Chairman Supervisory Board Meeting Ordinary General Assembly of Chairman of the (52) of December 17, 2002 Shareholders called to approve Management Board the financial statements for 2006 of Vivendi Chakib BENMOUSSA Member Supervisory Board Meeting Ordinary General Assembly of Minister of the Interior (49) of February 24, 2006 Shareholders called to approve the financial statements for 2006 Abdelaziz TALBI Member Supervisory Board Meeting Ordinary General Assembly of Director of State Owned (57) of March 4, 2005 Shareholders called to approve Entreprises at the Ministry the financial statements for 2006 of Finances and Privatization Secretary General of the National Accounting Council Jean-René FOURTOU Member Supervisory Board Meeting Ordinary General Assembly of Chairman of the (67) of January 4, 2005 Shareholders called to approve Supervisory Board of the financial statements for 2006 Vivendi Jacques ESPINASSE Member Supervisory Board Meeting Ordinary General Assembly of Chief Financial Officer (63) of December 17, 2002 Shareholders called to approve of Vivendi the financial statements for 2006 Member of the Management Board of Vivendi Frank ESSER Member Supervisory Board Meeting Ordinary General Assembly of CEO of SFR group (48) of March 4, 2005 Shareholders called to approve Member of the the financial statements for 2006 Management Board of Vivendi Robert de METZ Member Supervisory Board Meeting Ordinary General Assembly of Deputy Managing, (55) of December 17, 2002 Shareholders called to approve Director for divestitures, the financial statements for 2006 mergers, and acquisitions of Vivendi Philippe CAPRON* Member Supervisory Board Meeting Ordinary General Assembly of Director of Vivendi (48) of March 1, 2007 Shareholders called to approve the financial statements for 2009 * Madam Françoise Colloc h presented her resignation at the time of Supervisory board meeting of June 29, It proposed to the Ordinary Shareholders meeting of April 12, 2007, the ratification of the co-option of Mr. Philippe Capron as member of the Supervisory Board, replacing Madam Françoise Colloc h for the raimining period of his mandate. 210

213 6. CORPORATE GOVERNANCE MANAGEMENT AND SUPERVISORY BOARDS Biographies and duties of the members of the Supervisory Board Mr. Fathallah OUALALOU - Chairman Since 2002, Mr. Fathallah Oualalou has been Minister of Finance and Privatization. Mr. Oualalou was formerly Minister of Economics and Finance from 1998 to He also heads the parliamentary group of the Socialist Union of Popular Forces (Union Socialiste des Forces Populaire) ( USFP ) in the Chamber of Representatives. Mr. Oualalou has been a member of the political office of the USFP since 1989, and he was elected several times as a city councilman of Rabat and as deputy in the Chamber of Representatives. Mr. Oualalou joined the teaching staff of the law school of Rabat, of the law school of Casablanca, and of the Ecole Nationale d Administration ( ENA ), after having defended his thesis for a Doctorate in Economics in Paris in He is the author of several books and works about political economy, international economic relations, particularly focusing on relationships between Europe and Maghreb. For several years he chaired the Association des économistes marocains (Association of Moroccan Economists) and l Union des économistes arabes (Union of the Arab Economists). Fathallah Oualalou, as a representative of the Moroccan Government, is a member of the Supervisory Board of Credit du Maroc, Holding Al Omrane and Maroclear and a member of the Board of Directors of the Agency for the de-densification and rehabilitation of the Fes Medina (ADER). Mr. Jean Bernard LEVY Vice-Chairman Mr. Jean-Bernard Levy is Chairman of the Management Board of the Vivendi group. He previously served as deputy Chief Operating Officer of the Vivendi Universal group, Chairman and Chief Executive Officer of Matra Communication and Managing Partner at Oddo Pinatton. From 1988 to 1993, he was Director of Telecommunications Satellites at Matra Marconi Space. Mr. Levy also served as the technical advisor and chief of staff to Mr. Gerard Longuet, the French Minister for Industry, Postal Services, Telecommunications and Foreign Trade in 1993 and Jean-Bernard Levy is a Member of the Supervisory Board of the Canal+ Group, Director of SFR, Vivendi Games, Inc (US) and NBC Universal, Inc (US). Over the past five years, Mr. Levy has served as Chairman and Chief Operating Officer of Vivendi Universal Net and Vivendi Telecom International. He was also a member of the Supervisory Board of Cegetel, Director of UGC and HCA. Mr. Levy is a graduate of the École Polytechnique and the École Nationale Supérieure des Télécommunications. Mr. Chakib BENMOUSSA Mr. Chakib Benmoussa has been Minister of the Interior since February 15, Previously, he served as Director of Planning, Director of Roads in the Infrastructure Ministry, Secretary General to the Prime Minister and Chairman Delegate of SONASID and of Tangier Free Zone. Mr. Benmoussa has also served as Director and Chief Operating Officer of the Brasseries du Maroc Group, as member of the General Confederation of Moroccan Businesses (CGEM) for Enterprise and of COSEF (Special Commission for Education and Training), and as Secretary General to the Minister of the Interior. Chakib Benmoussa graduated from Ecole Polytechnique in 1979 and from Ecole Nationale des Ponts and Chaussées in He graduated with a Master of Science degree in Civil Engineering from Massachusetts Institute of Technology in 1983 and holds a post-graduate diploma (DESS) in Project Management (I.A.E, Lille). Mr. Abdelaziz TALBI Mr. Abdelaziz Talbi was appointed Director of State Owned Entreprise and privatization (DEPP) at the Ministry of Finances and Privatization in He had previously assumed various responsibilities within the DEPP, overseeing the service of the accounting revision then the division of audit and accounting normalization then he held a position as deputy director. Before his entry to the public Administration, he was CFO of a company in Rabat and local responsible an accounting firm in Paris. In parallel to his activities within the DEPP, Abdelaziz Talbi is also General Secretary of the National Accounting Council. Mr. Abdelaziz Talbi is a chartered accountant graduate by the French State and holds a diploma in administration of companies and regional and local authorities of the University of Nancy. Mr. Abdelaziz Talbi, as a representative of the Moroccan government, is a member of the Supervisory Boards of the Regie des Tabacs, Atlas Blue and Credit Agricole du Maroc. He also serves on the Board of Directors of Royal Air Maroc, of the Moroccan Navigation Company (COMANAV), of the National Radio and Television Company (SNRT) and of the National Local Planning Company (SONADAC). Over the past five years, as a representative of the Moroccan government, he has also been a member of the Supervisory Board of the Agricultural Development Society (SODEA), of the Management of Agricultural Land Society (SOGETA), of the Audiovisual Studies Society (SOREAD) and of the Management Board of the Commercial Coal Company (SOCOCHARBO). 211

214 Mr. Jean-Rene FOURTOU Mr. Jean-Rene Fourtou is a former student of the Ecole Polytechnique. In 1963, Jean-Rene Fourtou was a management consultant at Bossard & Michel. In 1972, he became Chief Operating Officer of Bossard Consultants and Chairman-CEO in In 1986, he was appointed Chairman and Chief Operating Officer of the Rhône-Poulenc Group. From December 1999 to May 2002, he served as Vice- Chairman and Chief Operating Officer of Aventis. Since April 28, 2005, Mr. Fourtou has been Chairman of the Supervisory Board of Vivendi, after having served as Chairman and Chief Executive Officer of Vivendi, Chairman of the Supervisory Board of Canal+ Group and Director of NBC Universal (US). Mr. Jean-Rene Fourtou the Honorary Chairman of the International Chamber of Commerce. He is the Co-chairman of the Franco-Moroccan impetus group created in September This working group aims to propose any measure likely to improve economic relations between the two countries. Mr. Fourtou is Vice Chairman of the Supervisory Board of AXA, member of the Executive Committee of AXA Millesimes SAS, and Director at Cap Gemini and Sanofi Aventis. Over the past five years, he has served as Chairman of the Supervisory Board of Vivendi Environment, Chief Operating Officer of USI Entertainment Inc. (US), Vice-Chairman of the Board of Directors of AXA Assurances IARD Mutuelle and Permanent Representative on the Board of AXA, of Finaxa (AXA Assurances IARD Mutuelle). He was also a Director of EADS (Netherlands), of Rhône Poulenc Pharma, of Rhône- Poulenc AGCO Ltd, of Schneider Electric, of Pernod Ricard and of la Poste. Mr. Jacques ESPINASSE Mr. Jacques Espinasse holds an MBA from the University of Michigan. Mr. Espinasse was appointed Chief Financial Officer of Vivendi in July 2002, and appointed to the Management Board of Vivendi on April 28, He had previously been Chief Operating Officer of TPS, a French satellite television service, since 1999 and became a member of the Board of Directors of TPS in 2001 Previously, Mr. Jacques Espinasse held a variety of senior management positions in major French companies, including CEP Communication and Group Larousse Nathan, where he was appointed Senior Executive Vice President in In 1985, he became Chief Financial Officer of the Havas group. He was appointed Senior Executive Vice President of the Havas group when it was privatized in May 1987 and held this position until January He is a Director of SES Global, member of the Supervisory Board of Canal+ Group and of SES Global (Luxembourg) and Director of SFR, Vivendi Games Inc (US), Veolia Environment and Vivendi Universal Net. Over the past five years, Mr. Jacques Espinasse has been a Director of Vivendi Universal Publishing, Cegetel Group, TPS and Multithématiques SA. He has also been: Chairman of Light France Acquisition SAS; Permanent representative of Vivendi, UGC; Permanent representative of Vivendi to the Board of Directors, Sogecable (Spain); Permanent representative of SAIGE to the Board of Directors, SFR; Chairman and Chief Operating Officer of J.E.D Conseil. Mr. Frank ESSER Mr. Frank Esser holds a doctorate in economics from the University of Economic Science of Fribourg. He was appointed member of the Management Board of Vivendi in April Mr. Esser was appointed Chairman of SFR in December 2002 and has been with the group since September 2000, when he was appointed Chief Executive Officer. Mr. Esser has been a member of the Board of Directors of the GSM Association since February 2003 and became Chairman of its Public Policy Committee in Prior to joining SFR, Mr. Esser was Executive Vice President at Mannesmann, in charge of international business and business development. Mr. Frank Esser is also Chairman and Chief Operating Officer of SHD and Director of Neuf Telecom, Vivendi Telecom International and Faurecia. He is also Chairman of the Board of Directors of Vizzavi France, Permanent Representative of SFR to the Board of Directors of LTB-R and member of the Supervisory Board of Vodafone D2. Over the past five years, Mr. Frank Esser has held the following Directorships: Chairman and Chief Operating Officer of Cegetel; Chief Operating Officer of Cegetel Group; Director of Cegetel Entreprises; Director of Cofira; Director of Omnitel; Director of Infostrada. Mr. Robert de METZ Mr. Robert de Metz has been Deputy Managing Director for divestitures, mergers, and acquisitions of the Vivendi group since September He was previously involved in the management of private funds. Mr. de Metz was also a member of the executive board of directors of Paribas from 1997 to Mr. Robert de Metz is a graduate from the Institut d Etudes Politiques in Paris and from the Ecole Nationale d Administration (ENA) and former inspector in Ministry of Finance. 212

215 6. CORPORATE GOVERNANCE MANAGEMENT AND SUPERVISORY BOARDS Mr. Philippe CAPRON Mr. Philippe Capron is a graduate of the Institut d études politiques of Paris (IEP) and the Ecole des hautes études commerciales (HEC). Mr. Capron was assistant to the Chairman and Secretary to the Board of Directors of Sacilor from 1979 to On graduating from the Ecole Nationale d Administration (ENA) in 1985, he joined the Inspectorate General of the Ministry of Finance. Advisor to the Chairman-Chief Executive Officer of Duménil Leblé from 1989 to 1990, then Managing Director and member of the Management Board of Duménil Leblé Bank (Cérus group) from 1990 to 1992, he was then appointed Vice President and Partner of the consultancy firm Bain and Company from 1992 to After serving as Director of International Development and member of Euler Group s Executive Committee from 1994 to 1997, he served as Chairman-Chief Executive Officer of Euler- SFAC from 1998 to Mr. Capron joined the Usinor group in November 2000 as Director of Financial Services, and member of the Executive Committee until 2002, when he was appointed Executive Vice-president of Arcelor, in charge of the steel packaging division then of International Trading and Distribution. At the beginning of 2006, he became Director of financial businesses and member of the Management Board of the Arcelor Group. Since January 2007, Philippe Capron is a Director of Vivendi s Management Team. Mr. Capron is also a member of Maroc Telecom s Supervisory Board, Chairman of Achatpro s Supervisory Board, member of the Supervisory Board and Chairman of the Audit Committee of the Virbac group and a member of Club de Verzy, club 40 and the Society of Political Economy. Over the past five years he has been: Chairman Chief Executive Officer of Arcelor Packaging International; Member of the Supervisory Board of Eko-Stahl; Chairman-Chief Executive Officer of Solvi; Director of Eco Emballage; Manager of Arcelor Treasury; Chairman of the Board of Directors of Sollac Ambalaj; Chairman of Arcelor International; Chairman of Arcelor Projects; Chairman of the Board of Directors of Line Inc; Director of Cockerill-Sambre. Duties and responsibilities of the Supervisory Board Pursuant to the Articles of Association, the Supervisory Board may be composed of a minimum of eight members and a maximum of 15 members since the listing of shares of the Company. Among its members, the Board elects a Chairman and a Vice Chairman, who are in charge of convening the Board and leading its discussions. The Supervisory Board appoints the members of the Management Board for a renewable term of two years, appoint the Chairman among the members of the Management Board. Depending on the matters and in accordance with the terms of the Amended Shareholders Agreement, decisions of the Supervisory Board are validly taken whether at a simple majority or, subject to a qualified 75% majority of its members. The Supervisory Board exercises permanent control of the Company s management by the Management Board. For information on the composition of the Supervisory Board, the periods of service and the duties of its members, and the decision-making process, see section 3.1 General information regarding the Company Administration of the Company Supervisory Board. In 2006, the Supervisory Board met five times to approve the Company s performance as well as its perspectives on medium and long-term, with an average attendance rate of 62%. As of today, three members of the Supervisory Board Messrs. Fathallah Oualalou, Chakib Benmoussa, and Abdelaziz Talbi were appointed upon proposal of the Government of the Kingdom of Morocco and 5 members Messrs. Jean Bernard Levy, Jean-Rene Fourtou, Jacques Espinasse, Frank Esser and Robert de Metz were appointed upon proposal of Vivendi. Each member of the Supervisory Board must hold at least one share, which share must be in registered form. 213

216 Rights and obligations of the members of the Supervisory Board In accordance with Moroccan law, the Supervisory Board exercises permanent control over the management of the Company by the Management Board. The Company s bylaws may require the prior approval of the Supervisory Board for carrying out certain types of actions. When an operation requires approval from the Supervisory Board and the Board refuses to grant such approval, the Management Board may submit the disagreement to the shareholders meeting for the latter to decide. The disposal of property, the full or partial disposal of shareholdings and the pledging of collateral, guarantees, security and warranties are subject to authorization by the Supervisory Board. The Board determines the amount for each transaction. Nevertheless, the Management Board may be entitled to grant, endorsements and guarantees to customs and tax authorities, without any limit on the amount. Whenever a transaction exceeds the amount determined as mentioned above, the approval of the Supervisory Board is required. The Management Board may delegate the power that it has received pursuant to the previous paragraphs. The absence of approval is void as against third parties, unless the Company proves that such parties knew or could not have ignored such requirement. Throughout the year, the Supervisory Board carries out the verifications and monitoring that it deems appropriate, and it may require to be provided with the documents it deems useful in accomplishing its mission. The members of the Supervisory Board may have access to all information relating to the Company s activities. At least once each quarter, the Management Board provides a report to the Supervisory Board. Within three months following the close of each financial year the Management Board provides the documents covered under the Law concerning corporations to the Supervisory Board, for the purpose of verification and review. The Supervisory Board may provide to the shareholders meeting its comments on the report from the Management Board, as well as its comments on the financial statements for the fiscal year. The members of the Supervisory Board are not employee of the Company. 214

217 6. CORPORATE GOVERNANCE CORPORATE GOVERNANCE 6.2 CORPORATE GOVERNANCE Audit Committee Maroc Telecom s Audit Committee is responsible for making recommendations and/or giving advice on accounting procedures governing the operations of the group. Composition The Audit Committee is composed of the following members: Name (Age) Current office Date of appointment Principal post or occupation Jacques ESPINASSE Chairman 2003 Chief Financial Officer of Vivendi (63) Member of the Management Board of Vivendi Noureddine BOUTAYEB Member 2003 Director of Rural Affairs (49) of the Ministry of Interior Abdelaziz TALBI Member 2004 Director of State Owned Entreprises (57) at the Ministry of Finances and Privatization Secretary General of the National Accounting Council Bousselham HILIA Member 2003 Secretary General of the Ministry of Industry, (47) Commerce and Economic Development Robert de METZ Member 2003 Deputy Managing Director for Divestitures, (55) Mergers, and Acquisitions of Vivendi Pierre TROTOT Member 2003 Senior Executive Vice President, Administration (52) and Finance Director of SFR Biographies and duties of the members of the Audit Committee Mr. Noureddine BOUTAYEB Mr. Noureddine Boutayeb was appointed as Director of Rural Affairs at the Ministry of the Interior in Mr. Boutayeb is also a member of the Supervisory Board of Crédit Agricole. Previously, Mr. Boutayeb served as Deputy Managing Director of Maghrebine Consulting Engineers (Société Maghrébine d Ingénierie (INGEMA SA)), after he served as an Engineer at the Ministry of Equipment (Ministère de l Equipement) and in a consulting firm in Paris. Mr. Boutayeb holds a degree from the Ecole Centrale in Paris. In addition, he holds a Master s of Business Administration and an engineering degree from the Ecole Nationale des Ponts et Chaussées. Finally, Mr. Boutayeb also has a higher degree (Diplôme d Etudes Approfondies) in Soil Mechanics. Mr. Bousselham HILIA Mr. Bousselham Hilia is Secretary General of the Ministry of Industry, Commerce and Telecommunications. He is also a member of the Boards of Directors of various state-owned and para-governmental companies. Previously, Mr. Hilia served as Head of the division on electrical and electronics industries, Director of Domestic Trade, and Director of General Affairs. Mr. Hilia holds a degree from the Mohammadia School of Engineering. 215

218 Mr. Pierre TROTOT Mr. Pierre Trotot is the Senior Executive Vice President, Administration and Finance Director of SFR. Previously, Mr. Trotot served as Chargé de Mission, then Director of Financial Management at Compagnie Générale des Eaux, after having been Chargé de Mission reporting to the President of Compagnie de Navigation Mixte ( ). Before then, Mr. Trotot was a Chargé de Mission at Arthur Andersen Audit ( ). Mr. Trotot is a graduate of Hautes Etudes Commerciales (HEC) in Paris. Operations of the Audit Committee Created by the Supervisory Board in 2003, the Audit Committee responds to the will of the shareholders to adopt international standards for the corporate governance and internal controls of Maroc Telecom. The Audit Committee is composed of a Chairman and five permanent members, with three representatives of the Government of the Kingdom of Morocco and three of Vivendi, including the Chairman. The Audit Committee was convened for the first time in May 2004, and held four meetings in The Committee s role is to give recommendations and opinions to the Supervisory Board on matters such as: the individual financial statements and consolidated financial statements, before they are presented to the Supervisory Board; the consistency and efficiency of the Company s internal audit process; review of the work programs of internal and external auditors and the examination of the results of their audits; accounting principles and methods, and consolidation scope; the Company s off-balance sheet risks and commitments; establishing procedures for selecting statutory auditors, reviewing the amounts of the fees solicited for the performance of their audit duties, and monitoring compliance with the rules guaranteeing auditor independence; and considering all issues that, in its judgment, present risks for the Company or could result in the malfunction of auditing procedures. Internal Control The internal control procedures in force within the Maroc Telecom group have the following objectives: on the one hand, to ensure that the actions of management and the execution of operations, as well as the employees behavior, are within the framework defined by guidelines for corporate business operations by the management and by applicable laws and regulations; and on the other hand, to check that the accounting, financial and management information provided to the management of the Company accurately reflect the Company s operations and financial position. The objectives of the internal control s process are to avoid and to control risks arising from corporate undertakings, error and fraud, in particular in the financial and accounting areas. As is the case for all audit systems, however, they cannot provide an absolute guarantee that these risks will be completely eliminated. In order to carry out its task of assessing and validating Company internal audits, the Audit Committee relies on the Internal Audit and Inspection departments. The Audit Committee defines the Internal Audit and Inspection departments mandates and analyzes their findings. In 2006, the average attendance rate at the Audit Committee s meetings was 50%. Internal Audit and Inspection Internal Audit The Internal Audit department of Maroc Telecom is an independent function that has direct access to the Audit Committee. Its functions are governed by a charter approved by the Audit Committee. The Internal Audit department s role is to ensure that the Company has control over its operations and to monitor the quality of internal control at each level of the Company s organization. The Internal Audit department assists the Management in achieving its objectives by assessing its risk management and control procedures and corporate governance. The efficacy of the internal audit process is assessed by the Internal Audit department, according to an annual audit plan approved by the Audit Committee. Synopses of the comments and recommendations formulated by the Internal Audit department are provided to the Audit Committee so that the latter can assure its compliance and guarantee its execution. The audit plan is defined according to an analysis of company risks, which covers both financial risks, information systems risks, and risks particular to the operational units of the Company. For the purpose of meeting this double target, the Internal Audit department is composed of two segments which have the following complementary missions: financial audit (18 auditors, as of December 31, 2006) part of the Administration and Finance Department for matters having an accounting and financial impact; and 216

219 6. CORPORATE GOVERNANCE CORPORATE GOVERNANCE operational audit (18 auditors, as of December 31, 2006) part of the General Control Department (Presidency) that focuses on the operational units (Sale Agencies and Regional headquarters). This audit proceeds with a review of the procedures for managing resources, networks and customer services. The annual audit plan is comprised of a program of missions, the implementation of which is entrusted to the Internal Audit department. The missions have the following main objectives: ascertain the existence and adequacy of controls in the areas of finance, data processing and operations, to ensure that the main risks are identified and suitably covered; review the integrity of the financial information, including the controls relating to security of communicating, recording and backing up information; review the operational units and systems for ensuring adequacy with respect to policies, procedures and legal and regulatory requirements; review the means of safeguarding assets and advising management as to the efficiency and effectiveness of its use of resources; and assure that recommendations are carried out within the framework of follow-up tasks. Finally, the Internal Audit department communicates and coordinates with the Company s external auditors, to maximize the effectiveness of the scope of the audit s coverage. Internal audits performed in 2006 involved the main items of balance sheet and the consolidated income statement, i.e. revenues, fixed assets, inventories and cash flow. Inspection Together with the Internal Audit department, the Inspection department (15 inspectors, as of December 31, 2006) likewise takes part in the assessment and approval of Company internal controls. The department reports to the General Control Department (Presidency) and to the Audit Committee. At their request or its own initiative, the Inspection department conducts regular audits, specific and unannounced, for the following purposes: to protect the assets, property, resources and means used; to check that management procedures, instructions, policies and rules are observed; to ensure the quality, sufficiency and reliability of data and optimization of the allocation of resources; and to demonstrate and determine the possible liabilities in the event the Company became aware of malfunctions, irregularities or fraud. The Inspection department may assist the Internal Audit department in the implementation of specific missions, to determine a program of study and analysis, and to provide proposals on the Company s operations. Sarbanes-Oxley On October 31, 2006, Vivendi filed a Form 15 with the Securities and Exchange Commission (SEC) to terminate its obligations under the Securities Exchange Act of Vivendi had already terminated the deposit agreement with the Bank of New York relating to its American Depositary Receipts (ADR). For the needs of Vivendi, since the parent company is listed on the New York Stock Exchange, Maroc Telecom, as a subsidiary of the group, initiated work in 2003 to prepare to comply with Sarbanes-Oxley Act, by assessing the quality of processes that might effect the reliability of its financial information. Once Vivendi is no longer bound by regulatory obligations to the US market authorities, Maroc Telecom will remain committed to maintaining the highest standards of corporate governance and financial information Code of Ethics Maroc Telecom has drawn up a Code of Ethics in order to maintain a high level of fairness, transparency, market integrity, and primacy of the client s interests. This Code is not intended to replace existing rules, but outlines the ethical principles and rules that are generally applicable and the need to comply with them scrupulously. It aims to make each member of the Company accountable, setting out the principal rules governing the use of privileged information, in order to increase awareness of best practices among company employees, and to assist them in adjusting their professional behavior to those best practices. This Code of Ethics includes rules for dealing with real or apparent conflicts of interest in order to avoid situations such as insider trading or the suspicion of such. Employees may also consult the person responsible for ethical standards, who is in charge of ensuring compliance with the rules of the Code of Ethics, and with all rules and regulations as defined by law. 217

220 6.3 INTERESTS OF THE CORPORATE EXECUTIVES Compensation of the Management and Supervisory Boards The Supervisory Board sets, as part of its appointment decisions, the form and the amount of compensation paid to each member of the Management Board. That information is then stated in the employment contract of the respective member. A compensation committee comprised of the Chairman and the Vice Chairman of the Supervisory Board meets each year to examine the total compensation of the members of the Management Board, including any variable portion, and submits its proposal to the Supervisory Board. The total gross compensation paid by the Company, its subsidiaries and all controlling companies to members of the Management Board for fiscal year 2006 amounted to approximately MAD22.2 million, of which 30% represented variable compensation. Variable compensation for the members of the Management Board for 2006 was determined on the basis of: (a) Vivendi group and/or Maroc Telecom s financial targets and (b) priority developments in their business areas. The following table sets out the compensation for the past three fiscal years: (in millions of Moroccan dirhams) Gross compensation Variable compensation (in %) 31% 33% 30% Minimum amount in the event of termination of contract Some companies in the Vivendi group cover part of these payments to certain members of the Management Board. In addition, certain members of the Management Board are eligible for Vivendi s stock option plans. Based on compensation for 2006, the minimum amount to be paid by the Company in the event of termination of the employment contract of the members of the Management Board would amount to around MAD25.3 million in total, except for dismissal for serious misconduct or gross negligence. Furthermore representation and travel expenses incurred by the members of the Management Board in the performance of their functions are borne by the company. The Shareholders meeting on October 28, 2004 decided to allocate the total annual sum of two million dirhams (MAD2,000,000) for the payment of directors fees for the members of the Supervisory Board. This decision is valid until a new decision is made by the Shareholders meeting. The conditions and means of payment are to be determined each year by the Supervisory Board. At the Supervisory Board meeting held on June 29, 2006, the members of the Board decided, as in the previous year, to waive the payment of Directors fees that were due in respect of 2005 and chose for these fees to be awarded by Maroc Telecom to the Maroc Telecom Association for Entrepreneurship which distributes these sums in the form of grants to Moroccan students of merit studying at university in Morocco or abroad, in a subject relating to one of Maroc Telecom or Vivendi s activities Participation of Management structures and Supervisory Board in the Company s share capital As of December 31, 2006, the members of the Supervisory Board and the Management Board held respectively, directly or indirectly, 7,355 and 154,495 Maroc Telecom shares. 218

221 6. CORPORATE GOVERNANCE INTERESTS OF THE CORPORATE EXECUTIVES Conflict of interests Over the past five years, no conviction in relation to fraudulent offences has been delivered against any member of Maroc Telecom s Management Board or Supervisory Board, none of the members of the Management Board or the Supervisory Board have been associated with a bankruptcy, receivership or liquidation while serving on an administrative, management or supervisory body, and no official public incrimination and/or sanction has been delivered against any members of the Management Board or the Supervisory Board by statutory or regulatory authorities. Furthermore, there are no family relations between the members of the Management Board and those of the Supervisory Board, except Mr. Larbi Guedira, Chief Operating Officer of the Services Segment, who is the husband of the sister of Mr. Fathallah Oualalou, Chairman of the Supervisory Board. Mr. Guedira already acted as Director of Telecommunications when Mr. Oualalou was appointed as Chairman of the Supervisory Board and was previously Regional Director of Telecommunications for Casablanca ( ) and CFO ( ). Finally, members of the Management Board and of the Supervisory Board are appointed by the Shareholders Agreement according to the conditions set out in paragraph Shareholders Agreement Interests of corporate executives in significant customers and suppliers of the Company None Service contracts To date, with the exception of employment contracts between members of the Management Board and Maroc Telecom, there are no contracts between members of the Management Board or the Supervisory Board and the Company and/or any of its subsidiaries, which bestow any individual benefits Stock options As of the date of this annual report, no director and/or employee owns any stock options. Nonetheless, the Extraordinary and Ordinary Shareholders meeting of March 30, 2006, in the eighth resolution, authorized the Management Board to grant stock options, under the conditions provided for by law, on one or more occasions, for a period of three years from the date of authorization, to members of the Board, directors, senior executives, or in exceptional cases to non-executive Group employees Loans and guarantees granted to corporate executives None. 219

222 6.4 RELATED PARTY TRANSACTIONS As Maroc Telecom is incorporated under Moroccan law, the French commercial code is not applicable to it. However, under Article 95 of Moroccan law relating to Corporations, any agreement entered into, directly or indirectly, between the Company and one of the Management or Supervisory Board members, is subject to prior approval by the Supervisory Board. The same applies for agreements entered into between the Company and another company, if one of the members of the Management or Supervisory Board, is an owner, a partner, a manager, an administrator, a director or a member of the Management or Supervisory Board of the said company Management Services Agreement In June, 2001, Maroc Telecom entered into a Management Services Agreement with Vivendi, under which the latter provides Maroc Telecom, directly or via its subsidiaries, and in particular Vivendi Telecom International (VTI), technical assistance in the following fields: strategy and organization, development, commercial and marketing, finances, purchases, human resources, information systems, regulation and interconnection, and infrastructures and networks. The implementation of these services can be made through expatriated employees. In accordance with the terms of this agreement, the fees (exclusive of tax) paid by Maroc Telecom to Vivendi amounted to MAD95 million in 2006, MAD69 million in 2005 and MAD50 million in Management Services Agreement with Mauritel During the fiscal year 2001, the company Mauritel SA concluded an agreement with Maroc Telecom under which the latter provides services, technical assistance and transfer of material to Mauritel SA. The amount charged by Maroc Telecom to Mauritel SA was MAD12.5 million excluding tax in 2006, MAD13.9 million excluding tax in 2005, and MAD16.8 million excluding tax in Agreement with Casanet During fiscal year 2003, Maroc Telecom concluded several agreements with Casanet related to the maintenance of the Maroc Telecom internet portal Menara, the supply of development services and the hosting of Maroc Telecom s Mobile portal, hosting of Maroc Telecom s website El Manzil, the maintenance of new WAP modules on the Menara portal and the production of the content relative to these modules, as well as the marketing of internet access over leased lines. The amount charged by Casanet to Maroc Telecom by virtue of these agreements for the fiscal years 2006, 2005 and 2004 was MAD27.5 million, MAD17.1 million and MAD13.2 million respectively Agreement with GSM Al-Maghrib (GAM) During fiscal years 2002 and 2003, Maroc Telecom concluded agreements with GSM Al-Maghrib relating to the marketing of the mobile, fixed, Internet and multimedia services of Maroc Telecom. During fiscal year 2004, the framework agreement was updated through several amendments relating especially to the payment conditions of the fees paid by Maroc Telecom to GSM Al-Maghrib. Maroc Telecom sold its stake in this company on March 28, At the end of March 2006, the amount charged by Maroc Telecom to GAM amounted to MAD150 million and to MAD1,282.9 million for fiscal year At the end of March 2006 the amount charged by GAM to Maroc Telecom amounted to MAD2 million for the fiscal year 2006 and MAD20.6 million for

223 6. CORPORATE GOVERNANCE RELATED PARTY TRANSACTIONS Costs relating to stock options and restricted stock In accordance with IFRS standards, Vivendi invoices its subsidiaries for costs related to benefits granted to employees in the form of stock options and restricted stock. The following amounts were charged to Maroc Telecom: For stock options: MAD21.5 million in 2006 and MAD9.8 million in For restricted stock: MAD53 million Sale of property to a member of the Management Board In the context of its disposal program, disposing of non-core property assets, Maroc Telecom sold housing property, previously used as company accommodation, to a number of employees including a member of the Management Board Agreement with Al Akhawayn University In 2004, Itissalat Al-Maghrib signed an agreement with Al Akhawayn University to set up a global framework of cooperation to carry out joint actions in domains of common interest of scientific and technical research, in particular those of Research and Development and those of Studies and Consulting. In accordance with this agreement, two study grants will be awarded each year, to two students selected from amongst Itissalat Al-Maghrib s employees children. At December 31, 2006, Itissalat Al-Maghrib recorded an expense of MAD3 million in relation to this agreement Contract with Media Overseas On February 24, 2006, Itissalat Al-Maghrib s Supervisory Board approved the agreement entered into over the period with Media Overseas, a subsidiary of the Canal + Group, concerning the launch of a TV via ADSL offer. Pursuant to this agreement, operations are performed with Multitv Afrique, a subsidiary of Media Overseas. Maroc Telecom recorded an expense of MAD4 million in relation to this agreement Med-1-Sat current account advance During 2006, IAM entered into an agreement with Medi-1-Sat, in which it grants the latter 2.8 million in current account advances, to meet the latter s financial needs. In 2006, Itissalat Al-Maghrib paid 1.2 million for the first tranche of this advance (MAD13.3 million) Mobisud current account advance On December 19, 2006, the Supervisory Board approved the current account advance agreement between Itissalat Al-Maghrib and Mobisud. At December 31, 2006, no payment had yet been made under this agreement. 221

224 7 RECENT DEVELOPMENTS AND OUTLOOK 7.1 RECENT DEVELOPMENTS Shareholders Meeting held April 12, 2007 Maroc Telecom s Annual General Shareholders Meeting was held at 3pm on April 12, 2007 at the Mohammed VI Palais des Congrès in Skhirat. The Ordinary Shareholders Meeting approved, by more than 99% of votes the following resolutions: the Reports and Annual Financial Statements for the year ended December 31, 2006; the Consolidated Financial Statements for the year ended December 31, 2006; the agreements referred to in the Statutory Auditors special report; the allocation of net income for the year ended December 31, 2006 Dividend; the re-election of Mr. Fathallah OUALALOU as a member of the Supervisory Board; the re-election of Mr. Jean-Bernard LEVY as a member of the Supervisory Board; the re-election of Mr. Chakib BENMOUSSA as a member of the Supervisory Board; the re-election of Mr. Abdelaziz TALBI as a member of the Supervisory Board; the re-election of Mr. Jacques ESPINASSE as a member of the Supervisory Board; the re-election of Mr. Frank ESSER as a member of the Supervisory Board; the re-election of Mr. Jean-Rene FOURTOU as a member of the Supervisory Board; the re-election of Mr. Robert de METZ as a member of the Supervisory Board; the ratification of the co-option of Mr. Philippe CAPRON as a member of the Supervisory Board; the appointment of KPMG Morocco, represented by Mr. Fouad LAHGAZI, as principal Statutory Auditor; the authorization granted to the Management Board to issue bonds and similar securities; the authorization for the Company to purchase its own shares the powers to carry out any formalities required by law Acquisition of Gabon Telecom On February 9, 2007, Maroc Telecom was declared the selected bidder in the international invitation to tender for the acquisition of 51% of Gabon Telecom s share capital for a total amount of 61 million Phony case On February 23, 2007 the ANRT published its decision which stated that: The Phony offer Evenings and Weekends ( Soirs et Weekend ) is not considered as an anti-competitive practice; The Phony offer Residential Anytime ( Tout Temps Résidentiels ) in its current form cannot be reproduced by another operator, and therefore Maroc Telecom must submit new conditions which will allow this offer to be replicated, to the ANRT within one month of this decision. Failure to disclose customer base and traffic data and the new conditions to the ANRT, will result in the Phony offer Residential Anytime being suspended, without retroactive effect; Medi Telecom s application for flat-rate interconnection was rejected. On April 9, 2007, the ANRT published a new decision, which completed the prior decision in which it granted its approval of the new phony tariff Residential Anytime proposed by Maroc Telecom Wana referral On March 16, 2007 Wana made a referral to the ANRT concerning Maroc Telecom s anti-competitive practices on the following points: quality of IAM s bulk ADSL services; IP VPN ADSL retail offers with guaranteed bandwidth cannot be reproduced by another operator; leased lines contract including anti-competitive clauses (loyalty-based price reductions, length of contractual commitment and termination costs). WANA s referral includes an application for interim measures and an application to refer the case to the public prosecutor to seek criminal sanctions. This case is currently being examined by Maroc Telecom. We believe that we have grounds to refute the arguments presented in this case, particularly given that the ANRT has given its approval for the IP VPN ADSL retail offers and the leased lines contracts. As regards referring the case to the Public prosecutor, according to Article 67 of Act no. 6-99, the ANRT only deems that such a referral is justified based on the facts of the case. 222

225 7. RECENT DEVELOPMENTS AND OUTLOOK MARKET OUTLOOK 7.2 MARKET OUTLOOK The discussion herein relating to market outlook contains forward-looking statements, and information relating to the Company s expectations. Such forward-looking statements involve risks and uncertainties inherent to forecasts, and are based solely on evaluations made as of the date on which such statements are made. The Company warns investors that a significant number of factors could result in the actual results differing materially from those expected, including the factors listed in section The telecommunications market in Morocco offers large potential for growth, owing to the following economic and social factors, which favor the further penetration of new information and telecommunications technologies: the population s overall youth (51% aged under twenty five)(*); population growth of 1.4% per year; the fact that the population is increasingly living in urban areas (with the rate of urbanization rising from 43% in 1982 to 55% in 2004)(*); sustained growth in GDP (5,3% annual average growth between 2001 and 2006) and completion in the medium term of programs for the development of road and tourism infrastructures, and electrification of rural areas; the National Initiative for Human Development (INDH) was launched in 2005 and aims to set up programs which aim to combat poverty and exclusion, along with; the establishment of free-trade agreements with the European Union, the United States and Arab countries. On the Mobile segment, revenue growth is expected to derive mainly from the increase in the penetration rate of mobile telecommunications in Morocco. On the basis of research conducted for Maroc Telecom by independent experts in 2002, the rate of mobile penetration in Morocco could reach approximately 40% of the Moroccan population in the medium term. Given the growth recorded in 2005 and 2006, the penetration rate could exceed 70% in the medium term. In addition, the Company hopes to benefit from the growth in usage, owing mainly to a migration of prepaid customers to postpaid subscriptions and the increased use of data services in the medium term. Regarding its competitive position in this market, Maroc Telecom considers that is possible that a new operator, holding a new license as a Mobile Virtual Network Operator (MVNO) or through other means, may enter the market in the near future. On the Fixed-line and Internet segments, Maroc Telecom intends to pursue its efforts, initiated in 2002, in order to expand its fixed-line business, and expects moderate growth in the number of fixed lines in Morocco. Regarding the internet, the strong growth posted since the beginning of 2004 is expected to continue in the coming years, in particular due to the development of broadband. The Company also considers that the liberalization of the market in the near future could result in the Company losing market share in the short term. However, the fixed-line market might benefit from this liberalization and from the competition incurred by new entrants, as it has been the case in other countries that liberalized their telecommunications sector. (*) Census

226 7.3 OBJECTIVES This section contains information regarding the Company s objectives for the fiscal year The Company warns potential investors that these forward-looking statements are dependent on circumstances and events which are expected to occur in the future. These statements do not reflect historical data and are not to be interpreted as warranties that the facts and data mentioned will occur or that the targets will be achieved. By their nature, these are targets and it is therefore possible that they may not be achieved, and the assumptions on which they are based may be found to be erroneous. Investors are invited to take into consideration the fact that some of the risks described in section 4.14 Risk factors herein may affect the Company s operations and its ability to achieve its targets (see also section 7.2 Market Outlook ). Given continuing growth in the mobile and ADSL markets and Maroc Telecom s capacity to maintain leadership given stringer growth on the Fixed-line segment, the Company s growth targets for 2007 like-for-like excluding its recent acquisitions are as follows: Consolidated revenues should grow by more than 6%; Consolidated operating income should grow by more than 10%. 224

227 7. RECENT DEVELOPMENTS AND OUTLOOK OBJECTIVES REPORT OF THE STATUTORY AUDITORS ON THE PROFIT FORECASTS In our capacity as Statutory Auditors and in accordance with the European Regulation (EC) no. 809/2004, we have prepared this report on Itissalat Al-Maghrib s profit forecasts in part 7, section 7.3 of this Registration Document. These forecasts and underlying significant assumptions were prepared under the responsibility of the Management Board of Itissalat Al-Maghrib, in accordance with the provisions of the European Regulation (EC) no.809/2004 and the CESR recommendations on profit forecasts. It is our responsibility to express, in accordance with the terms required by annex I, item 13.3 of the European Regulation (EC) no.809/2004, our conclusions on the appropriateness of the preparation of such forecasts. We conducted our work in accordance with International Auditing Standards. Our work included an assessment of the procedures implemented by management to prepare the forecasts, as well as the performance of procedures to obtain assurance about whether the accounting methods used are consistent with those used for the preparation of historical data of Itissalat Al-Maghrib. They also involved collecting data and explanations we deemed necessary in order to obtain reasonable assurance about whether the forecasts are appropriately prepared on the basis of the specified assumptions. We remind you that, as this concerns forecasts, which are uncertain by nature, actual results may differ significantly from the forecasts presented and so, we do not express any conclusion as to the potential realization of such forecasts. In our opinion: The forecasts have been appropriately prepared in accordance with the basis indicated; The accounting basis used for the purposes of these forecasts is consistent with the accounting methods used by Itissalat Al-Maghrib. This report is issued for the sole purpose of publication of these forecasts in the Registration Document and may not be used in any other context. Casablanca, May 4, 2007 Statutory Auditors Abdelaziz ALMECHATT Samir AGOUMI 225

228 TABLE OF CONCORDANCE Schedules from appendix 1 of the European regulation 809/2004 Page number of the Registration Document 1. PERSONS RESPONSIBLE 8 2. STATUTORY AUDITORS 8 3. SELECTED FINANCIAL INFORMATION 3.1. Selected historical financial information 6 / Selected financial information for interim periods 7 4. RISK FACTORS 100 to INFORMATION ABOUT THE ISSUER 5.1. History and development of the Issuer 12 to 14 / Investments 127 to BUSINESS OVERVIEW 6.1. Principal activities 49 to Principal markets 49 to Information given pursuant to items 6.1. and 6.2. that has been influenced by exceptional events NA 6.4. Extent to which the issuer is dependent on patents or licenses, industrial commercial or financial contracts or new manufacturing processes The basis for any statements made by the issuer regarding its competitive position 78 to ORGANIZATIONAL STRUCTURE 7.1. Description of the group 42 to Significant subsidiaries 42 à 45 / 71 to PROPERTY, PLANT AND EQUIPMENT 8.1. Existing or planned material tangible fixed assets Environmental issues that may affect the issuer s utilization of tangible fixed assets NA 9 OPERATING AND FINANCIAL REVIEW 106 to Financial condition 106 to Operating income 118 to CAPITAL RESOURCES 127 to Information concerning the issuer s capital resources (both short and long term) 129 to Cash flows 127 to Information on the borrowing requirements and funding structure of the issuer 129 to Information regarding any restrictions on the use of capital resources NA Information regarding the anticipated sources of funds needed to fulfill commitments referred to in items and RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES TREND INFORMATION 213 to PROFIT FORECASTS OR ESTIMATES ADMINISTRATIVE, MANAGEMENT, AND SUPERVISORY BODIES AND SENIOR MANAGEMENT Administrative, management or supervisory bodies 208 to Administrative, management, and supervisory bodies and senior management conflicts of interests REMUNERATION AND BENEFITS 218 to Remuneration paid and benefits in kind Pension, retirement and similar benefits BOARD PRACTICES Date of expiration of the current term of office 208 / 210 NA 226

229 TABLE OF CONCORDANCE Schedules from appendix 1 of the European regulation 809/2004 Page number of the Registration Document Information about members of the administrative, management or supervisory bodies service contracts Audit committee and remuneration committee 215 to Statement as to whether or not the issuer complies with the incorporation corporate governance regime of its country NA Report of the Chairman of the Supervisory Board on internal control NA Statutory Auditors report on the Chairman s report NA 17. EMPLOYEES Human resources 92 to Shareholdings and stock options Description of any arrangements for involving the employees in the capital of the issuer MAJOR SHAREHOLDERS 36 to Breakdown of capital and voting rights 36 to Different voting rights NA Control of the issuer 37 to A description of any arrangements, known to the issuer, the operation of which may at a subsequent date result in a change of control of the issuer 37 to RELATED PARTY TRANSACTIONS NA 20. FINANCIAL INFORMATION CONCERNING THE ISSUER S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES 106 to Historical financial information 106 to Pro forma financial information NA Financial statements 135 to Auditing of financial information 175 / Age of latest financial information Interim and other financial information Dividend policy Legal and arbitration proceedings Significant change in the issuer s financial or trading position ADDITIONAL INFORMATION Share capital 28 to Memorandum and articles of association 12 to 27 / MATERIAL CONTRACTS NA 23. THIRD PARTY INFORMATION AND STATEMENT BY EXPERTS AND DECLARATION OF ANY INTEREST NA 24. DOCUMENTS ON DISPLAY INFORMATION ON HOLDINGS 42 to 45 / 71 à 73 In compliance with article 28 of European Commission regulation (EC) no. 809/2004 dated April , the following information is included for reference in the present Registration Document: The consolidated financial statements for the year ended December 31, 2005, the relevant Statutory Auditors report and the Group financial report on pages 124, 167 and 98 of the Registration Document filed with the AMF on April 11, 2006 (R ) The consolidated financial statements for the year ended December 31, 2004, the relevant Statutory Auditors report and the Group financial report on pages 157, 131 and 100 of the Registration Document filed with the AMF on April 8, 2005 (R ) The consolidated financial statements for the year ended December 31, 2003, the relevant Statutory Auditors report and the Group financial report on pages 160, 122 and 208 of the Registration Document recorded with the AMF on November 8, 2004 (I ). The chapters of the Registration Document no. R and of the draft prospectus no. I that are not referred to above are either not relevant for the investor, or are covered elsewhere in this Registration Document. 227

230 2006 ANNUAL INFORMATION DOCUMENT The following table shows a list of the information published or made public by Maroc Telecom over the past twelve months (from 26 January 2006 to 22 January 2007), in accordance with article L of the Monetary and Financial Code and article of the AMF General Regulation: Date January 26, 2006 February 27, 2006 Title Press release: fourth quarter 2005 and full year 2005 revenues Press release: 2005 results March 1, 2006 Shareholders Meeting Notice for the Combined Ordinary and Extraordinary General Meeting on March 30, 2006 April 11, 2006 Registration Document 2005 filed with the AMF under no. R April 18, 2006 May 15, 2006 July 25, 2006 September 05, 2006 November 03, 2006 November 14, 2006 January 22, 2007 March 2, 2007 Press release: first quarter 2006 revenues Press release: first quarter 2006 results Press release: second quarter 2006 revenues and first half 2006 revenues Press release: first half 2006 results Press release: third quarter 2006 revenues Press release: third quarter 2006 results Press release: fourth quarter 2006 and full year 2006 revenues Press release: full year 2006 results All press releases are available on: The AMF website: Maroc Telecom s website under Information réglementée : 228

231 STATUTORY AUDITORS FEES STATUTORY AUDITORS FEES In accordance with the provisions of article of the AMF General Regulation, the table below shows the amount of fees paid by the Maroc Telecom Group, to each of its statutory auditors for the fiscal year 2006: (in millions of Moroccan dirhams) Maroc Telecom Group TOTAL 2006 TOTAL 2005 Samir Agoumi Abdelaziz Sidi Mohamed Salustro Reydel Almechatt El Emine, Conex (Mauritania) Statutory Auditors fees Other missions of audit TOTAL

232 APPENDICES MAROC TELECOM S ORDINARY GENERAL MEETING, APRIL 12, 2007 Proposed resolutions First resolution Approval of the reports and annual financial statements for the year ended December 31, 2006 The Shareholders Meeting, having satisfied the quorum and majority requirements for Ordinary Shareholders Meetings, after reviewing: the Management Board s report and the comments of the Supervisory Board on the said report, and the Auditors Report on the financial statements for the year ended December 31, Consequently, the Shareholders Meeting decides to give final discharge to the members of the Supervisory and Management Board for the performance of their term of office for the fiscal year Second resolution Approval of the consolidated financial statements for the year ended December 31, 2006 The Shareholders Meeting, having satisfied the quorum and majority requirements for Ordinary Shareholders Meetings, approves where necessary the consolidated financial statements for the year ended December 31, 2006, such as they have been presented. Third resolution Approval of the regulated related-party agreements The Shareholders Meeting, having satisfied the quorum and majority requirements for Ordinary Shareholders Meetings, after having heard a reading of the Statutory Auditors Report on the agreements referred to in Article 95 of Act no , approves all the transactions and regulated related-party agreements described in this report. Fourth resolution Allocation of net income and payment of dividend The Shareholders Meeting, having satisfied the quorum and majority requirements for Ordinary Shareholders Meetings, decides to allocate the net income of MAD6,929,100, for the year ended December 31, 2006 as follows: Distributable income MAD6,929,100, Dividend per share MAD7.88 Total dividend MAD6,927,271, Balance carried forward MAD1,829, The Shareholders Meeting sets the total dividend at MAD7.88 per share for each of the shares making up the share capital held on the record date. This dividend will be paid on May 12, The ordinary dividends paid over each of the past three fiscal years were as follows: Fiscal Year Number of shares Dividend/share (MAD) Adjusted dividend /share* (MAD) Total dividend * Adjusted: the nominal value per share was reduced from MAD100 to MAD10 in 2004 following the obligatory conversion of one old share into 10 new shares. Fifth resolution Re-election of Mr. Fathallah OUALALOU as member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Fathallah OUALALOU s term of office as member of the Supervisory Board, for a period of six years as provided for by the Articles of Association, namely until the end of the Ordinary Shareholders Meeting to be held in Sixth resolution Re-election of Mr. Jean-Bernard LEVY as member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Jean-Bernard LEVY s term of office as member of the Supervisory Board, for a period of six years as provided for by the Articles of Association, namely until the end of the Ordinary Shareholders Meeting to be held in

233 APPENDICES MAROC TELECOM S ORDINARY GENERAL MEETING, APRIL 12, 2007 Seventh resolution Re-election of Mr. Chakib BENMOUSSA as member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Chakib BENMOUSSA s term of office as member of the Supervisory Board, for a period of six years as provided for by the Articles of Association, namely until the end of the Ordinary Shareholders Meeting to be held in Eighth resolution Re-election of Mr. Abdelaziz TALBI as member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Abdelaziz TALBI s term of office as member of the Supervisory Board, for a period of six years as provided for by the Articles of Association, namely until the end of the Ordinary Shareholders Meeting to be held in Ninth resolution Re-election of Mr. Jacques ESPINASSE as member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Jacques ESPINASSE s term of office as member of the Supervisory Board, for a period of six years as provided for by the Articles of Association, namely until the end of the Ordinary Shareholders Meeting to be held in Tenth resolution Re-election of Mr. Frank ESSER as member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Frank ESSER s term of office as member of the Supervisory Board, for a period of six years as provided for by the Articles of Association, namely until the end of the Ordinary Shareholders Meeting to be held in Eleventh resolution Re-election of Mr. Jean-René FOURTOU as member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Jean-Rene FOURTOU s term of office as member of the Supervisory Board, for a period of six years as provided for by the Articles of Association, namely until the end of the Ordinary Shareholders Meeting to be held in Twelfth resolution Re-election of Mr. Robert de METZ as member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to renew Mr. Robert de METZ s term of office as member of the Supervisory Board, for a period of six years as provided for by the Articles of Association, namely until the end of the Ordinary Shareholders Meeting to be held in Thirteenth resolution Ratify the appointment of Mr. Philippe CAPRON as a member of the Supervisory Board The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to ratify the appointment of Mr. Philippe CAPRON as a member of the Supervisory Board to replace Mrs. Françoise COLLOC H for the remaining period of his mandate, namely until the end of the Ordinary Shareholders Meeting to be held in Fourteenth resolution Appointment of KPMG, represented by Mr. Fouad LAHGAZI as Statutory Auditor The Shareholders Meeting, acting on a proposal of the Supervisory Board, decides to appoint KPMG, represented by Mr. Fouad LAHGAZI, as Statutory Auditor, for a period of 3 years, namely until the end of the Ordinary Shareholders Meeting to be held in Fifteenth resolution Authorization granted to the Management Board to issue bonds and similar securities The Shareholders Meeting, having satisfied the quorum and majorities required for Ordinary Shareholders Meetings and having reviewed the Management Board s report, authorizes the Management Board, with effect from this meeting, to arrange, on one or more occasions, for the issuance of bonds and related securities, in Morocco in Moroccan dirhams, by means of traditional bonds or related securities, notably redeemable subordinated securities or non-perpetual notes, either bearing interest or not at a fixed or variable rate, or any other marketable securities giving right to a claim on the Company and with or without coupons giving rights to the allotment, acquisition or subscription to other marketable debt securities up to a maximum nominal amount of five (5) billion in Moroccon dirhams or the equivalent of this amount, with or without any particular collateral or other surety, in the proportions and forms, at the times and rates, and under the issuance and amortization terms that it may deem appropriate. 231

234 The Shareholders Meeting confer on the Management Board all powers to carry out such issuance plans with the option of subdelegating them to the Chairman, and namely as regards: determining the nature of the bonds or securities to be issued; determine the interest rate, the redemption terms, and more generally all other terms and conditions. The Shareholders Meeting decides that the present authorization is valid for a period of five years from this date. Sixteenth resolution Authorization granted to the Management Board as regards a share buyback program The Shareholders Meeting, having satisfied the quorum and majority requirements for Ordinary Shareholders Meetings, after reviewing the Management Board s report and the prospectus approved by the Moroccan Securities and Exchange Commission (Conseil Déontologique des Valeurs Mobilières), authorizes the Management Board, with effect from this meeting, in accordance with the provisions of Articles 281 of Act no on public limited companies, for a period of eighteen months, to implement a share buyback program to acquire its own shares, on one or more occasions, on the stock exchange or otherwise, in Morocco or abroad, by purchasing company shares with a view to stabilize the share price. The Ordinary Shareholders Meeting decides that the volume of shares to be purchased in respect of the share buyback program with a view to stabilizing the share price, must not exceed 3% of the total shares comprising the share capital and that the unit purchase price must not exceed MAD150, or the equivalent value in euros, and that the unit sale price must not be lower than MAD100, or the equivalent value in euros, excluding disposal expenses. The Shareholders Meeting decides that the maximum amount of the authorized share buyback program must not exceed MAD4 billion and confers on the Management Board all powers to place orders on the stock market, sign any contracts of sale or transfer, enter into any other agreements or contracts, perform any disclosures and any necessary formalities, with the option of subdelegating such powers. Seventeenth resolution Powers for formalities The Shareholders Meeting, having satisfied the quorum and majority requirements for Ordinary Shareholders Meetings, gives full powers to the bearer of an original, copy or extract of the minutes of this meeting for the purposes of carrying out any formalities required by law. 232

235 GLOSSARY GLOSSARY 3RP (Réseau Radioélectrique à Ressources Partagées). Trunked private mobile radio networks Mobile radio networks where frequencies are shared by the users of several companies or organizations for internal communications. The sharing of frequencies is limited to the duration of each call. ADSL (Asymetrical Data Subscriber Line). Technology enabling users to receive high bandwidth services through their existing phone lines while being able to make a phone call at the same time. The transmission capacity going from the network to the customer is greater than that from the customer to the network, hence Asymmetric. ANRT (Agence Nationale de Réglementation des Télécommunications). The Moroccan Telecommunications Regulator ARPU (average revenue per user). ARPU corresponds to the revenues generated (prepaid and postpaid) for a given period, excluding roamingin revenues (incoming and outgoing calls, revenues from value added services) divided by the average number of customers (prepaid and postpaid) over the same period, on a monthly basis. The average number of customers is the average of average monthly customer base (prepaid and postpaid) figures. The monthly average customer base corresponds to the mean number of customers per month (prepaid and postpaid) taken at the beginning and at the end of each month. ATM (Asynchronous Transfer Mode). Network technology that accommodates the simultaneous transmission of data, voice, and video. It is based on asynchronous transmission of short packets of fixed length. Optical local loop. Optical Fiber Cable-based access network used for connecting broadband customers. BTS (Base Transeiver Station). Component of the mobile radio network comprising antennas and radio transmitters/receivers (TRX). It provides GSM network coverage within a given range. Self-Routing Switch. A switch is a piece of equipment used to establish a temporary link or connection between an incoming path and an outgoing path on a line or circuit. CAIR. Virtual call center solution offered by Maroc Telecom, aimed at companies for which customer relationship management is strategically crucial. This solution enables businesses to set up customer-response solutions with minimum investment. All call center functions can be managed within Maroc Telecom s network. SIM (Subscriber Identity Module). Without a SIM card, calls cannot be made from a mobile phone. In particular, the SIM card stores the user s personal profile and a PIN code protecting access to the card. Mobile Switching Center (MSC). A central switching point that controls the routing of calls. International Transit Center. A switch that carries international calls to foreign operators networks. Unbundling. An incumbent operator, owner of the local loop, has an obligation to provide pairs of copper wires to third-party operator, in exchange for compensation. Such third-party operator install their own transmission equipment in order to connect their network to their customers premises. Partial unbundling allows the third party operator to take over the Internet connection while the incumbent operator still provides telephony subscription and services. Full unbundling allows the third party operator to connect the entire customer line to its own network, and thus to offer both telephony and ADSL services. DSLAM (Digital Subscriber Line Access). ADSL device located at a telephone exchange. It is an electronic assembly holding several cards that are equivalent to the client filter and modem. The filter separates incoming phone and data signals and the modem translates back the ATM cells (small packets transported over ATM connections. ISP (Internet Service Provider). A company or an organization offering internet access to household, professional and business users. Radio-relay link. Technology used for radio signal transmission (voice, data or video). Relays are installed on pylons or highpoints, which are deployed to carry signals from one point to the next, creating the link. Fidelio. Fidelio is the first point-based loyalty program introduced in Morocco. It is reserved for postpaid customers and was launched on June 1, The program allows points to be collected based on expenditure, and provides advantages in the form of free or cut-price handsets, and free calls and SMS messages. Inter-segment revenues. Inter-segment revenues are mainly generated from interconnection services relating to traffic between the fixed-line and mobile networks and the provision to the Mobile segment of leased lines by the Fixed-line and Internet segment. Since July 1, 2004, they also include revenues from the provision of services to Mauritel. Frame Relay. Technology used to send high bandwidth data over long distances enabling the transmission of large amounts of information, the handling of fluctuations in data flows and voice transmission. GMPCS (Global Mobile Personal Communications by Satellite). Personal communications system providing cross-border, regional or worldwide coverage via a network of satellites accessible using small easily transportable handsets. GPRS (General Packet Radio Service). Packet switching system enabling enhanced data rates over GSM networks. Maroc Telecom Group. Indicates all the companies fully consolidated within the scope of consolidation. GSM (Global Systems for Mobile communications). European digital radio transmission standard for mobile telephony, known as 2G (2nd generation), adopted in 1987 and devised by the ETSI (European Telecommunications Standard Institute). It is the most widely used standard in the world. In operation since 1992, this technology uses two band frequencies: 900 and 1,800 MHz, and can transmit voice as well as data. Interconnection. Reciprocal service offered by the operators of two different telecommunications networks enabling all subscribers within the two groups to communicate freely with each other. IP (Internet Protocol). Telecommunications protocol used on networks used to carry internet traffic and based on the technique of transmission of data packets. Kbits/s (Kilo bits per second). Unit of measurement used to express the speed at which data can be transmitted along a line. Leased line. Every part of the network, including an access line to the network, that is supplied as a dedicated channel with all of its capacity available exclusively to the user and on which there are no controls or signaling. LO BOX (GSM Gateways). Terminal equipment, compatible with the GSM standard, that has been designed to act as an interface between the GSM network and terminal equipment that is normally meant to be connected to the fixed public telecommunications network (such as private switching systems (PABX) or ordinary telephones). 233

236 MENA (The Middle East and North Africa). Region including the following countries: Algeria, Bahrain, Egypt, Gaza and the West Bank, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, Turkey, UEA, Yemen. PCM (Pulse Code Modulation). Process used to transmit the spoken word involving the sampling and digital coding of the signal. The PCM circuit is the circuit at the heart of the 2 Mbps telephone network. MMS (Multimedia Messaging Service). Multimedia version of SMS enabling real multimedia files to be attached to text messages: videos, audio, high-resolution images. Multiplexer. A piece of telecom network equipment enabling the insertion or extraction of data packages. NORME NMT (Nordic Mobile Telephone). Mobile network launched by Maroc Telecom, based on analogue technology operating in the 450 Mhz frequency band. PABX (Private Automatic Branch exchange). Equipment able to stablish temporary connections between inbound and outbound lines in order to route communications. IN platform (Intelligent Network). Platform allowing value-added services to be made available (prepaid card, prepaid line, kiosk, capped rate plan, etc.). Segments. Refers to the Mobile segment or the Fixed-line and Internet segment of Maroc Telecom. Postpaid (services). Method of paying for services after they have been used (free services can also be included in this method). Power CP. New more powerful processor for MSC mobile switches based on Siemens technology. PPT. Intelligent Network service allowing the marketing of capped-rate plans, not with a line number (CLI) but any virtual phone number. Prepaid (services). Formula whereby services are paid for prior to being used (free services can also be included in this formula). Radio paging. Transmission of numeric or alphanumeric messages to a mobile handset or a group of mobile handsets. NSS (Network Sub-System). All elements/equipment, notably switchgear, required to make up a GSM network. SS7 (Signaling System 7). American name for the CCITT 7 network signaling protocol. ISDN (Integrated Services Digital Network). Entirely digital telecom network enabling the simultaneous transmission of voice and data (fax, internet etc.). Roaming. When a user is abroad, this function enables a user to make and receive calls via an operator other than the one to which he/she is a subscriber. PSTN (Public Switched Telephone Network). This is the traditional two wire network. This network is switched in so far as the connection with the person being called is temporary as opposed to cable where the connection is permanent. SDH (Synchronous Digital Hierarchy). Digital method of transmission used to optimize transmissions over optic fiber and radio systems. SMSC (Short Message Service Center) servers. Service allowing the sending and reception of written messages containing a maximum of 160 characters. Messages can be sent via an operator, via the internet or directly using the keyboard on a mobile phone. If the recipient s phone is turned off the messages are still saved at the operator s message center. The length of time these messages are stored for varies depending on the operator. Nonetheless, in order for messages to be received, the maximum storage capacity of the handset must not have been attained. SMS (Short Message Service). Written message, limited to 160 characters, exchanged between mobile telephones. SMW3 (SEA-ME-WE3 / South East Asia Middle East Western Europe). Fiber optic sub-sea cable linking 4 continents. SSNC (Signalling System Network Control). A new component developed by Siemens for controlling signaling traffic for MSCs (mobile switching centers), enabling handling capacity to be increased. Signaling Transfer Point (STP). Signaling transfer point for S7 signaling systems. The STP allows for the routing and transfer of signaling messages using the SS7 protocol. Churn rate. An indicator that is calculated by dividing the number of contracts terminated over a given period by the average customer base over the same period, expressed on an annualized basis. The average customer base corresponds to the mean number of clients taken at the beginning and at the end of each month. Average churn rate. An indicator that is calculated by dividing the number of contracts terminated (by clients subscribing to prepaid and postpaid offers) over a given period by the average total customer base (prepaid and postpaid) over the same period, expressed on an annualized basis. The average customer base is based on the average monthly figures (prepaid and postpaid) for the period. The average monthly customer base corresponds to the mean number of clients (prepaid and postpaid) at the beginning and at the end of the month. Dropped call rate. A quality indicator that measures, across the whole of the existing mobile subscriber base, the number of disconnected calls in proportion to all the calls made on the network. Successful connections rate. A quality indicator that measures, during peak periods on the network, the number of calls successfully established emanating from the existing mobile subscriber base (on the BSS radio part), in relation to all calls made on the network. Fault report rate. Generic term, applicable to different services, illustrating the number of faults reported on lines or for services over a certain period in proportion to the total number of lines or services on offer over the same period. Success rate. A quality indicator that measures the number of SMS successfully sent by the existing mobile subscriber base in relation to the total number of SMS sent over the network. CAMEL Technology (Customized Applications for Mobile networks Enhanced Logic). A technology that enables a user to call his home country without needing an area code. The technology works for short messages (SMS) as well as voice calls. SDH Technology (Synchronous Digital Hierarchy). High throughput technology based on a ring. This type of structure allows for a different geographical trace to be made available, providing a back-up path when the primary route becomes unavailable. Phone shops. Commercial outlet managed by a third party not employed by Maroc Telecom, open to the public and containing a certain number of payphones, providing telecom services to consumers. Digital network termination. Device used to connect ISDN clients. TRX (Transceiver Receiver). The part of the BTS that emits and receives the GSM signal. 234

237 GLOSSARY UMTS (Universal Mobile Telecommunications System). 3G (3rd generation) standard used for the transfer of voice and data. This technology, based on the WCDMA-CDMA standards, allows for throughput in excess of 2Mbps. Billing unit (BU). Unit used for billing calls, the duration of which varies according to the type of call made (local, national, international, fixedto-mobile). VMS (Voice Mail System). Name given to the voice messaging system. VPN (Virtual Private Network). A VPN is a private communications network used for the internal needs of a closed group of users to communicate over one or a number of public networks. This product fulfils both the internal and external communication requirements of businesses. VSAT (Very Small Aperture Terminal). System of satellite transmission using small antennas. A VSAT base equates to a micro-station made up of antennae with a diameter of 0.9 to 3.5 m. A VSAT network is a satellite network enabling communications, via a hub, with a group of sites equipped with micro-stations (VSAT) linked to a central system by a star topology. WAP (Wireless Application Protocol). Standard adapting the internet to the constraints of mobile telephony, notably through the use of an appropriate content format. WiFi (Wireless Fidelity). Commercial brand name for a data transmission system based on the IEEE standard that allows wireless access to an Ethernet network from up to a few hundred meters away at a speed of 11 Mbits/s. X 25. Protocol used to manage packet switched networks. Used by Maroc Telecom through Maghripac. 235

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239 Maroc Telecom Itissalat Al Maghrib -Société Anonyme à Directoire et Conseil de surveillance with a share capital of MAD5,274,572,040 - Registred Office : Avenue Annakhil Hay Riad Rabat Morocco - RSC Rabat