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Pealkiri

Consolidated Annual Report of AS Eesti Telekom 2007 EUR

Teade

In 2007 Eesti Telekom Group was characterized by good profitability growth.     
Satisfaction can be gained from growth of client base, growth of DigiTV rapid   
popularity and also from increase of mobile data usage.                         

Economic environment                                                            
Economic growth in Estonia after accession to the European Union has been very  
rapid. This has been based on an increase in the trustworthiness of the state,  
the opening of the labor market, as well as the development of the financial    
sector.                                                                         

Developments in the world's economy and financial markets also affected         
Estonia's economy in 2007.  An anticipated slowdown in the growth of the        
Estonian economy started. By the end of the year, Estonia's economic growth     
reached 7%, which was based on reductions in domestic consumption and real      
estate investments. Some events from the economic developments of 2007 can be   
highlighted. Deteriorating relations with Russia; a faster than expected cooling
of the real estate market; the continued acceleration of wage increases, the    
faster than predicted rise in world foodstuff and fuel prices, which, together  
with the domestic inflationary pressure incidental to fast wage increases,      
accelerated inflation.                                                          

In 2007, the telecommunications sector demonstrated good results. The merger and
purchase of companies helped the development and growth of the sector. The      
consequences of the US junk-loan crisis that started at the end of the year, had
an effect on the future of world economic development and therefore also the    
telecommunications sector. Price increases in energy, raw materials, and        
foodstuffs significantly reduce consumption which increase competition in the   
sector and reduce profit expectations.                                          

According to analysts, uncertainty in the Estonian economy is increased by the  
developments in the world. In 2008, economic growth of 4-5% is projected for the
Estonian economy.                                                               
Telecommunications market                                                       
More than ever before, European telecommunications operators are being forced to
juggle the decreasing revenues of their principal activities on the one hand,   
with the opportunity of conquering new attractive markets related to new        
technologies and innovative services on the other hand. The communications      
sector is the only field of activity where prices continue to fall, while the   
resources necessary for the provision of communications services—personnel      
costs, fuel, rents, and knowledge-based development services—are all becoming   
more expensive. A general trend in the communications sector is that the service
itself is no longer as important as the content that is provided to the client. 
The need for interactivity is also increasing.                                  

In the mobile communications field, the trend of “adding intellect” to the      
terminal equipment is continuing. In other words, modern mobile phones are      
increasingly becoming computers with good multimedia features, and the          
connections to mobile communications networks that are becoming faster, creating
a combination that delivers good results. The effects of Internet-based social  
networks and UGC (User Generated Content) or content created by the users       
themselves—photo and video albums, blogs—continue to expand. Virtual reality    
environments are improving and become increasingly popular.                     
Last year, the development of mobile-ID definitely turned a new page in the use 
of mobile phones, whereby they have also become a secure means of providing     
authentication and electronic signatures for using modern e-services. Currently,
many types of location-based services are gathering steam, which have been      
available to Estonian users for many years, but the rapid development of mobile 
terminals—the integration of GPS satellite positioning and mobile-network-based 
positioning and the improvement of map applications—make the use of these       
services more convenient and faster.                                            
Even today, hundreds of thousands of people use m-Internet and this continues to
increase. The expansion of the coverage area of today's high-speed 3.5G mobile  
communications network provides an opportunity for more people to satisfy their 
Internet needs by mobile means even outside urban areas. The maximum speed of up
to 7.2Mbps for downloading and 1.4Mbps for uploading is significantly better    
than the speeds of many permanent home connections. Of course, due to           
fluctuations in mobile communications, it is only possible to approach maximum  
speeds near the base stations, if there are few hindrances, although the maximum
megabits per second are becoming a reality in an ever-widening area.            
In the broadband segment, the latest significant innovations and technological  
developments are related primarily to the development of DigiTV. The            
implementation of IPTV (television through the Internet) has allowed            
significantly different television transmission to be provided to the Estonian  
population. Compared to other television transmission methods, IPTV technology  
provides significantly more possibilities (Internet and TV transmission synergy)
compared to other means of transmission and provides the opportunity to provide 
very different additional services through the TV screen in the future.         
As of May 2007, Elion was the first in Estonia to provide video rental, which is
available to all DigiTV clients. What is innovative about this service is that  
people can rent films without leaving home. The introduction of video rental to 
the market means that people's habits in using certain services change with the 
development of technology—people use the same services but in a different way.  
In October 2007, Elion and EMT opened the first digital music sales environment 
in Estonia, which contains about 4 million songs from foreign and Estonian      
artists from 12,000 record companies around the world. The music store is       
available to clients from the hot.ee Internet portal and EMT mobile portal      
SurfPort. In November, the provision of the Pildialbum (PictureAlbum) service   
was also introduced.  This is an added-value service based on the hot.ee        
environment and Elion IP-based television, which allows the users to load their 
photos onto the web and exchange them with friends through their TVs.           

Telekom Group                                                                   
The 2007 Eesti Telekom Group results reflect the favorable economic environment 
as well as developments in the telecommunications sector.                       

Compared to previous year, the economic results for the Eesti Telekom Group were
good. The largest increase in revenues was produced by the mobile communications
service segment—contributions were made by new customers, increased call        
minutes, equipment sales, as well as the growth of data communications. In the  
broadband services segment, the triple solution demonstrated good sales results.
However, the IT services segment had the greatest proportional growth.          

The following developments in the Group's course of activity are rewarding:     

The AS EMT mobile data communications revenues exceeded revenues for the same   
period in 2006 by 50%. The number of mobile data communications users increased 
by 51 thousand during the year. The increase of popularity in mobile data       
communications is based on the one hand on the introduction of new data         
communications packages based on monthly fees introduced to the market in the   
summer of 2007, and on the other hand, on the dynamic expansion of the 3G       
coverage area, which has allowed clients to use high-quality and high-speed data
communications with conveniently controllable costs.                            
The use of Mobiil-ID (Mobile-ID) introduced to the market in May 2007 is growing
rapidly.  New users are being added and the frequency of use by current users is
also increasing, which demonstrates that people have accepted the idea that     
Mobile-ID is a secure and convenient way to operate in the Internet.            
Of all DigiTV clients, one in two has chosen Elion as their service provider,   
whereby the company has captured over half of the DigiTV market in one year, and
this primarily because Internet-based television allows for services to be      
provided in a new innovative way. The number of DigiTV users has doubled during 
2007. The video rental service that was introduced to the market in the first   
half of 2007 has become very popular among clients due to its convenience and   
simplicity of use.                                                              
As of July 1st, MicroLink Eesti was transferred from Elion Enterprises to the   
direct management of Eesti Telekom. The main purpose of the transfer was to     
place greater importance on the IT business at Eesti Telekom. With its rapid    
increase in turnover, MicroLink Eesti is among the best IT companies in the     
Baltic countries. At the same time, Microlink was recognized by Sun MicroSytems,
the world's largest manufacturer of servers, which chose MicroLink as its best  
cooperation partner in the Baltic states.                                       

The structure of the Telekom Group                                              
As of July 1, 2007, AS MicroLink Eesti AS is a direct 100% subsidiary of Eesti  
Telekom. AS Eesti Telekom bought AS MicroLink Eesti from AS MicroLink, a 100%   
subsidiary of Elion Enterprises. The holding company, AS MicroLink, was merged  
with Elion Enterprises.                                                         

The goal of the changes was to improve the customer service and efficiency of   
the Eesti Telekom Group and to improve cooperation between the companies in the 
Group.                                                                          

Financial results                                                               
Revenues, costs, profit                                                         
The consolidated sales revenues of the Eesti Telekom Group in 2007 reached 400.2
million EUR, increasing by 9% compared to 2006 (2006: 368.6 million EUR).       

Over 50% of the outside revenue growth of the Eesti Telekom Group came from the 
mobile communications services segment. The sales revenues for the mobile       
communications services segment in 2007 were 249.5 million EUR, increasing by   
12% compared to 2006 (2006: 223.8 million EUR). The costs for the mobile        
communications services segment outside the Eesti Telekom Group increased by 9% 
and the revenues of the Group's subsidiaries dealing with trading by 3%.        

The revenue increase of the principal activity of the mobile communications     
services segment during the last year was primarily related to an increase in   
the number of call minutes initiated from and completed in the EMT network and  
the growth of mobile data communications. The number of call minutes initiated  
from the EMT network increased by approximately 14% compared to 2006. The       
increased number of call minutes is based on more active use by the customer.   

During the year, the number of call minutes per customer has also increased and 
the number of call minutes initiated from the EMT network per customer has      
increased by 8% compared to 2006. The large number of call minutes also         
compensated for the drop in minute rates that continued in 2007 and the revenues
earned from call services (including the monthly fees for packages that allow   
for a specified number of call minutes for a fixed monthly fee) increased by    
almost 11% compared to 2006. The number of call minutes terminated in the EMT   
network increased at approximately the same tempo as the call minutes initiated 
from the EMT network.                                                           

Compared to the end of 2006, the customer base of AS EMT was larger by 6        
thousand, reaching                                                              
765 thousand active SIM cards (December 2006: 759 thousand                      
cards). Compared to a year ago, the number of contractual clients increased by  
36 thousand, reaching 469 thousand, while at the same time, the number of users 
of active pre-paid cards decreased by 30 thousand to 296 thousand by the end of 
the year. As opposed to the previous year, an aggressive campaign to attract new
pre-paid card users was not organized at the end of 2007. EMT assesses its      
market share of active SIM cards as 48%. The approximate penetration of active  
cards in Estonia is 119%.                                                       

Very rapid growth continued to be demonstrated by mobile Internet revenues. This
year, the revenues for mobile data communications exceeded the revenues for the 
same period in 2006 by more than 50%. At the same time, the volume of data      
transmitted increased eightfold. The number of AS EMT mobile data communications
users in December 2007 was 161 thousand, 51 thousand more user than a year ago. 
The increase in popularity of mobile data communications is caused, on the one  
hand, by the introduction on new data communications packages with fixed monthly
fees in the summer of 2007, and on the other hand, by the dynamic expansion of  
the 3G coverage area, which provided clients with quality and high-speed data   
communications at conveniently controllable prices. At the end of 2007, 3G      
coverage extended to all the county seats in Estonia, as well as many other     
towns and their vicinities. Rapid development in the private segment was caused 
by the EMT Internet startup package, which includes a free high-speed 3.5G modem
for loyal customers signing up for the EMT Internet                             
399 package. This provides                                                      
the client with an opportunity to use Estonia's 3G network with the largest     
coverage area and provides Internet connections with speeds approaching those of
ADSL. Secondly, the number of mobile Internet users has been positively affected
by the establishment of a price ceiling of 0.58 EUR per day for the use of EMT  
SurfPort. This has made using the Internet on their mobile phones affordable for
many customers. In the fourth quarter of 2007, EMT doubled the downloading speed
of the 3.5G network to 7.2 Mbit/sec, which increased both the capacity of the   
network as well as the speeds provided to the users. At the same time, the EMT  
also introduced faster data uploading in the 3.5G network (so-called HSUPA),    
which increased speeds for the senders of voluminous e-mails over three times to
1.4 Mbit/sek.                                                                   

A regulation applies to AS EMT, as it does to other mobile operators in the     
European Community, which specifies that as of September 2007 the rate per      
minute for outgoing calls made within the borders of the European Community     
cannot exceed the maximum price established by the European Community.          
Therefore, revenues from roaming customers have decreased by a third.           

The revenues for the mobile communications services segment from retailing and  
wholesaling telecommunications merchandise increased in 2007 compared by the    
same period in 2006 due primarily to larger mobile phone sales volumes.         

In 2007, AS EMT earned average revenues of 21.79 EUR per client per month, which
is 2.7% more than in 2006 (2006: 21.22 EUR).                                    
In 2007, the sales revenues for the broadband services segment increased by 9%, 
reaching                                                                        
190.7 million EUR (2006: 175.7 million EUR). The most significant               
impact on the growth of sales revenues was caused by the continued increase of  
the number of customers for integrated solutions, which increased the revenues  
earned from these monthly fees by 54%. As a result of the increase in the users 
of integrated solutions, the revenues earned from the monthly fees for single   
Internet connection products have decreased by 12%.                             

During the year, the choice of Elion integrated solutions has constantly        
expanded. At the end of 2007, a VoIP Business Solution was introduced to the    
market, which differs from the usual Business Solution primarily due to Internet
calling and additional call communications services.  As of August 2007, private
clients have been offered a Korrusmaja (Multi-Story) solution including DigiTV. 

At the end of 2007, the number of Elion Group triple package clients reached    
53.5 thousand                                                                   
(31 December 2006: 25.5 thousand). The popularity of the triple                 
package has been significantly enhanced by the offering of supplemental         
services. The video rental service that was introduced to the market in the     
first half of 2007 has proven to be very popular among clients due to the       
convenience and simplicity of its use. The service has no monthly or            
subscription fee and films can be rented for a one-time fee, which is added to  
the monthly service bill. The selection of rental films, karaoke videos, and    
programs has also constantly improved. As a result of a successful marketing    
campaign, 207,000 viewings were achieved by the end of 2007. As of October,     
Elion in cooperation with the Estonian Conference Center and SEB Eesti Ühispank 
offers free video rental of lectures from Estonia's top conferences. The        
objective of the service is to make educational services available to as many   
people as possible. Thanks to the development of the video rental system, Elion 
was chosen as the winner in the Innovator 2007 category of the enterprise       
competition organized by Enterprise Estonia.                                    

Starting in October 2007, clients of Elion's Home and Multi-Story Solutions can 
watch DigiTV on several TV sets. Home Solution clients have the opportunity to  
order an additional DigiTV viewing location, while Multi-Story Solution clients 
are offered the opportunity for up to four additional viewing locations. In     
order to enable ADSL2+ lines to transmit two TV pictures, the downloading speed 
for Home Solution DigiTV clients was increased. As of February 2007, Elion is   
the first in Estonia to provide new generation high-definition television (HDTV)
services, which initially are only available to Elion cable TV clients.         

In December, a new service called PictureAlbum was also introduced to the       
market. This is an added-value service based on the hot.ee environment and Elion
IP-based television, which allows the users to load their photos onto the web   
and exchange them with friends through their TVs. The service is available for  
use by all registered hot.ee clients.                                           
By the end of 2007, the total number of Elion IP and cable TV clients reached 58
thousand, which is  109% more than at the end of 2006 (31 December 2006: 28     
thousand clients). In June, Elion also started to offer DigiTV to business      
clients, thereby providing high-quality digital television broadcasts to        
offices, public service institutions, and lodging establishments.               
The number of permanent Internet connection in the broadband services segment   
increased by 16% in 2007, reaching 163 thousand by the end of the year (31      
December 2006: 141 thousand). The growth of the number of the Group's permanent 
Internet connections coincided with the growth of the volume of the entire      
Internet market. Elion assesses that its Internet market share among private    
clients continues to be 56%. In May 2007, Elion Enterprises received a license  
from the Communications Board for the                                           
3.7 GHz frequency band that allowed Elion                                       
to develop a network of WiMAX base stations across Estonia. In the second half  
of the year, base stations were installed in all the counties, except for Hiiu  
and Põlva Counties. As a result, the number of Elion's Internet connections     
based on WiMAX technology increased 3.5 times in 2007.                          
The rental revenues for connections in the broadband services segment increased 
in 2007 by 44%, which was based primarily on greater sales volumes of services  
with lower margins.                                                             
Although call communications around the world are moving from fixed networks to 
mobile networks, the fixed-line telephone continues to be a popular means of    
communication in Estonia and this especially among business clients, among whom 
the number of telephone lines has increased in recent years.     Despite the    
decrease in the market volume of fixed call communications and of Elion's       
intra-network call revenues, Elion's market position continues to be strong.    
Elion assesses its market share for call minutes initiated in a fixed network to
be 81% (31 December 2006: 83%). In 2007, Elion Group's call revenues increased  
by 3% compared to 2006. The increased was based primarily on domestic call      
transit and an increase in the volume of international calls initiated from the 
mobile network. During the year, the revenues for international calls initiated 
from the mobile network and domestic call transit increased by 60% and 168%     
respectively. At the same time, the revenues from intra-network calls decreased 
by 14%.                                                                         
In 2007, Elion started to offer a Business Client VolP service that enables     
communications over the Internet, which, in addition to a VoIP number includes  
10 e-mail addresses and the possibility of hosting the company's website. In    
November, the testing of a Private Client VolP product was started in areas     
where ordinary telephone connections cannot be provided.                        
The number of Elion call interfaces reached 487 thousand by the end of 2007 (31 
December 2006:                                                                  
463 thousand interfaces). The increase in the number of call                    
interfaces is based on the company's energetic activities directed at keeping   
existing clients and finding new ones. A significant impact on the increase in  
the number of interfaces was caused by additional users of integrated solutions,
since telephone connections are also a component of double and triple packages. 

Retail sales revenues in the broadband services segment increased by 18%,       
including revenues from the sale of home electronics, computers and             
supplementary appliances that demonstrated the greatest growth. Thanks to the   
increase in the number of financing contracts, the financing revenues from      
private and business clients increased by 42% compared to 2006. A significant   
accomplishment was the creation of the possibility to formalize installment     
payment contracts in Elion's e-store. This is the first fully automatic         
installment payment solution in Estonia, which has quickly become popular among 
clients. By the end of the year, the majority of Elion's e-store clients had    
used the installment purchase option.                                           
In October 2007, Elion, in cooperation with its sister company EMT AS, opened a 
digital music sales environment, which is the first in Estonia to offer the     
works of both local and international artists. The music store contains about 4 
million foreign and Estonian songs from 12,000 record companies around the      
world. The music store is available to clients through the hot.ee Internet      
environment and the EMT mobile port, SurfPort.                                  

In 2007, sales revenues in the IT services segment reached 23.4 million EUR     
(2006: 17.9 million EUR). The increase in sales revenues of the IT services     
segment, without the Võrguteenuse (Network Service) business sphere that was    
transferred to Elion Enterprises in 2006, was 38% compared to the same period   
last year, increasing from 16.9 million to 23.4 million EUR. The sales turnover 
for IT services increased by 31% and the sales turnover for IT merchandise by   
45%.                                                                            

The most important events in the IT services segment in 2007 were the startup of
customer management, the renewal of many important contracts and the            
implementation of important IT solutions, as well as the creation of a sales    
unit for standard leased services.                                              
                                                                                
In respect to the sale of IT merchandise to business clients, undeniably the    
largest transaction was winning the procurement for the Schengen information    
system platform financed within the framework of the Schengen Facility Program  
and its successful implementation, in which MicroLink Eesti executed the SIS    
infrastructure solution. In addition, several large IT infrastructure solutions 
were executed for business clients based on HP and SUN products, including the  
Molcode GRID solution and the cyber-defense project at the Ministry of Defense. 
From a sales standpoint, the development of cooperation with HP and the creation
of a HP sales and support services team, as well as the startup of cooperation  
with Symantec in the field of data security and archiving solutions was         
important.                                                                      

In the Business Solutions area, the largest contracts concluded by MicroLink    
Eesti were for implementation of a digi-recipe and digi-picture archival        
information system for the Ministry of Social Affairs and a document management 
system for the Tax and Customs Board. The given projects will continue in 2008. 
In addition to the startup of the Dynamics AX financial accounting system at    
Elion Enterprises. OpenText, the world's leading software corporation, chose    
MicroLink Eesti as its best partner in Central and Eastern Europe. At the end of
2007, MicroLink's first Livelink modules were exported to Lithuania. MicroLink  
Eesti took over the representation of Progress software in Estonia from AS      
Andmevara. As of 1 December 2007, MicroLink has the right to sell OpenEdge,     
Sonic, Actional, Business Objects (Crystal Products) and Tugboat (Roundtable)   
products. For OpenEdge, MicroLink is the only authorized reseller in Estonia.   

In respect to the development of leased services, the emphasis last year was on 
putting the existing product portfolio in order and standardizing it, with the  
goal of finding suitable solutions for servicing mid-and small-sized companies. 
Based on the complexity of a client's office solutions and how crucial its      
effectiveness is, the sales units now have a choice of three solutions based on 
different taxation principles, as well as special solutions. In 2007, the       
greatest victories in the area of leased services included the hosting of the   
Construction Register of the Ministry of Economics and Communications, the      
renewal of the SAP application hosting agreement with the Tallinn City          
Government, the CV Online backup data center service, the procurement for the   
Estonian Informatics Center e-health development environment and the hosting of 
the Tallinn Space Register.                                                     

At the beginning of this year, there are plans to introduce a number of office  
solutions that use standard server solutions—starting from simple file and      
printer servers to the hosting of financial and customer management software. In
addition, there are plans to introduce several simple solutions related to data 
recording and data security and to provide monitoring and administrative        
services for the servers administered by the clients themselves.                

Eesti Telekom Group total revenues for the retailing and wholesaling of         
telecommunications and IT merchandise increased in 2007 by almost 17% compared  
to 2006, thanks primarily to greater volumes of sold merchandise.               

The operating costs of the Eesti Telekom Group increased by 9% in 2007 reaching 
252.2 million EUR (2006: 231.4 million EUR).                                    

In 2007, the operating costs in the mobile communications services segment were 
157.4 million EUR, increasing during the year by 14% (2006: 138.0 million EUR). 
The principal part of the supplemental operating costs is related to principal  
activities. Operating costs increases in connection with greater costs for      
interconnection services (resulting from an increase in the number of call      
minutes made by clients to other networks) and increased roaming costs. The     
generally strong pressure on wages in the Estonian economy had an effect on the 
mobile communications services segment and the personnel costs increased by 17% 
compared to 2006. At the same time, the ratio of personnel costs in the total   
costs of the mobile communications services segment is relatively modest. Since 
the retailing and wholesaling of telecommunications and IT merchandise is a     
field of activity with very low profitability compared to the principal         
activity, then the increase in the trading revenues of the mobile communications
services segment is accompanied by a comparable large increase in operating     
costs.                                                                          

In 2007, the operating costs in the broadband services segment reached 135.2    
million EUR                                                                     
(2006:  123.7 million EUR), increasing 9% during the year. More                 
than half of the additional operating costs resulted from increases in the      
service volumes. The greatest increases were in sales costs for connections,    
purchase costs for network resources, the costs for international outgoing      
termination units, and the retail sales costs of merchandise. Personnel costs   
increased, basically due to increases in salary costs, by 18% compared to 2006. 
Costs for the maintenance of communications equipment and buildings increased   
during last year by 10%. Marketing costs in the broadband services segment      
increased by 35% during the year and IT costs by 34%. The increase in IT costs  
was primarily related to the more active purchase of services from MicroLink    
Eesti.                                                                          

The operating costs of IT services segment increased in 2007 by 30% compared to 
the previous year, reaching 21.9 million EUR (2006: 16.9 million EUR).          

The Eesti Telekom Group EBITDA in 2007 was 149.3 million EUR (2006: 140.3       
million EUR).                                                                   

The EBITDA of the mobile communications services segment increased by 3%        
compared to 2006 reaching                                                       
88.7 million EUR (2006: 86.0 million EUR). The modest                           
growth is basically related to the one-time provision of                        
4 million EUR created                                                           
in 2007 in order to cover possible retroactive claims resulting from            
interconnection fee disputes.                                                   

Pursuant to the resolution of the Communications Board dated 21 March 2006, the 
termination fee for voice calls in the mobile phone networks (interconnection   
fee) for AS EMT, Elisa Eesti AS and Tele2 Eesti AS for the period 1 July 2006 to
30 June 2007 was fixed at 0.13 EUR per minute, and pursuant to the resolutions  
of the Communications Board dated 20 June and 22 June 2007, was fixed at 0.11   
EUR for the period 1 July 2007 to                                               
30 June 2008. Since Elisa Eesti AS and Tele2                                    
Eesti AS disputed the decisions in court, and in the course of provisional legal
protection, the validity of the aforementioned administrative act was suspended,
the interconnection fees of all three mobile operators remained at 0.16 EUR     
until 5 November 2007. On 5 November 2007, the ruling of the Tallinn Circuit    
Court came into force, whereby the provisional legal protection was cancelled   
and all three mobile operators were obligated to apply interconnection fees of  
0.11 EUR.                                                                       

The possible effect of a retroactive claim on the consolidated profit of the    
Eesti Telekom Group is eliminated since Elion Enterprises has submitted claims  
to the three mobile operators that exceed the EMT provision.                    

The EBITDA of the broadband services segment also increased by 3% in 2007       
reaching 56.3 million EUR (2006: 54.8 million EUR). Here the modest growth of   
EBITDA is primarily affected by the profit of 2.7 million EUR that Elion        
Enterprises earned from the sale of real estate in the second quarter of 2006.  
The given factor is reflected in the consolidated data of the Eesti Telekom     
Group.                                                                          

In 2007, the EBITDA of IT services segment reached 1.5 million EUR (2006: 1.7   
million EUR), including revenues from the disposal of the Metroo network).      

The Eesti Telekom Group EBITDA margin has declined somewhat during the year,    
reaching 37.3% in 2007 (2006: 38.1%).                                           

The Eesti Telekom Group's depreciation costs in 2007 were 31.7 million EUR      
(2006: 35.0 million EUR). The decrease of depreciation costs was mainly affected
by the application of new depreciation rates in   2006. At the beginning of     
2006, TeliaSonera established new uniform useful life spans for the fixed assets
for their 100% subsidiaries.  The companies of the Eesti Telekom Group also     
decided to apply the depreciation periods suggested by TeliaSonera as of 1 May  
2006. In connection with the application of new depreciation periods,           
adjustments were not made regarding the depreciation costs already calculated on
the fixed assets. The lengths of the remaining useful life spans were adjusted  
for the existing fixed assets.                                                  

During the last year, the Eesti Telekom Group earned an operating profit of     
117.6 million EUR which was an increase of 12% compared to 2006 (2006: 105.2    
million EUR). The financial revenues (net) earned by the Eesti Telekom Group    
increased somewhat in 2007 compared to 2006, reaching 3.0 million EUR (2006: 2.6
million EUR).                                                                   

On 1 July 2007, AS Microlink sold AS MicroLink Eesti shares to AS Eesti Telekom.
The unrealized intra-group profit from the sale of the shares was 6 million EUR.

In 2007, AS Eesti Telekom paid its shareholders record-setting dividends.       
Despite the increase in the amount of dividends, the income tax due on the      
dividends decreased in connection with the decrease in the tax rate, reaching   
23.7 million EUR in 2007 (2006: 23.9 million EUR).                              

The Eesti Telekom Group earned a net profit of 96.6 million EUR in 2007 (2006:  
84.0 million EUR). The income per shares reached 0.70 EUR (2006: 0.61 EUR).     

Investments                                                                     
During 2007, the Eesti Telekom Group invested 55.1 million EUR (2006: 49.3      
million EUR) into tangible and intangible fixed assets.                         

The mobile communications services segment has invested 21.1 million EUR in 2007
(2006: 17.5 million EUR). In mobile communications, in addition to continuous   
GSM network development, a large field of development was the implementation of 
technologies supporting high-speed mobile data communications. By the end of the
year, EDGE, which operates on the basis of the GSM network, covered 94% of base 
stations. A noteworthy result was achieved in the development of the 3G         
network—all Estonia's county seats were covered. As of November 2007, it is     
possible to use data communications speeds of up to 7.2 Mbits/s for downloading 
and 1.4 Mbit/s for uploading in the 3G network. In addition, the reliability of 
the network was significantly increased— all the exchanges of the network were  
put into operation as a single resource, so that a failure of one exchange will 
not cause the base station serving it to fail or cause a widespread disruption  
of service. In the second quarter of 2007, the development of the Mobile-ID     
service was completed. Mobile-ID is a means of authentication developed in      
cooperation with the Certification Center, an associated company of the Eesti   
Telekom Group, which is actually a further development of the ID card in the    
mobile phone. Mobile-ID enables the convenient but secure verification of an    
individual's identity, without requiring the existence of a special card reader.
Since people always carry their mobile phones, this provides greater freedom in 
the execution of Internet transactions that need the verification of an         
individual's identity and the provision of digital signatures. Mobile-ID        
promotes                                                                        
e-services that require great security, for instance, the use of                
e-banking or the e-tax board, making this possible even in public Internet      
points or abroad.  Cooperation has already been started in Latvia and Lithuania 
to develop Mobile-ID into a personal identification and electronic signature    
service based on a uniform technical standard that could unite the three Baltic 
countries.                                                                      

During the 12 months of 2007, investments into fixed assets in the broadband    
services segment reached                                                        
32.8 million EUR (2006: 29.8 million EUR). The                                  
principal part of the investments continued to be directed at improving the     
availability of permanent connections and DigiTV, the development of network    
resources, and several cooperation projects with local governments to improve   
communications in various corners of Estonia. Compared to 2006, significantly   
more was invested in the reconstruction of space for equipment housing services.
In May 2007, the Communications Board issued a frequency license to Elion for   
expanding the network of WiMax base stations throughout Estonia, thereby        
expanding the opportunity to use permanent high-speed Internet connection in    
low-density rural areas.                                                        

In 2007, the IT services segment invested 2.1 million EUR (2006: 1.9 million    
EUR), of which 39% constituted the AS MicroLink trademarks that were acquired in
the course of the merger of the parent company AS MicroLink and Elion           
Enterprises that took place within the framework of the structural changes at   
the Eesti Telekom Group. The majority of the remaining investments went to the  
expansion of the infrastructure necessary for the provision of services. In     
2007, MicroLink Eesti installed a cornerstone for its new 10-story headquarters 
that is being constructed in the heart of Tallinn's new innovation center. The  
projected cost of the building is 7.7 million EUR.                              

Balance sheet and cash flows                                                    
As of 31 December 2007, the Eesti Telekom Group balance sheet was 321.0 million 
EUR (31 December 2006: 307.5 million EUR). The fixed assets of the Group have   
increased by 22.7 million EUR during the year. The increase in fixed assets     
resulted primarily from the investments made by the Group's companies. Current  
assets have decreased by 9.2 million EUR during the year, whereas cash and cash 
equivalents, as well as short-term financial investments, have decreased by 19.1
million EUR. The reason for the reduction in cash and short-term investments is 
a dividend payment that was 4.4 million EUR larger than last year, income taxed 
paid on dividends, and investments.                                             

As of 31 December 2007, the Group's equity totaled 275.7 million EUR (31        
December 2006: 262.9 million EUR).                                              

As of 31 December 2007, the Eesti Telekom Group has long-term obligations of 1.6
million EUR (31 December 2006: 2.4 million EUR) and short-term debt obligations 
of 43.7 million EUR (31 December 2006: 42.2 million EUR). The Group's net debt  
at the end of 2007 was -69.5 million EUR and the net debt to equity ratio was   
-25% (31 December 2006: -88.4 million EUR and -34%).                            

The 2007 operating cash flow for the Eesti Telekom Group was 121.6 million EUR  
(2006: 121.3 million EUR). The Groups cash flow into investment activities was  
33.1 million EUR (2006: 48.6 million EUR). Cash flow for the acquisition of     
tangible and intangible fixed assets increased during the year, reaching 55.1   
million EUR during the last year (2006: 47.9 million EUR). The Eesti Telekom    
Group cash flow from financing activities in 2007 was 83.8 million EUR (2006:   
79.5 million EUR), of which the majority was used to pay dividends.             

Personnel                                                                       
As of 31 December 2007, the number of Eesti Telekom Group employees was 2,398   
(31 December 2006: 2,294). The average number of employees during 2007 was 2,327
(2006: 2,206).                                                                  

The number of employees in the mobile communications services segment as of 31  
December 2007 was 597 (31 December 2006: 553). The number of employees has      
increased in connection with the expansion of the service portfolio.            

The number of employees in the broadband services segment as of 31 December 2007
was 1,533. Compared to the end of 2006, the number of employees in the group    
increased by 55. The increase was primarily based on the increase of the volume 
of paid services provided to clients and the contact centers created in Pärnu   
and Tartu in the first half of the year.                                        
                                                                                
The number of employees in the IT services segment as of 31 December 2007 was   
261 (31 December 2006: 258).                                                    

The amount of wages paid to the employees of the Eesti Telekom Group in 2007    
totaled 36.4 million EUR (2006: 30.9 million EUR). In the mobile communications 
services segment, the employees were paid 9.8 million EUR (2006: 8.2 million    
EUR). In the broadband services segment, the employees were paid 20.9 million   
EUR (2006: 17.8 million EUR). In the IT services segment, the employees were    
paid 4.9 million EUR (2006: 4.2 million EUR)                                    

As of 31 December 2007, the operating and upper management of the Eesti Telekom 
Group included 52 people (31 December 2006: 54 people). The salaries for the    
operating and upper management calculated during 2007 totaled 3.6 million EUR   
(2006: 3.7 million EUR).                                                        

Structure of capital and restrictions on transfer of shares                     
The share capital of AS Eesti Telekom (hereinafter “Eesti Telekom“) is divided  
into registered shares of one class, each with a par value of 0.64 EUR. The     
shares of Eesti Telekom can be freely transferred. Each share grants its holder 
one vote at the general meeting of shareholders and entitles the shareholder to 
participate in the general meeting, in the distribution of profit, and in the   
distribution of the remaining assets upon Eesti Telekom's liquidation, as well  
as other rights provided by law. The share capital of Eesti Telekom does not    
include securities that are not admitted to trading on a regulated securities   
market of a member state.                                                       

The articles of association of Eesti Telekom do not prescribe any restrictions  
on the transfer of shares.                                                      

Eesti Telekom has not entered into any agreements with shareholders for         
restricting the transfer of shares, and nor is the Management Board of Eesti    
Telekom aware of any such agreements having being entered into between the      
shareholders.                                                                   

As at 31.12.2007, the following shareholders have a qualifying holding in Eesti 
Telekom: Baltic Tele Aktiebolag (a holding of 59.25 per cent) and the Republic  
of Estonia through the Ministry of Finance and (a holding of 24.17 per cent).   

Eesti Telekom has no securities granting special control rights.                

Eesti Telekom has not set up any employee share schemes.                        

The Management Board of Eesti Telekom is not aware of any agreements on voting  
rights between the shareholders. The regulation of voting rights contained in   
the articles of association of Eesti Telekom does not in any way differ from    
that prescribed by law. The shareholders of Eesti Telekom do not hold preferred 
shares.                                                                         

Management                                                                      
Election of management board members. The Management Board of Eesti Telekom has 
two (2) to five (5) members as decided by the Supervisory Board. According to   
the articles of association, the members of the Management Board are elected by 
the Supervisory Board for a term of three (3) years unless otherwise decided by 
the Supervisory Board. The articles of association may not prescribe a term of  
office longer than five years for the members of the Management Board. The      
members of the Management Board must be residents of Estonia. In order to elect 
a member of the Management Board, his or her consent is required.               

The Supervisory Board appoints one member of the Management Board as the        
Chairman of the Management Board. The Chairman of the Management Board is the   
chief executive officer of Eesti Telekom. The Supervisory Board defines the     
allocation of duties and responsibilities among the members of the Management   
Board and the chief executive officer.                                          

Extension of the term of office of a member of the Management Board may not be  
decided earlier than one year before the planned date of expiry of the term of  
office, and not for a period longer than the maximum term of office prescribed  
by the articles of association. A decision for extension of the term of office  
of a member of the Management Board entered in the commercial register must be  
immediately sent to the registrar of the commercial register.                   

Appointment of Management Board members. With good reason, a court may appoint a
new member of the Management Board to replace a withdrawn member of the         
Management Board on the petition of the Supervisory Board, a shareholder or     
other interested person. The authority of the court-appointed member of the     
Management Board will continue until appointment of a new member of the         
Management Board by the Supervisory Board. A member of the Management Board     
appointed by a court has the right, at the company's expense, to be compensated 
for his or her costs to a reasonable extent and to receive a reasonable fee, the
amount of which shall be established, in the case of dispute, by a court ruling.

Resignation of Management Board members. A member of the Management Board may   
resign from the Management Board with good reason if he or she gives notice of  
his or her resignation to the Supervisory board and, if this is impossible,     
submits a relevant application to the registrar of the commercial register.     

Removal of Management Board members. The Supervisory Board may remove a member  
of the Management Board regardless of the reason, but the rights and obligations
arising from a contract concluded with him or her will terminate pursuant to the
contract.                                                                       

The Chairman of the Supervisory Board or a person authorised by him or her must 
sign a petition for entry of expiry of the authority of a member of the         
Management Board or for entry of a new member of the Management Board in the    
register. The corresponding minutes of the meeting of the Supervisory Board must
be appended to the petition.                                                    
The general meeting of shareholders of Eesti Telekom has the authority to amend 
the articles of association. A resolution on amendment of the articles of       
association is adopted by the general meeting if at least two-thirds of the     
votes represented at the general meeting are in favour. A resolution on         
amendment of the articles of association will enter into force as of the making 
of a corresponding entry in the commercial register.                            

The Management Board of Eesti Telekom is a directing body of the company that   
represents and directs the company. The Management Board must, in directing,    
adhere to the lawful orders of the Supervisory Board. The Management Board is   
required to act in the most economically purposeful manner. Transactions that   
are beyond the scope of everyday economic activities may only be concluded by   
the Management Board with the consent of the Supervisory Board; however, the    
lack of such consent does not render the concluded transactions invalid.        

Either the Chairman of the Management Board alone or two members of the         
Management Board jointly may represent Eesti Telekom and sign documents on      
behalf of Eesti Telekom.                                                        

Issue and buyback of shares                                                     
Members of the Management Board of Eesti Telekom do not have the authority to   
issue shares; only the general meeting of shareholders is entitled to issue     
shares. The Management Board of Eesti Telekom may represent Eesti Telekom in a  
transaction whereby the shares of Eesti Telekom are acquired                    
upon a resolution of the general meeting, provided that:                        
this occurs within one year after adoption of a resolution of the general       
meeting which specifies the terms and conditions and term for the acquisition or
taking as security of shares and the sums to be paid for the shares;            
the sum of the nominal values of the shares held or taken as security by the    
company does not exceed one-tenth of the share capital; and                     
the shares are paid for from assets exceeding the share capital, reserve capital
and premium;                                                                    
upon a resolution of the Supervisory Board without a resolution of the general  
meeting if the acquisition of shares is necessary to prevent significant damage 
to the company. The shareholders must be informed of the circumstances          
surrounding and the details of the acquisition of shares at the next general    
meeting of shareholders;                                                        
without the restrictions set forth above if the shares are acquired by          
succession.                                                                     

The annual general meeting of shareholders held on 22 May 2007 granted a right  
to Eesti Telekom to acquire shares of Eesti Telekom within one year as of       
adoption of the resolution (i.e. until 22 May 2008) in such a way that the sum  
of the nominal values of the shares held by Eesti Telekom does not exceed the   
limit prescribed by law (i.e. 10%) and that the amount paid for a share does not
exceed the highest price paid for that share on the Tallinn Stock Exchange on   
the day of acquiring the share. Eesti Telekom may pay for the shares from the   
company's assets exceeding the share capital, reserve capital and premium. The  
number of shares to be acquired in a certain transaction will be determined     
separately before each purchase transaction by a resolution of the Supervisory  
Board of Eesti Telekom.                                                         

Effects of takeover bids                                                        
Eesti Telekom has not entered into agreements with the Management Board or      
employees containing provisions on payment of compensation in the case of a     
takeover bid.                                                                   

Eesti Telekom has not entered into agreements that take effect, alter or        
terminate upon a change of control of the company following a takeover bid in   
accordance with the provisions of chapter 19 of the Securities Market Act.      

Report on Corporate Governance                                                  
As from 1 January 2006, AS Eesti Telekom (“Eesti Telekom”) follows the          
instructions of the Estonian Principles of Corporate Governance (“the           
Principles”). This report describes the management of Eesti Telekom in 2007 and 
its conformity with the Principles. In 2007, Eesti Telekom believes it adhered  
to the Principles except in the cases noted in this report.                     

Eesti Telekom                                                                   
Eesti Telekom is a public limited company registered in the Republic of Estonia,
at Valge 16, 19095 Tallinn, with the registry code of 10234957. The share       
capital of Eesti Telekom in 2007 was 88.2 million EUR, which is divided into    
registered shares of a single type with a nominal value of 0.64 EUR. Eesti      
Telekom shares are listed on the main list of the Tallinn Stock Exchange (Baltic
Main List), with the abbreviation ETLAT. The Eesti Telekom share register is    
maintained by the registrar of the Estonian Central Register of Securities.     
Eesti Telekom has approximately 3500 shareholders. In addition, the global      
depositary receipts (GDR) of Eesti Telekom shares are listed on the Main Market 
of the London Stock Exchange, with the abbreviation EETD. Every Eesti Telekom   
GDR represents three Eesti Telekom shares.                                      

General Meeting                                                                 
The highest management body of Eesti Telekom is the shareholders' general       
meeting. General meetings can be annual or extraordinary. The authority of the  
general meeting is defined by the Estonian Commercial Code and the Eesti Telekom
articles of association (the articles of association are available on the Eesti 
Telekom website at www.telekom.ee). Among other things, the authority of the    
general meeting includes amending the Eesti Telekom articles of association,    
approving the annual report, distributing the profits, and electing the members 
of the Supervisory Board.                                                       

Exercise of the Rights of Shareholders                                          
Each Eesti Telekom share provides one vote at the general meeting and           
shareholders can participate in general meetings and vote at the meetings       
personally or through representatives. Usually, the general meeting has the     
authority to pass resolutions if more than half the votes represented by shares 
are present. Resolutions of the general meeting are passed if over half the     
votes represented at the general meeting are in favor, except in certain cases  
(e.g. amending the articles of association, increasing and reducing share       
capital, issuing convertible bonds, and the merger, division, reorganization,   
and termination of Eesti Telekom), in which case the resolution is passed if at 
least 2/3 of the votes represented at the general meeting are in favor.         

On 6 February 2007, an extraordinary shareholders' meeting took place based on  
the application of Eesti Telekom shareholder Baltic Tele AB, which recalled     
three members of the Eesti Telekom Supervisory Board and elected three new      
members to replace them. The recall of the Supervisory Board members was related
to internal structural changes at TeliaSonera AB, the parent company of Baltic  
Tele AB, which caused changes in the work assignments of some of the TeliaSonera
employees who were members of the Eesti Telekom Supervisory Board, thereby      
making the performance of their assignments as Supervisory Board members more   
difficult. 89.93% of the votes represented by shares were present at the general
meeting, and therefore the meeting had the authority to pass resolutions.       

In 2007, the shareholders' annual general meeting took place on 22 May. The     
meeting approved the 2006 Annual Report and proposal for the distribution of    
profits, amended the Eesti Telecom articles of association, approved the        
conditions for the repurchase of Eesti Telekom shares, recalled the members of  
the Eesti Telekom Supervisory Board and elected new members, approved the       
procedure for the remuneration of Supervisory Board members, chose the Eesti    
Telekom auditor for the 2007 financial year, and approved the procedure for     
paying for auditing services, deciding that the provision of auditing services  
and payment for those services shall be regulated by an agreement to be signed  
with the auditor. 87.94% of the votes represented by shares were present at the 
annual general meeting, and therefore the meeting had the authority to pass     
resolutions.                                                                    

On 6 September 2007, an extraordinary shareholders' meeting took place based on 
the application of Eesti Telekom shareholder Baltic Tele AB, which recalled one 
member of the Eesti Telekom Supervisory Board and elected one new member to     
replace him. The recall of the Supervisory Board member was related to the      
termination of his employment relationship with TeliaSonera AB Group, the parent
company of Baltic Tele AB, making the performance of his assignments as a       
Supervisory Board member more difficult. 83.43% of the votes represented by     
shares were present at the general meeting, and therefore the meeting had the   
authority to pass resolutions.                                                  

Calling of the General Meeting and Publishing of Information                    
The Eesti Telekom Management Board announces the convening of a general meeting 
at least three weeks in advance in the case of an annual meeting and at least   
one week in advance in the case of an extraordinary meeting, by publishing a    
corresponding notice in at least one newspaper with national circulation in the 
Republic of Estonia.                                                            

A notice regarding the extraordinary general meeting to be held on 6 February   
2007 was published in the Postimees on 12 January 2007 and through the Tallinn  
Stock Exchange information system on                                            
11 January 2007. A notice calling the 2007                                      
annual general meeting was published in the Postimees on 20 April 2007 and      
through the Tallinn Stock Exchange information system on 19 April 2007. A notice
regarding the extraordinary general meeting to be held on 6 September 2007 was  
published on                                                                    
28 August 2007 both in the Postimees and through the Tallinn Stock              
Exchange information system. No questions were asked regarding the agendas      
presented in the given notices and no supplementary proposals were made.        

Therefore, as regards the general meetings of Eesti Telekom, the Principles were
followed in 2007, except for the rule prescribed by clause 1.3.2. of the        
Principles. Pursuant to the given clause, the candidates for Supervisory Board  
member who have not previously been members of the issuer's Supervisory Board   
will participate in the general meeting. Jüri Raatma, a candidate for           
Supervisory Board member, did not participate in the 2007 annual general meeting
for reasons not related to Eesti Telekom. Lars Klasson, a candidate for         
Supervisory Board member, did not participate in the extraordinary general      
meeting held on 6 September 2007 for reasons not related to Eesti Telekom.      

Supervisory Board                                                               
Duties                                                                          
The Supervisory Board plans the activities of Eesti Telekom, elects the members 
of the Management Board, and executes supervision over the activities of the    
Management Board. In conformity with the Eesti Telekom articles of association, 
the Supervisory Board makes decisions regarding the company's activities in     
significant fields of activity and questions that are not under the sole        
authority of the general meeting according to the law or articles or association
and which are outside the framework of the company's everyday economic          
activities (i.e. approval of budgets and business plans, resolving              
organizational issues related to Eesti Telekom and its group, etc.).            

Members and Remuneration                                                        
Pursuant to the articles of association, the Eesti Telekom Supervisory Board    
comprises six to ten members who are elected by the general meeting for a term  
of two years. Until 22 May 2007, the Eesti Telekom Supervisory Board included   
the following people: Terje Christoffersen, Anders Gylder, Jörgen Latte, Tarmo  
Porgand, Mats Salomonsson, Aare Tark, and Heido Vitsur. As from 22 May 2007, the
following people comprised the Eesti Telekom Supervisory Board: Terje           
Christoffersen, Anders Gylder, Jörgen Latte, Tarmo Porgand, Mats Salomonsson,   
Aare Tark, and Jüri Raatma. At the extraordinary general meeting of the         
shareholders of Eesti Telekom held on 6 September 2007, Terje Christoffersen was
recalled from the Supervisory Board and Lars Klasson was elected as a new       
member.                                                                         

The term of office of the current members will expire on the following dates: on
22 May 2009 in the case of Anders Gylder, Jörgen Latte, Tarmo Porgand, Mats     
Salomonsson, Aare Tark, and Jüri Raatma; and on 6 September 2009 in the case of 
Lars Klasson.                                                                   

The following Supervisory Board members are associated with the Swedish company 
TeliaSonera AB that controls Eesti Telekom: Lars Klasson, Anders Gylder, Jörgen 
Latte, and Mats Salomonsson. The Supervisory Board member, Aare Tark, has had   
business connections (provision of legal services) with Eesti Telekom through a 
company controlled by him, but the company providing the services did not       
receive a significant amount of compensation for the services and therefore Aare
Tark can be considered an independent member of the Supervisory Board.          
The members of the Supervisory Board will elect a Chairman from among           
themselves. Until 6 February 2007, Erik Hallberg acted as Chairman of the       
Supervisory Board. At the Supervisory Board meeting held on the same day, the   
Supervisory Board elected Terje Christoffersen as the new Chairman. Terje       
Christoffersen was the Chairman until 6 September 2007. At the Supervisory Board
meeting held on 20 September 2007, Mats Salomonsson was elected as the new      
Chairman of the Supervisory Board.                                              

Remuneration for the work of the members of the Supervisory Board was paid      
according to the resolution of the 2007 annual shareholders' meeting. In 2007,  
the monthly payment for the Chairman of the Supervisory Board was 1.278 EUR and 
575 EUR for the members of the Supervisory Board, and the actual costs incurred 
by the members of the Supervisory Board related to the performance of their     
obligations were compensated.                                                   

Activities                                                                      
The work of the Eesti Telekom Supervisory Board (location, meetings,            
resolutions, and minutes of the Supervisory Board) is organized according to the
Supervisory Board regulations approved by them. In 2007, the Supervisory Board  
held eleven meetings. The Management Board presented reports to the Supervisory 
Board on the economic activities and financial status of the Eesti Telekom Group
on a regular basis. The Supervisory Board was provided a summary of the topics  
discussed by the Auditing Committee and the Committee on Remuneration and       
Appointments, including the results of the audits conducted by the internal and 
external auditors. During 2007, the Supervisory Board approved the 2006 Annual  
Report, the bonuses to be paid to the top management of the Eesti Telekom Group 
for 2006, the Group's business plan for 2008-2009, the Group's budget for 2008  
and the motivational system for the top management of the Group for 2008, drew  
up the agendas for the general meetings of shareholders, approved the           
restructuring of the Eesti Telekom Group and acquisition of AS MicroLink Eesti  
from Elion Ettevõtted AS, and decided on recalling and election of Management   
Board members and signing of contracts of service with Management Board members.

Conflict of Interests                                                           
Pursuant to the law and the articles of association, decisions regarding        
transactions between members of the Supervisory Board and Eesti Telekom are     
under the authority of the general meeting, and the members of the Supervisory  
Board may not compete with Eesti Telekom without the permission of the          
shareholders' general meeting. Until the compilation of this report, the members
of the Supervisory Board have not notified the Eesti Telekom Management Board of
any cases of conflict of interests in 2007.                                     

Hence, as regards the work of the Supervisory Board of Eesti Telekom, the       
Principles were adhered to in 2007.                                             

Management Board                                                                
Duties                                                                          
The Management Board is the Eesti Telekom management body that deals with the   
management of everyday economic activities and the representation of Eesti      
Telekom. Eesti Telekom may be represented in all legal acts by Valdo Kalm alone 
or two Management Board members jointly. For the achievement of Eesti Telekom's 
objectives, the Management Board analyzes the risks related to Eesti Telekom's  
activities and financial targets. By its resolution, the Management Board of    
Eesti Telekom has established the Eesti Telekom Group's rules for handling of   
inside information and other internal rules, e.g. accounting policies and       
procedures. The Management Board must comply with the legitimate regulations of 
the Supervisory Board. In 2007, there was a constant exchange of information    
between the Management Board and Supervisory Board of Eesti Telekom; among other
things, the Management Board submitted reviews on the economic activities and   
financial status of the Eesti Telekom Group to the Supervisory Board on a       
regular basis.                                                                  

Members and Remuneration                                                        
According to the Eesti Telekom articles of association, the Supervisory Board   
may elect two to five members to the Management Board. The members of the       
Management Board are elected for three years with the option of extending the   
term. The Supervisory Board appoints one Management Board member as the         
Chairman, who also acts as the company's Managing Director. As at 1 January     
2007, the members of the Management Board of Eesti Telekom were Jaan Männik (the
Chairman), Valdo Kalm, and Hille Võrk.                                          

In pursuance of a resolution of the Eesti Telekom Supervisory Board, dated 5    
December 2006, Valdo Kalm took over the position of the Chairman of Eesti       
Telekom's Management Board from the former Chairman, Jaan Männik, after the     
annual shareholders' meeting of Eesti Telekom held on 22 May 2007. By a         
resolution adopted on the same day, the Supervisory Board also decided to recall
Jaan Männik from the position of a Management Board member as from 22 May 2007. 

On 18 April 2007, the Supervisory Board of Eesti Telekom decided to elect the   
following new members to the Management Board of Eesti Telekom as from 1 July   
2007: Leho Tamm, Valdur Laid, and Enn Saar. By a resolution adopted on the same 
day, the Supervisory Board decided to recall the former Management Board member,
Hille Võrk, from the Management Board as from 1 July 2007.                      
                                                                                
The term of office of the current members will expire on the following dates: on
1 January 2010 in the case of Valdo Kalm; and on 1 July 2010 in the case of Leho
Tamm, Valdur Laid, and Enn Saar.                                                

The salaries and severance pay of the members of the Management Board, and the  
payment conditions are determined by the contracts of service concluded with the
members of the Management Board. The bonus system for members of the Management 
Board is approved annually by a resolution of the Supervisory Board. Upon the   
achievement of the maximum level of the objectives for 2007, the members of the 
Management Board would receive a bonus equal to six months' salary. The retired 
Chairman of the Management Board, Jaan Männik, also has a pension agreement with
Eesti Telekom. In 2007, Eesti Telekom did not comply with clause 2.2.7 of the   
Principles, which provides for disclosing the benefits and bonus system of each 
member of the Management Board on the website and in this report, as well as the
presentation of the principles for the remuneration of the members of the       
Management Board at the general meeting. On 13 December 2005, the Eesti Telekom 
Supervisory Board decided that, at that time, the disclosure of such information
was not in the interests of the Eesti Telekom Group and it would not provide an 
adequate overview of the motivational system for the Group's top management.    
Currently, there are no share option programs in the Eesti Telekom Group.       

Conflict of Interests                                                           
Pursuant to the law and the articles of association, transactions between       
members of the Management Board and Eesti Telekom must be approved by the       
Supervisory Board, and members of the Management Board may not compete with     
Eesti Telekom without the permission of the Supervisory Board. Until the        
compilation of this report, the members of the Management Board have not        
notified the Eesti Telekom Management Board of any cases of conflict of         
interests in 2007.                                                              

Therefore, in 2007, the Principles were followed in the work of the Eesti       
Telekom Management Board, except for the rule prescribed by clause 2.2.7 of the 
Principles.                                                                     

Control Functions and Auditing                                                  
In addition to a reporting system and procedures for risk management, the Eesti 
Telekom Supervisory Board and Management Board have established various control 
functions.                                                                      

Auditing Committee                                                              
The Auditing Committee helps the Supervisory Board to perform its supervisory   
function. Until 6 February 2007, the Committee members were Mats Salomonsson    
(Committee Chairman), Hans Tuvehjelm, and Tarmo Porgand. As from 6 February     
2007, Jörgen Latte is a member of the Committee instead of Hans Tuvehjelm.      
During 2007, the Committee met 7 times.                                         

External Auditors                                                               
According to the articles of association, the auditor(s) are chosen by the      
general meeting. In 2007, the Eesti Telekom auditor was AS                      
PricewaterhouseCoopers. AS PricewaterhouseCoopers audited all the companies in  
the Eesti Telekom Group and submitted the auditor's report to the general       
meeting. The auditors also informed the Auditing Committee and Management Boards
of the Group's companies of their observations.                                 

Internal Control                                                                
Since April 2002, the internal control service has been outsourced from AS      
Deloitte & Touche Audit. The Audit Committee and Deloitte agree upon the extent 
of the internal control projects once a year. Deloitte reports on the completed 
work to the Audit Committee.                                                    

Committee on Remuneration and Appointments                                      
The principal function of the Committee on Remuneration and Appointments is to  
harmonize the remuneration principles for the top management of the Eesti       
Telekom Group and to make proposals for the appointment of Supervisory Board    
members and their remuneration. Until 6 February 2007, Erik Hallberg (Committee 
Chairman), Bengt Andersson, and Aare Tark were the members of the Committee. As 
from 6 February 2007, the Committee comprised the following members: Terje      
Christoffersen (Committee Chairman), Anders Gylder, and Aare Tark. By its       
resolution of 20 September 2007, the Supervisory Board of Eesti Telekom elected 
Mats Salomonsson as the new Chairman of the Committee. During 2007, the         
Committee met 4 times.                                                          

Disclosure of Information                                                       
The information required by the Principles is available on the Eesti Telekom    
website www.telekom.ee, including the financial calendar, articles of           
association, financial reports, information on presentations and meeting with   
analysts, information on the members of the Supervisory Board and Management    
Board, the auditors, and other information. Therefore, in 2007, Eesti Telekom   
complied with the Principles in terms of the disclosure of information.         









Financial Reporting                                                             
Eesti Telekom prepares its accounting reports in accordance with the            
International Financial Reporting Standards as adopted by the European Union    
(IFRS). In respect to the disclosure of financial reporting, Eesti Telekom      
proceeds from the provisions of the law and the regulations of the Tallinn Stock
Exchange.                                                                       

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| Interim report | Interim report    | Interim report    | Interim report for  |
| for the first  | for the second    | for the third     | 2007 and the fourth |
| quarter of     | quarter and first | quarter and nine  | quarter of 2007     |
| 2007           | half-year of 2007 | months of 2007    |                     |
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| 19 April 2007  | 19 July 2007      | 19 October 2007   | 6 February 2008     |
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CONSOLIDATED INCOME STATEMENT                                                   
In thousands of EUR                                                             

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|                                          |      Year ended 31 December       |
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|                                          |            2007 |            2006 |
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| Revenue                                  |        400,151  |        368,626  |
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| Cost of sales                            |       (226,426) |       (208,359) |
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| Gross profit                             |        173,725  |        160,267  |
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| Sales, administrative and research &     |        (57,521) |        (58,086) |
| development                              |                 |                 |
| expenses                                 |                 |                 |
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| Other operating income                   |          1,797  |          3,387  |
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| Other operating expenses                 |           (404) |           (345) |
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| Operating profit                         |        117,597  |        105,223  |
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| Finance income                           |          3,108  |          2,734  |
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| Finance costs                            |           (150) |           (125) |
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| Finance income, net                      |          2,958  |          2,609  |
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| Share of profit/(loss) from associates   |           (244) |             12  |
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| Profit before tax                        |        120,311  |        107,844  |
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| Income tax on dividends                  |        (23,705) |        (23,863) |
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| Net profit for the period                |         96,606  |         83,981  |
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| Attributable to:                         |                 |                 |
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| Equity holders of the Company            |         96,194  |         83,689  |
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| Minority interest                        |            412  |            292  |
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|                                          |         96,606  |         83,981  |
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| Earnings per share for profit            |                 |                 |
| attributable to the equity holders of    |                 |                 |
| the Company during the year              |                 |                 |
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| Basic earnings per share (in EUR)        |            0.70 |            0.61 |
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| Diluted earnings per share (in EUR)      |           0.70  |           0.61  |
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CONSOLIDATED BALANCE SHEET                                                      
In thousands of EUR                                                             


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|                                     |           As at 31 December            |
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|                                     |               2007 |              2006 |
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| ASSETS                              |                    |                   |
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| Non-current assets                  |           153,715  |          130,673  |
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| Property, plant and equipment       |            13,807  |           13,681  |
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| Intangible assets                   |               858  |            1,102  |
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| Investments in associates           |             7,352  |            7,615  |
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| Other non-current receivables       |           175,732  |          153,071  |
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| Total non-current assets            |                    |                   |
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| Current assets                      |                    |                   |
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| Assets classified as held-for-sale  |               111  |               49  |
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| Inventories                         |            11,989  |            9,120  |
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| Trade and other receivables         |            63,460  |           56,511  |
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| Short-term investments              |            44,357  |           68,057  |
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| Cash and cash equivalents           |            25,359  |           20,733  |
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| Total current assets                |           145,276  |          154,470  |
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| TOTAL ASSETS                        |           321,008  |          307,541  |
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| EQUITY AND LIABILITIES              |                    |                   |
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| Capital and reserves attributable   |                    |                   |
| to equity holders of the Company    |                    |                   |
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| Share capital                       |            88,169  |           88,169  |
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| Share premium                       |            22,753  |           22,753  |
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| Statutory legal reserve             |             8,817  |            8,817  |
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| Retained earnings                   |            155,265 |           142,832 |
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| Total capital and reserves          |           275,004  |          262,571  |
| attributable to equity holders of   |                    |                   |
| the Company                         |                    |                   |
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| Minority interest                   |               733  |              321  |
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| Total capital and reserves          |           275,737  |          262,892  |
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| Non-current liabilities             |                    |                   |
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| Interest bearing loans and          |                85  |              200  |
| borrowings                          |                    |                   |
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| Retirement benefit obligations      |               208  |              506  |
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| Provisions                          |             1,321  |            1,414  |
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| Non-interest bearing liabilities    |                 -  |              330  |
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| Total non-current liabilities       |             1,614  |            2,450  |
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| Current liabilities                 |                    |                   |
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| Trade and other payables            |            42,885  |           41,630  |
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| Interest bearing loans and          |               178  |              175  |
| borrowings                          |                    |                   |
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| Retirement benefit obligations      |               308  |               55  |
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| Provisions                          |               286  |              339  |
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| Total current liabilities           |            43,657  |           42,199  |
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| Total liabilities                   |            45,271  |           44,649  |
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| TOTAL EQUITY AND LIABILITIES        |           321,008  |          307,541  |
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CONSOLIDATED CASH FLOW STATEMENT                                                
In thousands of EUR                                                             


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|                                             |     Year ended 31 December     |
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|                                             |          2007 |          2006  |
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| Net cash from operating activities          |      121,560  |       121,336  |
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| Cash flows from investing activities        |               |                |
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| Tangible and intangible fixed assets        |      (55,059) |       (47,925) |
| acquired                                    |               |                |
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| Proceeds from sale of tangible and          |          944  |         3,170  |
| intangible fixed assets                     |               |                |
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| Acquisition of business net of cash         |         (315) |        (6,238) |
| acquired and settlements of deferred        |               |                |
| consideration                               |               |                |
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| Acquisition of associates                   |             - |          (901) |
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| Net cash changes of short-term investments  |       23,631  |        11,363  |
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| Net cash changes of other long-term         |       (2,305) |        (8,343) |
| receivables                                 |               |                |
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| Repayments of loans granted to associates   |            -  |           262  |
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| Net cash used in investing activities       |      (33,104) |       (48,612) |
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| Cash flow before financing activities       |       88,456  |        72,724  |
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| Cash flows from financing activities        |               |                |
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| Dividends paid                              |      (83 761) |       (79,352) |
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| Repayments of finance lease liabilities     |         (116) |          (109) |
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| Proceeds from non-convertible debts         |           65  |             -  |
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| Net cash used in financing activities       |      (83,812) |       (79,461) |
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| Net change in cash and cash equivalents     |        4,644  |        (6,737) |
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|                                             |               |                |
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| Cash and cash equivalents at beginning of   |       20,733  |        27,507  |
| year                                        |               |                |
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| Net change in cash and cash equivalents     |        4,644  |        (6,737) |
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| Effect of foreign exchange rate changes     |          (18) |           (37) |
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| Cash and cash equivalents at end of year    |       25,359  |        20,733  |
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