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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION   (Mark One) o
    
    Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
  þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2003
  o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period fromN/A to N/A
 Commission file number O-29726 STET HELLAS TELECOMMUNICATIONS S.A.  The Hellenic Republic (Jurisdiction of Incorporation or Organization) 66 Kifissias Avenue, 15125 Maroussi, Athens, Greece
(Address of Principal Executive Offices) Securities registered or to be registered pursuant to Section 12(b) of the Act:
None Securities registered or to be registered pursuant to Section 12(g) of the Act: Ordinary Shares, nominal value 1.53 per share American Depositary Shares, each representing one Ordinary Share Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:    None Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report. 83,193,220 Ordinary Shares Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  þ
    
    No  o
 Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17  o
    
    Item 18  þ




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STET Hellas Telecommunications S.A. is incorporated under the laws of The
Hellenic Republic, or Greece, as an anonymos etairia, or corporation. Our
corporate name is STET Hellas Telecommunications Société Anonymeand our trade
name is STET Hellas A.E.B.E. Unless otherwise indicated, the financial information contained in this annual
report on Form 20-F has been prepared on the basis of U.S. GAAP. Unless
otherwise indicated, references in this Form 20-F to financial statements are
to our annual audited financial statements (including the notes thereto)
included herein. The financial statements are presented in euro, the official currency of
Greece. References to  or euro(s) are to the single currency of the
participating member states in the Third Stage of the European and Economic
Monetary Union (EMU) pursuant to the treaty establishing the European
Community, as amended from time to time. Greece entered into the EMU on
December 31, 2000. References to Greek drachma, drachmas, or Drs. are to
the previous Greek currency, which was the official currency until December 31,
2001. References to U.S.$, $ or dollars are to United States currency,
references to NLG or guilders are to Dutch currency and references to
pounds sterling are to the currency of Great Britain. Solely for convenience,
this Form 20-F contains translations of certain euro amounts into dollars at
specified rates. These translations should not be construed as representations
that the euro amounts actually represent such dollar amounts or could be
converted into dollars at the rate indicated or at any other rate. Unless
otherwise indicated, the translations of euro amounts into dollars have been
made at the rate of $1.2597 per 1.00, the noon buying rate for cable transfers
of euros as certified by the Federal Reserve Bank of New York, or the noon
buying rate, on December 31, 2003. For historical information regarding rates
of exchange between the euro and the dollar, see Item 3. Key Information.
On June 15, 2004, the noon buying rate for the euro was $1.2139 per 1.00. The Greek government does not require Greek telecommunications companies to
make industry data publicly available. Consequently, references in this Form
20-F to Greek mobile telecommunications industry data are based on our
estimates. References in this Form 20-F to average number of customers for the year
means the average of each months average number of customers (calculated as
the average of the total number of customers at month end and the total number
of customers at the end of the previous month) during the calendar year.   CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE UNITED
STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. This annual report on
Form 20-F contains certain forward looking statements as defined in section 21E
of the United States Securities Exchange Act of 1934, with respect to: (a)
trends affecting our financial condition or results of operations, including
our increased penetration of the Greek Global System for Mobile Telephony
(GSM) market, rates of network usage, average monthly revenue per customer,
average monthly minutes of use per customer, revenue per minute of use, trends
in customer acquisition costs and rates of customer churn, (b) the resolution
of certain legal proceedings, (c) the continued maintenance of the quality and
capacity of our network, and (d) the impact of the changing regulatory
environment in Greece and in Europe. The following important factors could cause actual results to differ materially
from those projected or implied in any forward looking statements: (a) levels
of competition in the Greek GSM market and its impact on our ability to
increase our net new customer additions, (b) our ability to maintain or
increase our market share through technological innovation and high quality
customer care services and to stimulate increased usage of our services by our
customers, (c) the development of a market for UMTS services in Greece, (d) our
continued receipt of substantial technical and management assistance from our
majority shareholder, and (e) general economic conditions in Greece. These
factors should not be construed as exhaustive. Due to the uncertainties and
risks




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associated with these factors, readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of the date
hereof. We are claiming the benefits of the safe harbor provision referred to
above.   Our registered office and headquarters is located at 66 Kifissias Avenue, 15125
Maroussi, Athens, Greece. Telephone (30-210) 615-8000.




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TABLE OF CONTENTS PagePart I
    
    
    1Item 1. Identity of Directors, Senior Management and Advisers
    
    
    1Item 2. Offer Statistics and Expected Timetable
    
    
    1Item 3. Key Information
    
    
    1Item 4. Information on the Company
    
    
    9Item 5. Operating and Financial Review and Prospects
    
    
    33Item 6. Directors, Senior Management and Employees
    
    
    47Item 7. Major Shareholders and Related Party Transactions
    
    
    53Item 8. Financial Information
    
    
    53Item 9. The Offer and Listing
    
    
    54Item 10. Additional Information
    
    
    56Item 11. Quantitative and Qualitative Disclosures about Market Risk
    
    
    66Item 12. Description of Securities Other than Equity Securities
    
    
    67Part II
    
    
    67Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    67Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    67Item 15. Controls and Procedures
    
    
    68Item 16. [Reserved]
    
    
    68Item 16A. Audit Committee Financial Expert
    
    
    68Item 16B. Code of Ethics
    
    
    68Item 16C. Principal Accountant Fees and Services
    
    
    68Item 16D. Exemption from the Listing Standards for Audit Committees
    
    
    70Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    70Part III
    
    
    70Item 17. Financial Statements
    
    
    70Item 18. Financial Statements
    
    
    71Item 19. Exhibits
    
    
    72SIGNATURES
    
    
    73




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PageINDEX TO THE FINANCIAL STATEMENTS

    F-1EXHIBIT 1.2EXHIBIT 8EXHIBIT 12.1EXHIBIT 12.2EXHIBIT 13.1EXHIBIT 13.2




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Part I 
 Item 1. Identity of Directors, Senior Management and Advisers Not applicable 
 Item 2. Offer Statistics and Expected Timetable Not applicable 
 Item 3. Key Information Selected Financial Data The following selected financial data should be read in conjunction with Item
5. Operating and Financial Review and Prospects and Item 18. Financial
Statements and the notes thereto included elsewhere in this Form 20-F. The
financial statements have been prepared in accordance with U.S. GAAP. The
selected financial data set forth below as of and for the fiscal years ended
December 31, 2001, 2002 and 2003 have been derived from our financial
statements included elsewhere in this Form 20-F, which have been audited by
Ernst & Young (Hellas) Certified Auditors Accountants S.A., independent public
accountants (Ernst & Young). The selected financial data set forth below as
of and for the fiscal years ended December 31, 2000 and 1999 was derived from
our previous financial statements which were audited by Arthur Andersen
Certified Auditors - Accountants S.A., independent public accountants (Arthur
Andersen). Year ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(1)
    
    
    
    
    
    
    
    
    
    U.S.$(in thousands, except per share amounts)Statement of Income DataOperating revenue:Revenues from telecommunications service
    
    
    415,323
    
    
    
    477,961
    
    
    
    504,801
    
    
    
    666,453
    
    
    
    761,934
    
    
    
    959,808Revenues from sales of handsets and accessories
    
    
    29,497
    
    
    
    41,934
    
    
    
    18,956
    
    
    
    23,878
    
    
    
    46,606
    
    
    
    58,709Total operating revenues
    
    
    444,820
    
    
    
    519,895
    
    
    
    523,757
    
    
    
    690,331
    
    
    
    808,540
    
    
    
    1,018,517Cost of sales and services provided
    
    
    (156,695
    )
    
    
    (199,052
    )
    
    
    (195,392
    )
    
    
    (252,752
    )
    
    
    (331,420
    )
    
    
    (417,489
    )Gross profit
    
    
    288,125
    
    
    
    320,843
    
    
    
    328,365
    
    
    
    437,579
    
    
    
    477,120
    
    
    
    601,028Provision for doubtful accounts
    
    
    (8,969
    )
    
    
    (6,124
    )
    
    
    (5,693
    )
    
    
    (5,081
    )
    
    
    (7,100
    )
    
    
    (8,944
    )Selling, general and administrative expenses
    
    
    (207,780
    )
    
    
    (241,561
    )
    
    
    (234,953
    )
    
    
    (298,240
    )
    
    
    (303,137
    )
    
    
    (381,861
    )Operating income
    
    
    71,376
    
    
    
    73,158
    
    
    
    87,719
    
    
    
    134,258
    
    
    
    166,883
    
    
    
    210,223Interest and other financial income (expense), net
    
    
    (27,178
    )
    
    
    (20,869
    )
    
    
    (16,637
    )
    
    
    (14,471
    )
    
    
    (10,818
    )
    
    
    (13,627
    )Income before income taxes
    
    
    44,198
    
    
    
    52,289
    
    
    
    71,082
    
    
    
    119,787
    
    
    
    156,065
    
    
    
    196,596Income taxes (provision) benefit
    
    
    (24,811
    )
    
    
    (25,611
    )
    
    
    (35,241
    )
    
    
    (43,349
    )
    
    
    (63,446
    )
    
    
    (79,923
    )Net income before cumulative effect of change in
accounting principle for SFAS 143, net of tax
    
    
    19,387
    
    
    
    26,678
    
    
    
    35,841
    
    
    
    76,438
    
    
    
    92,619
    
    
    
    116,673Cumulative effect of change in accounting
principle for SFAS 143, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    (1,260
    )Net Income
    
    
    19,387
    
    
    
    26,678
    
    
    
    35,841
    
    
    
    76,438
    
    
    
    91,619
    
    
    
    115,413
 - 1 -




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Year ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(1)
    
    
    
    
    
    
    
    
    
    U.S.$(in thousands, except per share amounts)Amounts per common shareIncome before cumulative effect of change in
accounting principle for SFAS 143
    
    
    0.27
    
    
    
    0.37
    
    
    
    0.48
    
    
    
    0.92
    
    
    
    1.11
    
    
    
    1.40Cumulative effect of change in accounting
principle for SFAS 143, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )Net Income per share  basic and diluted
    
    
    0.27
    
    
    
    0.37
    
    
    
    0.48
    
    
    
    0.92
    
    
    
    1.10
    
    
    
    1.39Dividend per share
    
    
    
    
    
    
    
    
    
    
    0.09
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.13Weighted average shares outstanding  basic and
diluted
    
    
    72,600,000
    
    
    
    72,600,000
    
    
    
    74,979,847
    
    
    
    83,193,220
    
    
    
    83,193,220
    
    
    
    83,193,220
   (1)
    
    Solely for the convenience of the reader, euro amounts have been
translated into dollars at the rate of $1.2597 per 1.00, the noon buying
rate on December 31, 2003. As at December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(1)
    
    
    
    
    
    
    
    
    
    U.S.$(in thousands)Balance Sheet DataTotal assets
    
    
    511,092
    
    
    
    654,988
    
    
    
    868,553
    
    
    
    944,592
    
    
    
    1,026,328
    
    
    
    1,292,867Long-term debt, net of current maturities
    
    
    188,941
    
    
    
    231,182
    
    
    
    122,067
    
    
    
    222,067
    
    
    
    100,000
    
    
    
    125,970Long-term debt due to related companies
    
    
    
    
    
    
    
    
    
    
    60,000
    
    
    
    60,000
    
    
    
    60,000
    
    
    
    75,582Total long-term liabilities less long-term debt
    
    
    6,127
    
    
    
    7,520
    
    
    
    52,846
    
    
    
    57,535
    
    
    
    78,648
    
    
    
    99,072Total liabilities
    
    
    410,705
    
    
    
    527,924
    
    
    
    619,285
    
    
    
    626,373
    
    
    
    624,809
    
    
    
    787,076Shareholders equity
    
    
    100,387
    
    
    
    127,064
    
    
    
    249,268
    
    
    
    318,219
    
    
    
    401,519
    
    
    
    505,791
   (1)
    
    Solely for the convenience of the reader, euro amounts have been
translated into dollars at the rate of $1.2597 per 1.00, the noon buying
rate on December 31, 2003. Dividends On June 10, 2002, we paid dividends of 7,487,390, or 0.09 per share, for our
fiscal year 2001, on May 30, 2003 we paid dividends of 8,319,322 or 0.10 per
share, for our fiscal year 2002 and on May 28, 2004 we paid dividends of
8,319,322 or 0.10 per share, for our fiscal year 2003. We expect to continue
to pay dividends in the future to the extent we are legally allowed and subject
to our financial condition, the funding needs of our investment program and
other relevant factors. See Note 21 to the financial statements. Exchange Rates Since January 1, 2002, our functional currency is the euro. Transactions
involving other currencies are converted into euro using the exchange rates
that are effective at the time of the transactions. At the balance sheet
dates, monetary assets and liabilities, which are denominated in other
currencies, are adjusted to reflect the then current exchange rates. Gains or
losses resulting from foreign currency remeasurements are reflected in the
statements of income. The accounts previously issued in Greek drachma have been restated using the
euro as the reporting currency. The conversion rate effective on December 31,
2001 was the rate of drachmas 340.750 per 1.00 euro. The financial statements
as reported in euro depict the same trends as would have been presented if - 2 -




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the Company had continued to present financial statements in drachma. Certain
reclassifications have been made to the presentation of the 2001 and 2002
financial statements to conform to those of 2003. The following table sets out, for the periods and dates indicated, certain
information regarding the noon buying rates for euro, expressed in U.S. dollars
per 1.00. Dollars per EuroYear end
    
    Average(1)
    
    High
    
    Low1999
    
    
    1.0070
    
    
    
    1.0588
    
    
    
    1.1812
    
    
    
    1.00162000
    
    
    0.9388
    
    
    
    0.9207
    
    
    
    1.0335
    
    
    
    0.82702001
    
    
    0.8901
    
    
    
    0.8909
    
    
    
    0.9535
    
    
    
    0.83702002
    
    
    1.0485
    
    
    
    0.9495
    
    
    
    1.0485
    
    
    
    0.85942003
    
    
    1.2597
    
    
    
    1.1411
    
    
    
    1.2597
    
    
    
    1.0361
   (1)
    
    The average of the noon buying rates on the last trading day of each month
during the relevant year. The table below sets forth the high and low exchange rates between the euro and
dollar, expressed in dollars per euro, for each of the six months ended May 31,
2004. High
    
    LowDecember 2003
    
    
    1.2597
    
    
    
    1.1956January 2004
    
    
    1.2853
    
    
    
    1.2389February 2004
    
    
    1.2848
    
    
    
    1.2426March 2004
    
    
    1.2431
    
    
    
    1.2088April 2004
    
    
    1.2358
    
    
    
    1.1802May 2004
    
    
    1.2274
    
    
    
    1.1801
 The euro to dollar exchange rate announced on June 15, 2004, the latest
practicable date prior to filing this report was $1.2139 = 1.00. Risk Factors We face significant competition from the other telecommunications operators in
Greece, which may adversely affect our results of operations There are currently four mobile telecommunications operators in Greece, and the
market is highly competitive. Panafon S.A., or Panafon-Vodafone, one of our
principal competitors in the Greek GSM market, is a subsidiary of the Vodafone
Group PLC, a UK mobile telecommunications company. Our other principal
competitor in the Greek GSM market is Cellular Operating System of Mobile
Telecommunications S.A., or Cosmote, a subsidiary of Hellenic
Telecommunications Organization S.A. or OTE. Cosmote provides mobile
telecommunications services principally using DCS 1800 technology.
Additionally, Infoquest S.A., or Infoquest, a Greek information technology
company, has been operating under the brand name Q-Telecom since June 2002,
after it was granted a DCS 1800 license by the Greek National
Telecommunications and Postal Commission, or NTPC. Infoquest operates a Mobile
Virtual Network Operator, or MVNO, type business model roaming on
Panafon-Vodafones network. As at March 31, 2004 our respective market shares were: STET Hellas 23.1%,
Panafon-Vodafone 34.7%, Cosmote 38.0% and Q-Telecom 4.3%. Competition for
customers between Panafon-Vodafone, Cosmote, Q-Telecom and us is based
principally upon the price of services, promotional discounts, the range of
services and the quality of customer care. See Item 4. Information on the
CompanyCompetition. - 3 -




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There can be no assurance that we will be able to maintain our current market
share in the Greek GSM market, nor can there be any assurance that the costs
associated with maintaining our market share in the face of competition from
the other market participants will not have an adverse effect on our results of
operations. Furthermore, the impact of Q-Telecom, which commenced operations
in June 2002 has began to be felt by all incumbent operators, especially in the
pre-paid customers segment through aggressively targeted low pricing. There
can be no assurance that competition associated with the introduction of a
fourth competitor will not adversely affect our results of operations. Some of our competitors may be able to benefit from their relationship with
their shareholders to increase their market share Some of our competitors may be able to increase their market share due to their
relationship with their shareholders. In particular, both Cosmote and
Panafon-Vodafone may benefit from higher levels of brand recognition associated
with their respective principal shareholders. Cosmotes principal shareholder
OTE (the incumbent fixed-line telecommunications operator in Greece) enjoys a
high level of brand recognition in Greece and Panafon-Vodafone may benefit from
high levels of brand awareness and global advertising conducted by the Vodafone
Group PLC, their principal shareholder. In addition, Cosmote may be able to
benefit from OTEs existing telecommunications infrastructure to enhance the
speed of its network build-out, particularly with respect to new technologies
such as UMTS. Similarly Panafon-Vodafone could benefit from Vodafone Groups
plans for UMTS network build-out and leverage on UMTS equipment, terminals and
data cards procurement. Although we were the first in the Greek market to
commercially launch UMTS services in January 2004, we might not be able to
fully exploit synergies with our major shareholder, Telecom Italia Mobile
S.p.A., or TIM, as a result of different rates of UMTS network roll-out
stemming from different UMTS license requirements. If Cosmote and
Panafon-Vodafone are able to complete the build-out of their UMTS networks
significantly faster than we are, we may lose market share if our customers
transfer or new customers move to the competition. A loss of market share may
reduce our revenues and adversely affect our results of operations. A favorable market for UMTS services in Greece may not develop, limiting our
ability to recoup the cost of our investment in the UMTS license and network,
which would adversely affect our results of operations Our bid for a third generation, or 3G, UMTS mobile telecommunications license
was accepted by the NTPC in July 2001. Our UMTS license will cost an aggregate
of 147 million (approximately $185.2 million) of which we paid 103 million
(approximately $129.7 million) on August 6, 2001. Further installments will be
paid beginning in 2005. We will also need to make substantial investments
during the next several years in order to build out our UMTS network and
develop related services and products. Our ability to recoup these
expenditures will depend largely upon the anticipated widespread market
acceptance of UMTS technology. Although we have recently launched UMTS
services on a commercial basis, there are still issues to be resolved in order
to minimize associated risks. UMTS technology is being developed at a slower
pace than initially expected and needs further development in order to provide
the expected advantages over existing technologies or other technologies that
may be developed in the future. In addition, demand for UMTS-based services
has not yet been proven and may not develop as we anticipate. Accordingly, no
assurance can be given that a significant market for UMTS services will develop
or, even if such a market does develop, that we will be able to achieve our
desired sales volumes - 4 -




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for UMTS services. Technical problems associated with UMTS, such as
integration and interoperability with existing 2G network have been resolved.
Nevertheless, UMTS-enabled terminals are not widely available in terms of
variety, quantity and supported functionality, a fact which might lead to
limited acceptance. If UMTS does not deliver the anticipated advantages or gain
widespread acceptance or if we derive a smaller percentage of our total
revenues than expected from our UMTS-related services, we may not be able to
adequately recoup our investment in the UMTS license and network, which could
have a material adverse effect on our results of operations and financial
condition. We are dependent on the continued development of the Greek mobile
telecommunications market and may be adversely affected by Greek political and
economic developments beyond our control The development of our business will depend, in large part, on the evolution of
the mobile telecommunications industry in Greece. According to officially
released company data and based on the latest official census citing a Greek
population of approximately 10.9 million, the market is, as of March 31, 2004,
near saturation at approximately 97% penetration, which indicates some growth
potential, though at a slow pace. Therefore, our growth relies on maintaining
our market share and developing the demand for our various services by our
existing customers. The demand for our services will be affected by a number
of factors, many of which are outside our control. Such factors include
general economic conditions, the gross domestic product per capita of Greece,
the relative development of the GSM and the UMTS markets and any rival market
for the provision of mobile telecommunications services, the price of handsets,
dealer commissions and the availability, quality and cost to the customer of
competing services. Although Greece is a member of the EMU, a significant
slowdown in economic growth in Greece could adversely affect us by slowing the
rate of customer acquisition and retention, by causing a decline in the average
monthly minutes of use per customer or the average monthly revenue per
customer, or by causing an increase in the inability of customers to make
payments on their accounts. Given these factors, as well as the relatively
short history of the mobile telecommunications industry in Greece, it is
difficult to predict with any degree of certainty the growth of mobile
telecommunications services in Greece or the number of our customers. Our business and the market price and liquidity of the depositary shares may be
affected by changes in policy, taxation and other political, economic or social
developments in or affecting Greece that may not be within our control or, in
certain circumstances, within the control of Greece. It is possible that the
current economic growth in Greece will not continue and that future
developments in Greeces political, economic or social environment, over which
we have no control, could adversely affect the market price of the depositary
shares or our financial condition and results of operations. We may be adversely affected by reduced international travel as a result of
terrorist activity During the year ended December 31, 2003, roaming revenues amounted to
approximately 52 million, or 6.8%, of our revenues from telecommunications
services. We principally derive roaming revenues from business travelers and
tourists who are customers of other network operators, and from our own
customers making calls using another GSM network while traveling outside
Greece. The threat of potential terrorist attacks may result in materially
decreased business and tourist travel to Greece, which could result in
significantly reduced roaming revenues, or in the lack of realization of
increased roaming revenues associated with an increase in tourism to Greece for
the Athens 2004 Olympic Games. It is - 5 -




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possible that a decline in travel to Greece due to potential terrorist activity
could adversely affect our results of operations and financial condition. If we are unable to reduce or maintain our rate of churn, we may suffer
reduced resources or lower cash flows, which would adversely affect our results
of operations Churn refers to customer disconnections, either voluntary (due to customers
switching to competing GSM networks or terminating their use of our GSM
services, including customers who subsequently reactivate on our network) or
involuntary (due to non-payment of bills or suspected fraudulent use). We
believe that if we fail to reduce or maintain the level of churn, this may lead
to increased subscriber acquisition/retention costs or reduced revenues, each
of which may have an adverse effect on our results of operations. While we have
taken various measures to increase customer loyalty and reduce the rate of
churn, such as providing customers with new handsets to reduce the incentive
for voluntary churn and requiring thorough credit checks to reduce involuntary
churn, we believe that regulations of the NTPC requiring Mobile Number
Portability (the right of subscribers to keep their personal mobile telephone
number, even if they change mobile telecommunications operators), which came
into effect on a commercial basis on March 1, 2004, may result in increased
churn rates between mobile operators. Much of our financing is with or guaranteed by Telecom Italia, or its
affiliates, and if Telecom Italia can no longer continue to provide financing
and/or guarantees to us, we may not be able to fund substitute financing or
guarantees on similar terms. We have entered into several significant transactions with Telecom Italia
S.p.A., or its affiliates (which we together refer to as Telecom Italia), in
the past and may continue to do so in the future. In particular, Telecom
Italia has guaranteed long-term loans to us from the European Investment Bank,
and a syndicated loan arranged by ABN AMRO Finance (UK) Limited, in an
aggregate principal amount at December 31, 2003 of approximately 174 million.
Telecom Italia has also guaranteed short-term working capital facilities from
San Paolo IMI Bank S.p.A. and Citibank N.A. in an aggregate principal amount at
December 31, 2003 of approximately 43.1 million. Furthermore, in December
2001, Telecom Italia had made available to us a five-year medium-term fixed
rate financing facility in an aggregate principal amount of 60 million. See
Note 9 to the financial statements. In addition, TIM International N.V. (an
affiliate of Telecom Italia) made a short term loan facility in an aggregate
amount of 100 million available to us in 2002. See Item 7. Major
Shareholders and Related Party Transactions and Note 7 to the financial
statements. Recently, Telecom Italias credit rating was downgraded by certain
rating agencies. As a result, we have had to provide new guarantors for
certain loans. Management believes that it can obtain financing from sources
other than Telecom Italia and its affiliates without a guarantee from Telecom
Italia, nonetheless such financing may not be on terms as favorable as those
obtained with a Telecom Italia guarantee. Relationships with our shareholders and among shareholders We are controlled by a part of the Telecom Italia Group and its affiliates. On
August 2, 2002, TIM International, N.V. acquired the 17.45% of our outstanding
ordinary shares previously held by Verizon Europe Holdings II B.V.
Accordingly, TIM International N.V. owns 81.40% of our outstanding ordinary
shares. TIM International N.V. is wholly owned by TIM. Telecom Italia
currently owns approximately - 6 -




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56.0% of TIM. Accordingly, Telecom Italia and its affiliates, including TIM,
control all matters requiring a majority vote of the shareholders at a general
meeting of the shareholders, such as the appointment of a majority of the Board
of Directors, the approval of our annual financial statements and the
declaration of dividends by us. Telecom Italia can also exercise significant
influence over our business through their representation on our Board of
Directors. We rely on TIM for certain resources We derive substantial benefits from the advisory support of TIM, which owns
100.0% of our shareholder TIM International N.V., in the areas of purchasing,
financing and network operations. TIM provides us with technical know-how as
well as technical assistance services, including assistance through the
secondment of employees to fill key management positions, pursuant to certain
technology and technical assistance agreements. While management expects that our reliance on TIM would diminish over time,
failure to renew or extend these assistance agreements upon request could have
a material adverse effect on our financial condition and results of operations.
See Item 7. Major Shareholders and Related Party Transactions. We are dependent on a limited number of suppliers We purchase approximately 100% of our GSM core network equipment (switching
equipment software and hardware), from Ericsson Telecommunicazioni S.p.A, or
Ericsson, and subsequently from Ericsson Hellas S.A. Our radio network
equipment (base station controllers, or BSC, base transceiver stations, or BTS,
operation support systems and cross connect systems equipment) is completely
based on Ericsson Hellas S.A. and Siemens products, while approximately 80.0%
of our transmission equipment is also provided by Siemens. As a result, it may
be necessary for us to purchase certain additional and replacement equipment
from these suppliers. Furthermore, in connection with our UMTS network
deployment and more specifically the first phase of our 3G network rollout, we
have entered into a contractual agreement with Nokia OYJ for the purchase of
radio and core network infrastructure equipment exclusively from Nokia OYJ.
Consequently, the inability of these suppliers to supply equipment to us for
any reason, including delays, as well as potential interoperability issues
between our new 3G/Nokia and our existing 2G/Ericsson network infrastructure
may have an adverse effect on our financial condition and results of operations
in the short term. See Item 4. Information on the
CompanySuppliers. We are dependent on a major distribution retail chain that has distribution
agreements with our competitors Germanos, the largest mobile retail chain in Greece, and our most significant
master dealer, has distribution agreements with our competitors Cosmote and
Panafon-Vodafone. These distribution agreements might negatively affect the
level of our gross activations, threatening our market share development, and
thus adversely affecting our financial condition and results of operations. We are dependent on telecommunications interconnections over which we have no
direct control Our ability to provide commercially viable telecommunications services depends
on our ability to interconnect with the telecommunications networks of OTE,
Panafon-Vodafone, Cosmote and Infoquest, - 7 -




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as well as any new operators who have entered and may enter the market,
especially those who have a fixed wireless access, or FWA, license, and all
other operators that are awarded a special license to offer fixed telephony
services (alternative carriers). While we have interconnection agreements with
OTE, Panafon-Vodafone, Cosmote and Infoquest, we have no direct control over
the quality and timing of the investment and maintenance activities that are
necessary for these operators to provide us with interconnection to their
respective telecommunications networks. See Item 4. Information on the
CompanySignificant Competition. The failure of OTE, Panafon-Vodafone or
Cosmote to provide reliable interconnections to us on a consistent basis could
have a material adverse effect on our financial condition and results of
operations. See Item 5. Operating and Financial Review and ProspectsCost of
Sales and Services Provided. Our business operates in a highly regulated environment and we may be adversely
affected by certain decisions of the regulators Our mobile telecommunications business is subject to governmental regulation
regarding licensing, competition, frequency allocation and costs and
arrangements pertaining to interconnection and leased lines. Changes in laws,
regulations or governmental policy affecting our business activities and
decisions by regulators could adversely affect our financial condition and
results of operations. More specifically, our business operations might be adversely affected by
falling interconnection termination rates, and by the notification from the
NTPC in March 2003 that STET Hellas is designated as having significant market
power in the mobile market. The primary result of this notification is that
we must institute non-discriminatory tariffs, aligning the interconnection
termination rate for fixed to mobile lines with that for mobile to mobile
lines. Furthermore, the implementation of the new regulatory framework
initially set by the European Commission for July 2003 though still pending,
which re-defines the various mobile telecommunications markets will
substantially influence the interconnection rates, as well as the retail prices
of the services offered, and it may have a material effect on our business.
Additionally, we might be adversely affected by site acquisition related issues
and delays in obtaining necessary permits from city planning authorities in
connection with our network rollout. We may be adversely affected by the impact of rapid technological changes with
which we may not be able to keep pace The telecommunications industry is subject to rapid and significant changes in
technology. We face competition from entities providing other communications
technologies and may face competition in the future both from the introduction
of rival mobile telecommunications technologies into Greece and the development
of new mobile telecommunications technologies. The impact of these
technologies and services on our network cannot be predicted and may result in
the technologies and services we employ becoming obsolete or subject to
increased competition. Such results may have a material adverse effect on our
financial condition and results of operations. Our business may be adversely affected by the alleged health risks of mobile
telephone handsets In recent years, concerns have been expressed about the potentially negative
effect of electromagnetic emissions from handsets on the health of mobile
telephone users, and the Commission of the European Union has been
investigating these concerns since 1995. The actual or perceived risk of
mobile communications devices, press reports about risks or any litigation
relating to such risks could adversely - 8 -




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affect us through a reduction in our customer growth rate, customer base or
average monthly minutes of use per customer and could have a material adverse
effect on our financial condition and results of operations. We may be adversely affected by foreign exchange rate fluctuations Our American depositary shares, or ADSs, are traded on the NASDAQ National
Market, or NASDAQ, in dollars. Fluctuations in the exchange rate between the
dollar and the euro may affect the market price of the ADSs. In addition, any
cash dividends we will pay on the shares will be paid in euro and, as a result,
exchange rate fluctuations will affect the dollar amounts received by holders
of ADSs on conversion of such dividends by the depositaries. Our financial position may be adversely affected by the outcome of certain
legal proceedings We are currently involved in certain legal proceedings. For a description of
these proceedings, see Note 15(b) to the financial statements. If the outcome
of these proceedings is not in our favor, our financial position and results of
operations may be adversely affected. 
 Item 4. Information on the Company Overview Stet Hellas Telecommunications S.A. was incorporated in Greece on July 28, 1992
as a société anonyme, in order to provide GSM mobile telecommunications
services in Greece, in accordance with the provisions of Law 2075/92,
subsequently replaced by Law 2246/94, the Telecommunications Law. Our
registered office is located at 66 Kifissias Avenue, 15125 Maroussi, Athens,
Greece. Telephone: (30-210) 615-8000. We do not have a registered agent in
the United States. Since June 3, 1998, our shares have been quoted on NASDAQ,
and they are listed on the Official Market of Euronext Amsterdam N.V. We are one of four operators licensed to provide mobile telecommunications
services in Greece, and one of three operators licensed to provide national GSM
services in the 900 Mhz frequency band and UMTS services in Greece. We were
awarded a twenty-year license to provide digital GSM services by the Greek
Ministry of Transport and Communications on September 30, 1992 and commenced
commercial operations in June 1993. Until February 2004, we operated in the
Greek market under the brand name Telestet, at which point we re-branded to
TIM. Following a competitive tender, we entered into a concession agreement,
dated August 6, 2001, with the Greek State and on the same date, were granted a
fifteen-year license to operate a DCS 1800 network and a twenty-year license to
operate a UMTS network in Greece. On December 31, 2002, we signed a commercial
agreement with EUROPROM Telecommunications S.A. to lease EUROPROMs Fixed
Wireless Access (FWA) license in the 25 GHz frequency band. This agreement
enables us to bundle mobile and FWA service elements thus offering combined
fixed and mobile voice and data products and services. At December 31, 2003, we had 2,402,777 customers and our GSM network covered
approximately 99.92% of the major roads, 99.99% of towns with a population of
more than 5,000 inhabitants (139 municipalities, including the Athens
metropolitan area, Thessaloniki and Patra) as well as approximately 85.0% of
the Greek islands, including Crete and Rhodes, based on internal estimates
using the -94 dBm signal level as required by the terms of our GSM license. - 9 -




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Based on the 1991 Greek census, our population coverage at the end of 2003 was
approximately 97.7%. Principal Shareholders Our major shareholder is TIM International N.V., a Dutch corporation wholly
owned by Telecom Italia Mobile S.p.A., or TIM, a leading operator of mobile
telecommunications in Italy and Europe. As of December 28, 2001, TIM
International B.V. (a Dutch company wholly owned by TIM) merged with and into
STET Mobile Holding N.V. under the company name TIM International N.V. TIM is
an affiliate of Telecom Italia. On August 2, 2002, TIM International N.V.
acquired the 17.45% stake of Verizon Europe Holdings II B.V. in STET Hellas,
becoming the sole majority shareholder. TIM and its affiliates provide us with substantial technical and other
expertise, including the secondment of employees to fill key management roles.
In particular, TIM provides substantial assistance to us in the areas of
technical planning and training, marketing, product development, purchasing and
personnel matters. Subsidiary Information In 2003, we completed both an acquisition and a merger of Telesoft Software
Development and Consulting Services S.A., or Telesoft S.A., into STET Hellas
S.A.. On March 14, 2003, the extraordinary general assembly of our
shareholders approved the acquisition by STET Hellas S.A. of all of the shares
of Telesoft S.A. for the total sum of 60,000, to allow us to control the
production of a variety of software products that we consider to be important
to our operations and to cover our needs and requirements in a number of new
technological applications. The acquisition was concluded on March 28, 2003,
and the subsequent merger of Telesoft S.A. into STET Hellas S.A. was concluded
on November 14, 2003. As a result, we no longer have any subsidiaries. Services and Products Our principal business is the provision of mobile telecommunications services
in Greece using the digital GSM standard, including network access and related
value-added services. Since June 1996, we have offered our services to contract
customers on the basis of various tariff plans with different rates of monthly
service fees and airtime tariffs to accommodate the particular service
requirements and anticipated usage of different segments of the Greek market.
In May 1997, we also introduced prepaid GSM services to further meet the
service requirements of the primarily younger targeted groups and market
segments. In March 2000, we introduced an integrated telecommunications
solution for the business market under the B BEST brand, which provides
tariffs and tailored services to match different business customer profiles.
In August 2002, we launched Multimedia Messaging Services, or MMS, which has
the capability to automatically adjust Over the Air the MMS-enabled mobile
phone settings, offering our customers access to various advanced applications
in addition to the standard MMS functionality, thus paving the way to 3G mobile
services. In October 2003, we soft-launched the first UMTS services in Greece
to a select group of users offering them, in addition to voice value-added
services, Internet access with connection speeds up to 384 kbps and swift MMS
advanced services, thereby strengthening our place at the technological
forefront of Greeces mobile industry. Our full commercial launch of this
service took place in early 2004. Overall, during 2001, 2002 and 2003, we
further diversified the products and services we offer, following our ongoing
segmentation strategy. By - 10 -




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offering a variety of services and products to a broad range of customers,
including residential contracts, prepaid customers and business customers, we
are able to accommodate all segments of the Greek mobile telecommunications
market. Contract Customer Services We offer individuals and small- to medium-sized business customers basic GSM
network access, related value-added services and international dialing and
roaming through twelve-month contracts. We have continued to offer new tariff plans and to redesign old tariff plans as
part of our strategy to develop and reinforce customer segmentation by
providing a broad range of focused and customized services and products aimed
at attracting profitable customers, increasing efficient usage of our network
and maintaining customer loyalty. Our services are available to contract customers on the basis of several tariff
plans, each tailored to the usage patterns of different targeted groups or
market segments. Information on each of our tariff plans is available to
customers at all points of sale throughout our distribution network. In June 2000, we launched our mobile portal TELESTET OnLine WAP featuring a
variety of online services such as sports news, weather, lottery results,
horoscopes, and m-commerce services, which include a trading service allowing
our customers to trade shares on the Athens Stock Exchange via their mobile
phone. During the first quarter of 2001, we redesigned our existing professional
tariffs to target high-end users by increasing the bundled airtime and
decreasing call rates. During the third quarter of 2001, we launched basic
commercial general packet radio system, or GPRS, services to all our contract
customers, both business and residential, including WAP over GPRS,
mobile-Internet access and corporate access. We introduced volume-based
charging for our GPRS services, offering two customized tariff plans that
address the needs of each of the consumer and business market segments. In November of 2002, we complemented our offer to the high-end residential
market segment with the launch of TELESTET PRO 50, a bundled minutes-based
tariff plan featuring 50 minutes of bundled airtime, responding to market
demands for new competitive tariffs. In January 2003, we launched six new
competitive bundled-minutes based tariff plans, encompassing the changing needs
of a wider market spectrum. These new TELESTET packages mainly offer bundled
airtime ranging from 20 to 600 minutes per month depending on the tariff plan,
and common rates for calls to all terminations, regardless of operator. In
October 2003, we started to offer one more bundled-minutes based tariff plan,
the TELESTET 350, to meet competitive market demands, offering 350 minutes
bundled airtime per month, and common rates for calls to all terminations,
regardless of operator. In December 2003, we started to offer TELESTET Free Six, allowing new
customers to subscribe to any of the TELESTET 20-600 tariff plans, without a
terminal subsidy. Instead these customers receive a monthly credit towards
their monthly phone bill as compensation for the un-subsidized connection. We also aim to motivate our customers to use their mobile phone as a tool for
services beyond traditional voice calling and to educate them about current and
upcoming UMTS services by offering innovative - 11 -




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value-added services that address our customers needs. Towards the end of
2001, we introduced a new strategy for our value-added services that focuses on
building customer value through enhanced data services. In late 2001, we
launched TELESTET Finder and Call Attempt Notifier. TELESTET Finder is an
SMS location-based service that enables our customers to find the store,
service or company nearest to the location of their mobile phone. Call Attempt
Notifier allows our customers to receive SMS notification of calls missed when
their mobile phone is switched off or out of network range. Our focus on
technological innovation and enhanced product and service offerings culminated
in mid-2002 with the launch of Multimedia Messaging Services, or MMS. During
2003, we continued our focus towards the successful transition from 2G to 2.5G
and 3G services, and we complemented our MMS offer through the launch during
the course of the year of several high-tech and in-demand services, such as
TELESTET MMS Weather and TELESTET Video News. TELESTET MMS Weather is an
MMS location based service that provides our customers, on a 24-hours basis,
weather forecasts for all capital cities and major tourist resorts in Greece.
TELESTET Video News offers our subscribers the possibility of viewing both
local and international daily news direct from their mobile phones, through an
exclusive collaboration with the Greek Business Channel of Nova cable TV. For a more complete list of our value-added services, see - Value-Added
Services. Prepaid Customer Services In the first quarter of 2001, we revamped our prepaid products and services by
enhancing existing tariff plans and redesigning the packaging and marketing of
these services. This prepaid offer, Talk Simple, allows our customers to
choose among two tariff plans, the Talk Pack and the Send Pack, each of
which provides lower rates for voice calls or for SMS, respectively. Talk
Simple remains available to already existing subscribers, but has been replaced
by FREE2GO for new customers. In June 2001, we complemented our services for young people with the launch of
FREE2GO, the first prepaid product with automatic activation and wide
availability in thousands of kiosks and mini-markets throughout Greece,
maximizing the accessibility and user-friendliness of the mobile phone.
FREE2GO SIM cards are valid for one month, and can be extended through the
purchase of additional airtime. In July 2001, we launched FREE2Date, an
SMS-based service, which allows all our customers to communicate with people
sharing common interests. In November 2001, we further enhanced our FREE2GO
offer with the launch of FREE2Chat, an SMS-based service offered also to
contract customers, enabling the user to participate in virtual chat rooms with
people sharing similar interests. In 2002, we launched two new entertainment services under the FREE2GO umbrella:
FREE2Flirt, an SMS-based game allowing customers to exchange messages with
people sharing common interests, and FREE2PlayGalaxy, a multiple choice
SMS-based game. Additionally, we continued to enhance our offer of value added
services with the launch of TELESTET Sharing, allowing our prepaid customers
to transfer airtime instantly, even while abroad, by sending an SMS. In 2003, we enhanced our FREE2Date service by offering access to the service
through MMS and re-launching it under the modified brand name TELESTET
Dating. Furthermore, building on the success of the FREE2GO product, we
enriched our value proposition to the prepaid market with the launch of
TELESTET For All, in May 2003. This product combines competitive flat rates
irrespective of call - 12 -




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termination, automatic activation from the first call, and access to all of our
technologically-advanced value-added services, while it is available through
our direct distribution channel of TELESTET Centers as well as through our
dealers network. Business Customer Services We offer our business customers (including corporations, small and medium
enterprises, or SMEs, and small office home office companies, or SOHOs) network
access and mobile telecommunications services tailored to the specific needs of
each business customer, including data traffic transmission between two or more
customers sites. Additional business customer services include Virtual Private
Network, Business Connect, Professional Voice Mailbox, Teleconference, Mobile
Organizer, Data & Fax Transmission, Bulk Web SMS messaging for companies and
electronic billing, which presents our customers monthly bills on the web. As
of December 31, 2003, approximately 43% of our contract customer base were
business customers. In 2000, we launched B BEST, a new integrated telecommunications service that
addresses high-value business market segments, as well as the corporate segment
and SMEs. We established a new specialized business company department to focus
on these business market segments. At the time of its launch, B BEST consisted
of tariffs for different customer profiles, a handset maintenance program, a
tailored monthly discount scheme, a loyalty program and many state-of-the-art
value-added services responding to real business needs. By the end of 2000, we
launched B BEST 2 to 4 for the SOHO segment of the business market as well as
for professionals with a registered business tax number, making us the first
operator in Greece to offer customized solutions for this segment. In 2001 and 2002, we continued to expand our B BEST service offering to meet
our customers needs. For example, towards the end of 2001, we launched
additional services such as the TELESTET E-bill, which allows our business
contract customers to access their mobile phone account through the Internet.
The service is available through a website from which the user can access and
download all issued bills. In 2002, we launched TELESTET Mobile Organizer,
which enables our customers to utilize their mobile handset as an organizer,
operating Contacts and Calendar functions through SMS commands, and B BEST
Web-SMS, enabling our business customers to send SMS messages to numerous
recipients through the Internet. In 2003, we focused our efforts on providing an enhanced value proposition to
the business market by revamping our tariff plans services. During the first
quarter of 2003, we introduced two new tariff plans, B BEST Corporate and B
BEST Professional, targeting the needs of both the larger and smaller
businesses, introducing a quality-based discount scheme in addition to the
existing volume-based one. Both tariff plans were supplemented by add-on
options, providing voice-driven tailor-made solutions for every business
customer. By mid-2003, we altered the B BEST Professional tariff plan ,
launching the B BEST Professional II with a lower monthly fee and access to
new value-added services geared towards stimulating intra-company traffic.
Additionally, by mid-2003, we launched an attractive GPRS service tariff
proposition that targets low, medium and heavy data users. The philosophy of
the newly introduced GPRS plans was to provide three tariff propositions, the
GPRS Basic, GPRS 10 and GPRS4010, meeting different data volume needs. - 13 -




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Furthermore, during 2003 we moved a step closer to providing integrated
telecommunication solutions for larger corporations, with the launch of
Corporate Connect - that offers business customers fixed outgoing telephony
at competitive rates  and by our leased-lines offer, allowing them to
wirelessly interconnect their sites and ultimately build data and voice Virtual
Private Networks. Internet Services Consistent with our one-stop shop approach, in February 2001 we launched B
OnLine Internet, the first integrated mobile telephony and fixed Internet
service offering in the Greek market. B OnLine was the first product of our
commercial cooperation with Forthnet S.A., a Greek Internet service provider.
Building on this relationship, we enhanced our B OnLine Internet service with
the launch of B OnLine ISDN towards the end of 2001. This service provides
access to the Internet via a fixed ISDN line, at speeds of 64 kbps, as well as
a free line for making voice calls or sending and receiving fax messages
simultaneously. Value-added Services In addition to standard GSM services, such as call waiting, call forwarding,
call barring, caller identification and conference calling, we offer our whole
customer base a wide range of state-of-the-art value-added services, including:  
    
    TELESTET Services, including directory assistance, mobile fax,
email, and information regarding the weather, sports news, stock
exchange, and exchange rates through Interactive Voice Response, or
IVR, and SMS;TELESTET GETALERT Services, which gives customers the ability,
through a notification-alert system, to automatically receive
personalized information on subjects of their choice;  
    
    TELESTET Voice Services, a voice portal which provides a wide range
of infotainment and entertainment services;  
    
    TELESTET WAP, our mobile portal, which features a portfolio of
online services and exclusive access to certain Internet portals;  
    
    WAP browsing capabilities to any WAP site on the web;  
    
    Professional voice mail, which allows customers to receive voice mail
messages with message notification features that alert them when they
have received messages and also enables them to forward, prioritize
and send messages to multiple recipients;  
    
    Fax and data transmission services;  
    
    Location based services, such as the TELESTET Personal Mobile Guide
a service available in four languages providing information on
historic and archaeological sites throughout Greece, transportation
routes, cinemas and cultural events. It also allows foreign roaming
customers to be connected to the emergency phone numbers of the
nearest car rental agency, radio taxi service or - 14 -




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TELESTET store; TELESTET Finder, an SMS-based service that allows the user
to locate the address and telephone number of the point of interest closest to
its location;  
    
    Teleconference, which allows up to six users to talk
simultaneously, independent of a network or operator,
so long as the call originated from a TELESTET mobile
customer;  
    
    Organizer, a form of call divert that allows
customers a choice of three pre-programmed
alternative numbers if the customer cannot answer the
call;  
    
    High-speed Circuit Switched Data, or HSCSD, enabling
our customers to enjoy data access speeds up to 38.4
kbps, four times faster than the previous 9.6 kbps.
HSCSD marked the first step towards GPRS and
multimedia services;  
    
    GPRS services, including WAP over GPRS services,
allowing for higher speeds; mobile-Internet service
for browsing the web at higher speeds and lower cost
and corporate access, for remote access to a
companys lan/network and databases;  
    
    Multimedia Messaging Services, or MMS, enabling
customers to send and receive photos, high-definition
colored or animated images, audio files and more, to
and from another MMS-enabled phone or to an email
address, and to access interactive applications.
Additionally, through MMS we also provide access to a
wide content portfolio including dating services,
weather forecasts, video news, personal message
composer and movies information;  
    
    Call Attempt Notifier, a service which allows our
customers to receive SMS notification on calls missed
when their mobile phone is switched off or out of
network range;  
    
    TELESTET E-bill, a service providing customers with
access to their mobile phone bill over the Internet;  
    
    TELESTET Mobile Organizer, which offers Calendar
and Agenda functions through synchronization with
Microsoft Outlook;  
    
    TELESTET Sharing, which enables prepaid customers
to exchange airtime by sending an SMS;  
    
    Social and entertainment services including TELESTET
Trivial Pursuit, TELESTET Dating, a service which
allows our customers to get to know each other
virtually, FREE2Chat, a service which allows all
users to interact with other chat room participants
or create their own chat room to discuss the subject
of their choice, FREE2Flirt, an SMS based game
allowing customers to exchange messages with people
sharing common interests, and FREE2PlayGalaxy, a
multiple choice SMS-based game;  
    
    Information services including TELESTET Mobile
Dictionary, providing translation between seven
different languages and TELESTET Score, notifying
customers of real-time soccer, basketball and Formula
One results; and - 15 -




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
    
    Charity donation services including such charities as
Medecins Sans Frontieres, allowing our customers to
donate funds to participating organizations. International Roaming Our contract and prepaid customers can make and receive calls in other
countries on GSM networks. In December 1999, we were the first operator in
Greece to offer limited international roaming to our prepaid customers. With
the launch of TELESTET E-bill, we started offering full roaming services to our
prepaid customers. As of December 31, 2003, we had entered into international roaming agreements
with 271 GSM operators in 118 countries. These agreements cover most countries
in Europe, parts of the United States and countries with significant Greek
populations, such as Australia and South Africa. Handsets and Accessories Handsets and accessories are sold to our independent distributors at cost, for
sale to contract customers and directly to our contract customers through our
direct sales force, our directly owned Telestet Center retail stores. In
addition, we sell prepaid packages, which include handsets, to our independent
distributors at a discount to the retail price, and directly to our prepaid
customers through our directly owned Telestet Center retail stores and other
points of sale at the full retail price. Our independent distributors typically
utilize customer acquisition payments they receive from us to reduce the cost
of the handsets to customers. Customers Near the end of 2003, we shortened our disconnection cycle for prepaid
customers, in-line with the Greek and European market trend. Consequently,
382,051 inactive prepaid customers were effectively disconnected on the last
day of the year. As a result, as of December 31, 2003, we had 2,402,777
customers, a decrease of approximately 4.4% as compared with December 31, 2002.
At the end of the year prepaid customers numbered 1,584,863, accounting for
66.0% of our total customer base. Contract customers numbered 817,914 at
year-end, or 34.0% of the total customer base. We believe that the increase in
the number of customers is attributable to a number of external and internal
factors, such as:  
    
    The growth of the Greek mobile telecommunications market that although is reaching saturation, still demonstrates room for
growth, mainly coming from the tendency towards multiple SIM-card ownership, as well as the relatively high number of
customers in the Greek mobile market that do not use their mobile phone;
    
    The gradual education of potential mobile users;
    
    The introduction of our various new tariff plans with competitive pricing schemes (discounts);
    
    Our offering of value-added services and applications which respond to specific customer needs; and - 16 -




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
    
    The overlap of our different services and products, leading to increased awareness of the variety of our services and
products in the market. Churn Churn refers to customer disconnections, either voluntary (due to customers
switching to a competing mobile telecommunications network or terminating their
use of GSM services, including customers who subsequently reactivate on our
network) or involuntary (due to non-payment of bills or suspected fraudulent
use). Near the end of 2003, we changed our disconnection policy for prepaid customers
introducing a shorter disconnection cycle, from approximately 19 months to
approximately 13 months. Consequently 382,051 inactive prepaid customers were
effectively disconnected on the last day of the year. Although this clean-up
process had no effect on our financial results, considering that these
customers were inactive for a given period of time, it resulted in an
extraordinary inflation of our average annual churn rate for 2003 to 41.6%. If
we were to exclude the prepaid customer base clean-up our 2003 average annual
churn rate would have been 27.3%, compared with 32.8% and 26.7% in 2002 and
2001, respectively. In order to minimize churn caused by customers voluntarily terminating service,
we aim to ensure that our service remains competitive and we require contract
customers to sign contracts with a minimum duration of one year, with penalties
for early termination. Over the past year we have invested valuable resources in order to further
develop our customer relationship management approach to our customers. More
specifically, we have encouraged customer loyalty by addressing several
specific customer concerns. For example, we offer customers a 20.0% discount
on their monthly fees after one year with us and also continue to improve our
terminal upgrade policy for pre-determined customers who are up for possible
contract renewal. In addition to these basic loyalty programs, we continue to offer programs
targeted at our medium-to-high-value customer segments. Our loyalty scheme,
Avantage, was introduced in 2001 and allows customers to accumulate points
according to their monthly bill spending and tenure, and to exchange them for a
variety of services and products. In 2003, the installation of the Siebel
platform facilitated a more effective management of this loyalty program. In addition, we continued programs to enhance customer relations and our
overall image, such as Anniversary Calls to pre-determined customers whose
contracts will soon be up for expiration, Welcome contacts to proactively
exploit cross-selling opportunities, and Trouble Call Back contacts focusing
on the effective resolution of customer complaints. Traffic Volume The table below sets forth, for the periods indicated, selected traffic data
for our business. Year ended December 31,2001
    
    2002
    
    2003Total traffic (in millions of minutes)(1)
    
    
    1,572.0
    
    
    
    2,120.5
    
    
    
    2,709.9Average monthly minutes of use per customer (2)
    
    
    70.0
    
    
    
    77.5
    
    
    
    84.8
 - 17 -




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(1)
    
    Includes mobile to mobile, mobile to fixed line, and fixed line to mobile
calls (national and international).(2)
    
    Average monthly minutes of use per customer is calculated by dividing
total traffic by the average number of customers for the year divided by
twelve. Growth in total traffic from 2001 to 2003 was due principally to the growth in
our contract customer base during this period and to the increase of
high-quality bundled-minutes based customers in our total customer base.
Continued traffic volume growth depends on a number of factors, including
pricing and the availability of new services, general economic conditions and
the overall mix of our customers. The increasing trend in average minutes of
use per customer per month of approximately 10.7% in 2002 compared with 2001,
continued in 2003 with a 9.4% increase in average minutes of use per customer
per month, compared with 2002. This was a result of our strategy to increase
our focus on more profitable market segments. Tariffs Overview During 1999 we introduced several new tariff plans and redesigned our basic
prepaid tariff program. In 2000, we launched several new tariff plans in both
the contract and prepaid segments;  
    
    Telestet 0.5 is aimed at our price sensitive contract customers, with the lowest monthly fee, per-second charging and
incremental time-based discounts;  
    
    B BEST is a full commercial service offer that focuses on the business market segment; and  
    
    Professional tariff plans that include five tariff plans, based on bundled minutes, targeting contract customers with high
usage needs. Several of the tariff plans launched in 1999 and 2000 are no longer offered
commercially to new customers but are still available to existing subscribers.
These include B Free Everyday, offering low charges and peak/off-peak hours,
Morning Talk and Afternoon, allowing prepaid customers to select off-peak
periods that best suit their needs, Midnight Madness and Weekend, tariff
plans that complemented the Morning Talk and Afternoon lifestyle tariffs
launched in 1999, and B Free All Day, which targeted prepaid customers
without a regular usage pattern. In January 2001, we modified our professional tariff plans for contract-based
subscriptions by redesigning our existing tariffs, increasing bundled airtime
and cutting down call rates. The five professional tariffs target mobile
customers with high usage needs and combine bundled free airtime ranging from
100 to 500 minutes per month, depending on the tariff plan, flat rates and
per-second billing. In March 2001, we introduced Talk Simple, a prepaid offer with enhanced tariff
plans and redesigned packaging and promotion of our prepaid product. Talk
Simple allows prepaid customers to choose among two tariff plans, the Talk Pack
and the Send Pack, which provide lower rates for voice calls or SMS,
respectively. Talk Simple remains available to already existing subscribers,
but has been replaced by FREE2GO for new customers. - 18 -




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In June 2001, we complemented our offer to the younger market segment with the
launch of the FREE2GO prepaid tariff, a pre-activated SIM card widely available
in thousands of kiosks and mini-markets throughout Greece. FREE2GO is
currently our sole prepaid customer tariff. For more information on these
services, see Services and Products. In November 2002, we reduced prepaid SMS tariffs in response to a more
demanding market environment, and we complemented our offer to the high-end
residential market segment with the launch of TELESTET PRO 50, a bundled
minutes-based tariff plan featuring 50 minutes of bundled airtime, responding
to the market needs for new competitive tariffs. In January 2003, we launched six new competitive bundled-minutes based tariff
plans, encompassing the changing needs of a wider market spectrum. These new
TELESTET packages mainly offer bundled airtime ranging from 20 to 600 minutes
per month depending on the tariff plan, and common rates for calls to all
terminations, regardless of operator. In May 2003, we complemented our offer to the prepaid segment of the market
with the launch of TELESTET For All, a voice-oriented product that combines
competitive flat rates irrespective of call termination, automatic activation
from the first call, and access to all of our technologically-advanced
value-added services. We provide a number of value-added services to all customers at no additional
service fee, including voice mail, SMS and directory information. For a
description of our value-added services, see Services and Products.
Depending on the tariff plan, certain value-added services, such as
professional voice mailbox, are charged on the basis of an additional monthly
service fee plus airtime tariff rates for use of the relevant service. Some
other value-added services also require payment of an additional connection fee
when the service is established. Tariff Schemes Contract Customer Tariffs. We currently offer our contract customers basic
network access and certain additional value-added services under a range of
tariff plans that permit customers to choose a combination of monthly service
fees and airtime tariff rates that best suit their anticipated use of our
services. Each tariff plan consists of a monthly service fee, airtime tariff
rates and additional monthly charges for the use of certain value-added
services, and is offered on the basis of a twelve-month contract. Airtime is billed on a per-second basis or on the basis of units with the
duration of each unit varying, generally up to 30 seconds. A set-up charge
applies to many contract tariffs, particularly to those tariffs with per-second
billing. We publish the monthly service fees, airtime tariff rates and charges
for value-added services of all of our current tariff plans on our web site.
In general, international tariff rates vary depending upon the country called
and the tariff plan selected. Roaming rates vary depending upon the terms
contained in the individual roaming agreements between us and the relevant GSM
network operator. Customers are billed for outgoing domestic and international
calls and incoming roaming calls. Prepaid Customer Tariffs. We offer prepaid customers two tariff plans,
designed to cover the needs of the entire prepaid market segment: a
voice-oriented plan, with customized options capabilities, as well as - 19 -




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an SMS-oriented plan. Our prepaid airtime tariffs are incurred on a per-second
basis with a minimum duration ranging from 20 to 30 seconds, depending upon the
tariff plan. Business Customer Tariffs. Monthly service fees and airtime tariff rates
applicable to our business customers are based on our customers specific needs
in line with our B BEST offering. There are different business packages for
different customer profiles and for different numbers of phone lines. Traffic Revenue The table below sets forth average monthly revenue per customer for the periods
indicated. Year ended December 31,2001
    
    2002
    
    2003Average monthly revenue per customer(1)
    
    
    22.5
    
    
    
    24.4
    
    
    
    23.8Change
    
    
    (20.2
    )%
    
    
    8.4
    %
    
    
    (2.2
    )%
   (1)
    
    Average monthly revenue per customer by dividing annual revenues from
telecommunications services by the average number of customers for the
year divided by twelve. Average monthly revenue per customer increased by 8.4% in 2002 compared with
2001 mainly as a result of the introduction in January 2002 of mobile-to-mobile
interconnection payments, as well as continued improvement in outgoing traffic
revenues that were positively affected by an increase of high-end,
high-yielding subscribers in our customer base. Average monthly revenue per
customer decreased by 2.2% in 2003 compared with 2002, mainly as a result of a
higher increase in our average customer base as compared to the growth of our
revenues. Distribution and Marketing General We distribute our services through a distribution network that, as of December
31, 2003, consisted of eleven master dealers, as well as through the
distribution network of Germanos Batteries S.A., or Germanos, the largest
retail telecommunications and electronics dealer in Greece. We also distribute our own services through our direct distribution channel by
using Telestet Center retail stores, which at December 31, 2003 consisted of an
aggregate of 160 stores, aimed at developing a one-stop shop approach to target
primarily the business and high-end residential market segments. We also target our corporate clients through a direct sales force and a network
of 27 indirect agents, our Business Promoters, consisting of our master
dealers and certain high-end retail chains that operate throughout Greece. In addition to traditional distribution channels, we distribute prepaid
connections and renewal cards through non-traditional points of sale, such as
kiosks, mini-markets, vending machines installed in high traffic areas and
ferry boats. These non-traditional points of sale are less costly than
traditional distribution channels and are part of our focus on a broad and
cost-efficient distribution network. - 20 -




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Distribution Network Master Dealer Network. As at December 31, 2003, our independent network
consisted of eleven master dealers: F.G. Europe S.A., Dakos Communications
S.A., Santel S.A., Image & Sound S.A., Teleplus, Citishop S.A., V-net S.A.,
OneWay S.A., Korasides S.A, the Hellenic Postal Office and the EFG Eurobank
Ergasias S.A. bank. Most of our master dealers have established a network of
franchised independent distributors as well as their own direct points of sale. The master dealers, directly and through their network of independent
distributors, operate a network which consisted as of December 31, 2003 of
approximately 1,300 points of sale throughout Greece, the majority of which are
located in major cities. Members of our marketing, sales and finance
departments inspect these points of sale to ensure uniform high quality. We pay our master dealers an activation payment, which consists of an amount
per contract customer acquired by each master dealer that varies depending on
the characteristics of each new customer. We may reclaim these amounts, in
whole or in part, with respect to customers whose service is either cancelled
or suspended within six months of activation. The activation payment is
designed in part to maintain the loyalty of our master dealer network and to
encourage master dealers and their independent distributors to target customers
who are businesses and bundled-minutes based accounts, or who pay their bills
by credit card or direct debit. We vary the amount of the activation payment in
accordance with market conditions and to achieve our marketing objectives. We
also pay a bonus to our master dealers based on the quality (measured by their
average monthly bill or the type of tariff plan they sign up for) of the new
contract subscribers they activate. Master dealers receive a percentage of the revenues we collect from each
customer acquired by the master dealers network of independent distributors as
commission. This percentage varies depending on whether the master dealer
reaches certain contract customer base and is designed to encourage master
dealers and their independent distributors to target contract customers with
high usage characteristics and revenue generating potential. We also pay each
master dealer a sales bonus for customer additions attributable to that master
dealer during any quarterly period that exceed agreed upon sales targets. We
continuously review our commission and incentive target levels and provide
additional temporary promotional incentives in response to market conditions. We do not pay an activation commission to our master dealers in connection with
the acquisition of customers who purchase either prepaid packages or CDs.
Instead, we sell prepaid packages (which include a handset, a SIM card and
prepaid airtime) and CDs (which include a SIM card and initial prepaid airtime)
to our master dealers at a discount to the retail price of the package. In
addition, we sell our master dealers prepaid airtime cards at a discount and
pay each master dealer a bonus payment based on the total number of prepaid
packages and CDs it activates. Master dealers receive a percentage of the
revenues earned from each prepaid customer acquired by the master dealers
network of independent distributors as commission. This percentage varies
depending on whether the master dealer reaches certain prepaid customer base.
We also pay a bonus to our master dealers based on the quality (measured by the
value of the scratch cards sold in a certain period of time) of the new prepaid
customers they activate. - 21 -




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Germanos Distribution Network. On March 24, 1999, we finalized a distribution
agreement with Germanos. According to this agreement, which extends through
December 31, 2013, Germanos agreed to distribute our services and products
through its chain of stores. These retail stores are primarily located within
high traffic areas of towns and cities throughout Greece. In 2000, we reinforced our relationship with Germanos and established new areas
of business collaboration. Germanos became one of our business promoters for
distribution of the B BEST product and services line to the business segment. In 2002, we signed an additional agreement with Germanos, amending the initial
distribution agreement of March 24, 1999, that provides compensation for
Germanos performance based on quantitative and qualitative elements. This
contract is updated annually with similar terms and conditions to the 2002
contract and was updated in January 2003 and March 2004. Direct Distribution Network. A key element of our distribution strategy is to
strengthen our position in the Greek retail market through further development
of our direct distribution channel. This will address primarily the business
and high-end residential market segments through the development of a one-stop
shop approach and will also serve as a means for customer retention. To this
end, we created the TELESTET Centers that increased to 160 outlets throughout
Greece by the end of 2003, from 127 points of sale at the end of 2002. Our TELESTET Centers provide both sales and customer support services, such as
payment collection, upgrade of handsets, basic handset repairs and billing
claims. They are located in central high traffic areas in cities throughout
Greece and provide us with a valuable promotional vehicle for increasing brand
awareness and providing important marketing information. In early 2004, the
TELESTET Centers were re-branded to TIM stores as part of the change of our
brand name from TELESTET to TIM. Other Distribution Outlets. In 2001, we introduced a new pre-activated prepaid
product called FREE2GO in approximately 8,000 kiosks and mini-markets
throughout Greece, maximizing the accessibility of mobile telephony. Through a
commercial agreement with TASTY FOODS S.A., or Tasty, a member of the Fritolay
Group owned by Pepsico, for the exclusive direct distribution and allocation of
FREE2GO, our FREE2GO product was available in approximately 45% of these
non-conventional points of sale throughout Greece during 2002. In December
2002, we amended our commercial agreement with Tasty increasing the gradation
of scaled airtime commission for 2003, and revising the number of FREE2GO
activation cards to be purchased by Tasty in order to receive the corresponding
commission. In December 2003, we once more amended our commercial agreement
with Tasty, focusing mainly on the distribution expansion of FREE2GO, linking
the number of FREE2GO activation cards to be purchased by Tasty with a
gradually increasing margin commission. During 2003, we increased our presence in non-traditional distribution
channels. In June 2003 we enriched and expanded our commercial agreement with
the Hellenic Postal Service, until then limited to the sale of prepaid scratch
cards and bills payments, making our contract products the only ones available
in over 700 postal offices throughout Greece. We also extended on-board sales
of our products and services to the vessels of Strintzis Lines and Superfast
Ferries, ultimately better positioning them to - 22 -




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holiday travelers, and we introduced sales of prepaid renewal cards, FREE2GO
packages and connection packs through vending machines in high-traffic areas. Marketing Program We use mass media campaigns and direct marketing through our retail sales force
and independent distributors to reach potential customers. We have used mass
media and other promotional campaigns to create awareness and promote the
benefits of mobile telecommunications products and services, our direct
distribution channel, as well as to position our brand name. Among other
media, we use billboards, metro panels, television, radio, press and magazines
as well as the sponsorship of a wide range of non-profit cultural, educational,
entertaining, sports-related and charitable community events throughout Greece
as advertising outlets. We also employ direct marketing to promote new
services through our monthly bills to existing customers. Additionally, in
2003 we extended our exclusive commercial agreement, initiated in October 2002,
with Lesvos Maritime Company (NEL Lines) to outfit its ferries with Telestets
colors and logo, and we entered in a commercial agreement with the Greek
Association of Bus Operators (KTEL) to analogously outfit national busses, to
promote our brand name and products. We pay our master dealers a contribution for cooperative advertising based on
the number of new customers acquired by each master dealer and its network of
franchised independent distributors. Master dealers are required to contribute
an amount equal to what we contributed. Change of brand name In line with our strategy of grasping new opportunities for further profitable
growth, we officially undertook a re-branding from TELESTET to TIM in the
first months of 2004, adopting the brand of our major shareholder, TIM. This
move better positions us within a wider European market context by leveraging
on TIMs global reach and highlights our membership in FreeMove mobile
alliance, established in 2003 between Orange S.A., Telefonica Moviles, TIM and
T-Mobile. Furthermore, the re-branding will be complemented by an improved
product & service offering to all of our customers, and enable us to reap the
benefits of increased synergies and economies of scale not only with TIM but
also the other partners of this global mobile alliance. Customer Service We operate a 24 hours a day, seven days a week Call Center service, providing
product and service information, processing customer requests, handling trouble
reports and providing a wide range of value-added services. Management
believes that providing customers with a single, direct point of contact,
rather than through independent service providers, allows our customer service
personnel to develop a stronger relationship with customers. Customers wishing to terminate their contract must provide us with a written
request. In certain circumstances, and based on a customers profile, customer
service personnel may offer a variety of benefits, such as a more modern
handset at a preferential price or a tariff plan repositioning, in order to
increase customer loyalty. Customer feedback obtained through Call Center
personnel is tracked and shared with other key company functions in an effort
to consistently increase customer satisfaction and develop long-term
relationship. In 2001, we successfully implemented and operated advanced
contact - 23 -




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center technology which, through its functionalities such as IVR interaction
with recorded information, Intelligent Contact Routing (including voice and
e-mail), Front Line Application (CTI screen pop), and Campaign Management via
Predictive Dialer, has led to higher levels of efficiency, flexibility and
service quality. In 2002, leveraging on state of the art technology, we
managed to offer a preferential level of service to our high-value customers.
Credit checking analysis and activation time for prospective customers have
been significantly improved with the implementation of a credit scoring system.
We also achieved higher operating efficiencies through the deployment of
various self-help solutions. In line with our customer-centric approach, we continued during 2003 to provide
quality services to our customers and focus on a segmented customer service
approach, balancing customer needs and cost of service. Our ongoing customer
focus and commitment is reflected by the high levels of customer satisfaction.
In 2003, our customer satisfaction rating grew to 94.5% according to surveys
performed by the independent research firm, MRB. One of our key goals during
the year was to meet the more complex needs of the high-end business segment
and further enhance overall customer satisfaction. To this end, we have
significantly developed our dedicated Customer Service team, offering to our
business customers personalised contact, high quality of support and prompt
access to our customer service team. At the same time, we focused on achieving
higher operating efficiency and cost-control through new technological
solutions and the automation of manual activities. A high quality of service
was achieved by effectively using both our call center employees and
outsourcing alternatives. Billing and Customer Management Our contract customers are billed on a monthly basis, with a number of billing
cycles occurring each month. Customers may pay their bills at any post office,
our Telestet Center retail stores, the Germanos retail stores and at various
banks, or by direct bank debit or credit card. Management of bad debt and customer fraud is a primary means of reducing
financial exposure and, to this end, we perform formal credit checks and seek
to encourage our customers to pay by credit card or direct bank debit instead
of cash. At the end of 2002 we completed the implementation of a new Fraud
Management System, which is expected to support early fraud identification
through an intelligent alarm generation and a severity prioritization
mechanism. Our focus is on increasing the level of effectiveness and
efficiency of our credit checking, fraud control and collection processes to
further protect our revenues and minimize receivables. Our collection
processes have been enhanced and our service delivery improved by communicating
overdue unpaid amounts via SMS and automatically reactivating paid-off
suspended customers. As of December 31, 2003, approximately 18.0% of our
contract customers paid their bills by credit card or direct debit, almost
47.0% of our customers paid their bills at our TELESTET Centers and
approximately another 11.0% paid their bills at a Germanos retail store. In
addition, improved billing practices and the use of collection agencies
together have resulted in a reduction in the average collection time. Information Systems, or IS, Infrastructure STET Hellas IS infrastructure consists of the following fundamental components:  
    
    Post-paid billing system BSCS 6.0 (SEMA Schlumberger); - 24 -




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
    
    Prepaid billing system (ATOS/ORGA);  
    
    3G/UMTS Billing (Infranet / Portal);  
    
    Enterprise Resource Planning (SAP) that supports finance, purchasing, logistics,
dunning, web publishing and several other processes aligned with the corresponding
system of our major shareholder TIM;  
    
    Business Intelligence platform, based on ORACLE, Cognos and IQ;  
    
    Point of Sale System (including real-time credit risk evaluation, activation,
suspension and terminal upgrade) including a unified retail system integrated with our
back-office;  
    
    Value-added Services, such as billing and online banking;  
    
    Intranet Portal for supporting internal policies and procedures; and  
    
    Extranet Portal available to the entire direct distribution channel of TELESTET Centers. Our main IS-related goals during 2003 were: to provide rich functionality and
full support for the newly-established TELESTET Centers organization; enable
our billing infrastructure to support upcoming 3G services; update the systems
landscape in the critical area of pre-paid telephony to facilitate the
provision of improved services; make STET Hellas a CRM-enabled organization and
finally, align our core business processes with those of our major shareholder
TIM, through the implementation of the SAP Value Program. We also undertook
all necessary IS-related activities to support the introduction of Mobile
Number Portability, in accordance with regulatory requirements. The main focus of our IS development in 2003 was to:  
    
    Enhance Business Intelligence Environment;  
    
    Implement UMTS Billing System (Portal);  
    
    Upgrade services provided to our customers through our TELESTET Centers (SIM card replacement,
payments, inventory control);  
    
    Implement a unified retail system and integrate it with our back office systems;  
    
    Launch an advanced Bill Generation System based on XML technology, to manage bill layout changes on
demand; and  
    
    Implement the Intranet and Extranet Portal. Network and Facilities The infrastructure of a mobile telecommunications network consists primarily of
the radio network, the core network, peripheral platforms, transmission
equipment and networking management systems. - 25 -




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Network Design We developed our network design in close co-operation with TIM. We also
incorporate service quality, redundancy and coverage objectives based on the
best practices of TIM. To help meet these objectives, we employ sophisticated
network design tools developed by TILAB, a research and development company of
the Telecom Italia Group. In addition, our transmission network is almost
entirely based on microwave systems to ensure that we have the ability to carry
a significant portion of our traffic on our own network and, correspondingly,
to reduce costs for leased lines and to reduce our reliance on other networks
over which we have no control. Our design criteria require that the network be
sufficiently versatile to support our value-added services. Network Infrastructure Our network infrastructure installed as of December 31, 2003 is described in
the following paragraphs. The GSM/GPRS part of the network, numbered 1,535 Base Transceiver Stations, or
BTSs, including micro stations, controlled by 26 Base Station Controllers, or
BSCs. In addition eleven Mobile Switching Centers, or MSCs, two Transit
Switches and four Home Location Registers, or HLRs, were in place. Finally the
Packet Domain numbered two Serving GPRS Support Nodes, or SGSNs, and one
Gateway GPRS Support Node, or GGSN. The UMTS part of the network, numbered 210 node Bs controlled by two Radio
Network Controllers, or RNCs. Moreover, one 3G-MSC, one 3G-Media Gateway, or
MGW, one 3G-HLR, one 3G-SGSN and two 3G-GGSN nodes were in place by year-end. In addition, the network is enriched with a number of peripheral platforms,
such as Intelligent Network, Interactive Voice Response, Voice Mailbox, Short
Message Service, Prepaid solution, Wireless Access Point, or WAP, Multimedia
Messaging and Mobile Positioning solutions. Moreover an IP-Backbone network is
introduced in order to serve the needs for IP based services and connectivity
requirements. The transmission network is mainly based on microwave solutions, both in the
Access and the Backbone domain. Interconnections between BTSs and BSCs are
primarily performed through microwave links, whereas only a small percentage is
achieved through leased lines. An SDH high-capacity microwave backbone network
interconnects the MSC nodes of the network. Moreover a Fiber Optical ring is
introduced in the Athens metropolitan area, interconnecting some major hub
sites, in order to serve capacity needs. For interconnection purposes, the network numbered seven switched access
interconnection sites to the Public Switched Telephone Network operated by OTE,
six switched access interconnection sites with Panafon-Vodafone and six
switched access interconnection sites with Cosmote. To handle international
traffic, connections with OTE and other international carriers are in place. Network Quality Capacity. Pursuant to the terms of our license, we were allocated 10 Mhz in
the 890 and 900 Mhz frequency band and 10 Mhz in the 935 and 945 Mhz frequency
band. We intend to maximize the use of our current spectrum allocation in the
short term by adding more BTSs. We also use the existing - 26 -




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technology to optimize the radio network by activating all the appropriate BSS
radio features and reusing spectrum in a more convenient way such as by
installing microcells in order to increase capacity. We are now selectively
expanding the quality and capacity of our network in urban areas by adding
infrastructure to improve quality and in-building coverage and expand capacity. On August 6, 2001, we entered into a concession agreement with the Greek
authorities and were granted a fifteen-year license to operate a DCS 1800
network as well as a twenty-year license to operate a UMTS network in Greece.
These licenses authorize us to establish and operate a mobile
telecommunications network in the GSM 1800 MHz band, as well as in the special
range of 2 x 10 MHz (Frequency Division Duplex, or FDD) + 5 MHz. (Time Division
Duplex, or TDD) for UMTS. UMTS is a high-speed standard for 3G mobile
telecommunications which allows us to provide an extensive range of new
services, including mobile multimedia, video telephony and high-speed Internet
access. Under the terms of these licenses, any transfer of paid-in-capital of 2.0% or
more must be notified to the NTPC. The licenses are not transferable within a
nine-month period from the date of issuance and are not transferable without
the prior written consent of the NTPC. If transferred, the new owner is
required to pay to the NTPC the difference between the concession fee paid at
the competitive tender for a similar license and the fee charged to us. The UMTS license is subject to a number of commercial and technical conditions.
It requires that we meet certain coverage and technical criteria and attain
Greek population coverage of at least 25.0% at the end of 2003 and 50.0% at the
end of 2006. The UMTS license also requires coverage of the Olympic Games
facilities, venues and main connecting routes in the Attica region by June
2004. We have met the population coverage requirement and the Olympic sites are
expected to be covered by the June 2004 deadline pending permission for access
to the Olympic sites. We are also required to pay the NTPC by June 30 of each
year a commission fee not to exceed 0.5% of the prior years gross revenue from
telecommunications services provided to subscribers. Regulatory environment.In February 2003, the NTPC handed down a decision,
which declared that Panafon-Vodafone and Cosmote had significant market
power, or SMP, in the interconnection market, requiring the companies to set
their termination interconnnection tariffs based on their costs associated with
these terminations. In March 2003, STET Hellas, together with Panafon-Vodafone
and Cosmote, was designated by the NTPC as having SMP in the mobile market,
implying that the companies are obligated to institute non-discriminatory
interconnection termination tariffs regardless of whether the interconnections
originated from a fixed or a mobile network. Although we proceeded with
reducing the interconnection rate for fixed-to-mobile call termination,
following the relevant guidelines set by NTPC, we petitioned at the Council of
State against this SMP classification on the grounds that the market conditions
for determining such a notification have not differed significantly since last
year, when we were exempt from the SMP in the mobile market notification. See
Item 5. Operating and Financial Review and Prospects - Overview -
Interconnection Fees. Mobile Number Portability, the ability for customers to retain their assigned
mobile telephone numbers when changing the subscription from one mobile network
operator to another mobile network operator, was applied in Greece on March 1,
2004, as foreseen by the relevant NTPC legislation. According to this same
legislation, fixed-line number portability, the ability for customers to retain
their assigned fixed-line - 27 -




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telephone numbers when changing the subscription from one fixed-line network
operator to another fixed-line network operator, will be delayed for a period
of six months. In line with regulatory requirements, the numbering plan change, which
increased the number of digits necessary to place a telephone call, was
successfully implemented for fixed telephone numbers on November 3, 2002, and
for mobile telephone numbers on January 19, 2003. Additionally, the European Union issued a new regulatory framework requiring
its implementation by all member states by July 2003. According to this
framework, new mobile telecommunication market segments should be notified in
each member state and will most likely lead to a substantial reduction in
mobile termination interconnection rates, amongst others. Greece has not yet
implemented the new regulatory framework, and the Government launched a Public
Consultation in late-November 2003 on a draft new Law on Electronic
Communications, in accordance with the obligation to implement this new
regulatory package, expected to be implemented within 2004. However, the recent
change in Government is likely to further postpone this implementation, and
until the new law is in force, the NTPC is acting according to the existing
legislation. Success Rates. We regularly monitor our network quality via various
performance indicators. The performance of the network depends on a number of
factors, such as whether the network has sufficient capacity to meet the volume
of traffic generated by our customers (congestion), interference on the cells
and specific, seasonal network problems. A set of common network performance
indicators was introduced in 2003, to be in-line with our major shareholder
TIM, the most important of which are the network accessibility and the
dropped call rate. Network accessibility refers to calls that did not fail:
failed calls arise in circumstances where access to the network is not
available because all traffic channels are busy blocked calls, while the
dropped call rate refers to calls that are involuntarily terminated (dropped
calls). The dropped call rate depends on the performance of our network, as
well as on the performance of the networks of the other providers with which we
interconnect in the case of non-STET to STET calls. During 2003, we had, in
yearly total, a network accessibility percentage of 98.9% and a dropped call
rate of 1.18%. Network Development Plan and Investments Our network deployment strategy focuses on the expansion of our existing
network in order to meet increasing traffic demands, improve network
performance, enrich our services portfolio and meet regulatory requirements. More specifically, emphasis is given to the GSM network deployment, especially
in Athens, Thessaloniki, Patra and other major cities or areas of tourist
interest, in order to increase network capacity and coverage. Micro-cell
solutions continue to be deployed in order to ease congestion in certain parts
of the network, particularly in Athens where traffic demand continues to
increase. We followed a conservative approach to our UMTS network deployment,
and in accordance with our UMTS license requirements, in view of the current
technology uncertainties and unclear uptake of high-speed data services.
Nevertheless we are continuing to pursue a common GSM/UMTS site acquisition
plan to provide alternatives on site availability and a more flexible UMTS
rollout, depending also on market demands and competition developments. - 28 -




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We also continue to invest in our network infrastructure to improve its
performance, to increase the percentage of revenues from foreign roamers, and
to introduce value-added services based on new technological solutions, such as
Multimedia Messaging Services, or MMS. The growth in our customer base and
traffic during 2003 required continued capital investments such as the
expansion of network capacity and coverage, especially in dense, urban areas,
and the installation of additional network nodes. In early January 2003, we leased a Fixed Wireless Access, or FWA, license from
EUROPROM S.A., which enables us to provide fixed telephony services by using 25
GHz microwave links (Local Multi-point Distribution System or LMDS) for the
last-mile connection. We deployed nine LMDS base stations in Athens and
Thessaloniki to enable us to provide fixed telephony services to a minimum of
20% of the population by end of 2003, as required by the terms of the license.
By using the FWA license we will also provide end-to-end leased lines and fixed
outgoing telephony to business customers, as well as BTS and node Bs
connectivity. In 2003, we also deployed a 40km fiber optic ring network in the Athens
metropolitan area, which will improve the network quality and increase the
transmission network capacity, especially due to the UMTS network deployment
and the Athens 2004 Olympic Games. The new optical network provides increased
capacity, protection against severe weather conditions and 3rd party
interference. Regarding UMTS, we have deployed the first phase of our UMTS network rollout,
which is currently extended to the Athens metropolitan area, Thessaloniki,
Herakleion and Patra, in accordance with our UMTS license requirements to have
at least 25% population coverage by end of 2003. The UMTS services have been
provided to a selected group of users for evaluation in the last quarter of
2003, while we have been the first operator in Greece who has commercially
launched UMTS services in January 2004. Additionally, the business support
systems such as billing and mediation platforms are being developed in order to
support new 2.5G data services, their migration to 3G and also their
compatibility with future UMTS services. In 2004, the network preparation for the Athens 2004 Olympic Games is
strategically important for us, as are our obligations as a member of the
mobile alliance established in 2003 between Orange S.A., Telefonica Moviles,
TIM and T-Mobile. A number of projects involving all parts of the network are
ongoing aiming to offer increased capacity, network redundancy, new value added
services and improved quality. We estimate that our capital expenditure associated with the rollout of our
UMTS network and our GSM 900/DCS 1800 network, including network equipment and
related information, will be in the range of 400 to 450 million through the
end of 2006. We expect our funding requirements to be covered primarily by
operational cash flows from our 2G/3G business. Network Construction We purchase approximately 100% of our GSM core network equipment (switching
equipment software and hardware) from Ericsson Hellas S.A. Our radio network
equipment (BSCs, BTSs, operation support systems and cross connect systems
equipment) is completely based on Ericsson Hellas S.A. and Siemens products.
More specifically, we have purchased the majority of our network equipment
(including 11 MSCs, 18 BSCs and 1,344 BTSs) from Ericsson and subsequently from
Ericsson Hellas S.A. We have - 29 -




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also purchased eight BSCs and 191 BTSs, accounting for approximately 14.0% of
our network from Italtel Società Italiana Telecommunicazioni S.p.A., or
Italtel, and subsequently from Siemens. Approximately 80.0% of our transmission
equipment is also provided by Siemens, whereas some microwave systems are
provided by SIAE Microelettronica S.p.A. and the cross-connect nodes from
Ericsson Hellas S.A.. In addition, in December 2001, we entered into an
agreement with Alcatel Hellas S.A. for the supply and installation of our ATM
network deployment, as well as the relevant support therefor. Furthermore, in connection with our UMTS network deployment and more
specifically the first phase of our 3G network rollout, we have entered into a
contractual agreement for the purchase of, radio and core network
infrastructure equipment exclusively from Nokia OYJ. We were party with Ericsson to a Supply and Installation Agreement. Pursuant
to this arrangement, Ericsson supplied us with GSM network hardware and
software and installed the hardware and software provided. All equipment
provided by Ericsson had a warranty for twelve months after acceptance or 18
months after delivery for discoverable defects and for the term of their
working life against any malfunction due to hardware or software design. In
February 2000, we entered into an Assignment and Assumption Agreement with
Ericsson and Ericsson Hellas S.A., whereby Ericsson assigned, conveyed and
transferred to Ericsson Hellas S.A. all its rights and obligations arising out
of or related to the Supply and Installation Agreement. In cooperation with
Telecom Italia, we have negotiated a uniform pricing plan in connection with
all products we purchase from Ericsson. We were also party to a Supply Agreement for GSM equipment and associated
software with Italtel, an affiliate of Siemens. All equipment provided by
Italtel under this Supply Agreement had a warranty for twelve months after
delivery for discoverable defects and for the term of their working life
against any other malfunction. Italtel was a joint venture between Telecom
Italia, an affiliate of ours, and Siemens. Effective November 1, 1999 and
based on an agreement between Telecom Italia and Siemens, the activities of
Italtel relating to the operation of radio systems, transport and mobile
networks for telecommunications were transferred to Siemens while Telecom
Italia took over the activities relating to fixed network, telephony, data and
image systems. Consequently, Siemens assumed the control of Italtel Hellas
S.A., a subsidiary of Italtel, primarily engaged in the assembling of GSM
network equipment. We are party to a Supply Agreement with NOKIA OYJ. Pursuant to this
arrangement, NOKIA OYJ supplied us with UMTS network hardware and software. All
equipment provided by NOKIA OYJ has a warranty for twenty four months from the
delivery or the start of the commercial use of the equipment, whatever occurs
first. The warranty covers the hardware and the software for vices, defects,
irregularities and mistakes in any equipment or part of it. We are party with
NOKIA Hellas to an Installation, Integration and Relevant Services Agreement.
Pursuant to this arrangement, NOKIA Hellas provides us the installation and
integration of equipment software and related services in relation to our
network rollout. - 30 -




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Maintenance of Network We maintain a network management center, or NMC, in Athens capable of
around-the-clock monitoring, a regional management center, or RMC, in
Thessaloniki, as well as two local management centers, or LMCs, in Patra and
Herakleion, to monitor the performance of our network. Our suppliers are obliged to provide spare parts for a period of ten years
following the date of commercial acceptance of the relevant product. In
addition, Ericsson Hellas S.A. and Siemens are obliged to provide us with
relevant upgrades for the software and hardware supplied. Both Ericsson Hellas
S.A. and Siemens warrant their equipment for twelve to eighteen months after
the date of commercial acceptance of the relevant equipment and provide
maintenance and training to our employees. With the introduction of UMTS
technology in our network, similar obligations exist with our UMTS supplier,
Nokia. We also maintain relevant support agreements with all our suppliers, mainly for
the provision of second line corrective maintenance and card repair services.
The preventive and corrective maintenance activities related to power systems,
air-conditioning systems, as well as to antenna systems and metallic structures
have been outsourced to Siemens. Handsets and Accessories We obtain our handsets from a variety of suppliers, including Sony Ericsson,
Nokia, Siemens, Motorola, Samsung, Alcatel and Panasonic. Competition We are currently one of four operators licensed to provide mobile
telecommunications services in Greece, and one of three operators licensed to
provide national GSM services in the 900 Mhz frequency band and UMTS services
in Greece. Panafon-Vodafone, one of our principal competitors in the Greek GSM market, is
a subsidiary of the Vodafone Group PLC, a UK mobile telecommunications company.
Our other main competitor in the Greek GSM market is Cellular Operating System
of Mobile Telecommunications S.A., or Cosmote, a subsidiary of OTE (the
incumbent fixed-line telecommunications operator in Greece). Cosmote provides
mobile telecommunications services mainly using DCS 1800 technology and
commenced commercial services in July 1998. We compete with Panafon-Vodafone principally on the basis of the price of
services, the range of services offered and the quality of customer care. We
offer a number of differentiated tariff packages and social, entertainment and
information related value-added services, such as Telestet OnLine services &
Telestet WAP services, the Personal Mobile Guide, professional voice mail,
real-time stock trading on the Athens Stock Exchange, TELESTET Mobile
Organizer, TELESTET Finder, SMS location-based service, Call Attempt
Notifier, GPRS services and MMS services, including dating service, weather
forecasts, video news, personal message composer and movies information.
Management believes that these value-added services and tariffs help to
increase customer recognition of our TELESTET brand and consequently our newly
established TIM brand, as a technological innovator and that they offer us a
competitive advantage. - 31 -




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We compete with Cosmote principally on the basis of the price of services, the
range of services offered and the quality of customer care. Management
believes that Cosmote may be able to benefit from its relationship with its
shareholders, including from the brand recognition associated with its
principal shareholder OTE. Additionally, Infoquest S.A., or Infoquest, a Greek information technology
company, has been operating under the brand name Q-Telecom since June 2002,
after it was granted a DCS 1800 license by the Greek National
Telecommunications and Postal Commission, or NTPC. Infoquest operates a Mobile
Virtual Network Operator, or MVNO, type business model roaming on
Panafon-Vodafones network. Description of Property We rent our headquarters in Athens and sales offices in Patra and Thessaloniki,
and we own the buildings in which we have installed our MSCs in Athens (in the
suburbs of Philadelphia and Peristeri), Thessaloniki, Patra, Larissa, Kavala
and Crete, as well as a building which functions both as a switching center and
an office in the Attica area of Greece. We also lease substantially all of the
sites where our mobile telecommunications network equipment is installed. As of
December 31, 2003, we had 1,535 GSM sites and 210 UMTS sites, which were leased
for a term of nine years and automatically renewable thereafter for an
additional three or nine years: three years is typical for urban sites and nine
years for rural sites. In addition, we rent the premises of 27 directly
managed Telestet Center (recently re-branded to TIM) retail stores throughout
Greece. For a description of our equipment, see Network and
FacilitiesNetwork Infrastructure and Network Construction. - 32 -




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Item 5. Operating and Financial Review and Prospects The following discussion should be read together with Item 18. Financial
Statements and the notes thereto included elsewhere in this Form 20-F. The
financial statements, and the related financial information set forth in this
section, have been prepared in accordance with U.S. GAAP. Overview The following discussion and analysis of our financial condition and results of
operations should be considered in light of the following specific factors: Competition We compete principally with Panafon-Vodafone, Cosmote and Infoquest.
Competition for contract customers, especially for high-yield business and
bundled-minutes based customers, has and may continue to force us to take
measures that raise our customer acquisition and retention costs while
competition for pre-paid customers might lead us into entering into further
price reductions. Interconnection Fees Since we commenced our operations in 1993, we have been obliged to pay an
interconnection fee to OTE to enable our customers to initiate calls to and
through OTEs fixed line network. On January 22, 2002, following the settlement
of a dispute regarding interconnection fees with OTE, we entered into an
agreement with OTE, together with Panafon-Vodafone and Cosmote, that addressed
all outstanding issues. In particular, according to the agreement, the mobile
to fixed interconnection tariffs would be in accordance with NTPC decisions.
The fixed to mobile interconnection tariffs were agreed at 0.27 per minute for
the year 2002. The parties also agreed to withdraw all their legal claims
pending before the courts regarding the fixed to mobile interconnection
differences. On March 15, 2002, the NTPC handed down a decision, which
declared that Panafon-Vodafone and Cosmote had significant market power in the
mobile market. In response to this decision, on May 15, 2002 we reduced our
fixed to mobile interconnection tariff from 0.27 to 0.25 per minute. On
August 1, 2002, we set the fixed to mobile interconnection tariff from 0.25 to
0.23 per minute, introducing minimum call duration of sixty seconds per call. In February 2003, the NTPC handed down a decision, which declared that
Panafon-Vodafone and Cosmote had significant market power, or SMP in the
interconnection market, requiring the companies to set their termination
interconnection tariffs based on their costs associated with these
terminations. In March 2003, STET Hellas, together with Panafon-Vodafone and
Cosmote, was designated by the NTPC as having SMP in the mobile market,
implying that the companies are obligated to institute non-discriminatory
interconnection termination tariffs regardless of whether the interconnections
originated from a fixed or a mobile network. In-line with the national
regulator guidelines, we reduced our fixed to mobile interconnection tariff in
July 2003, from 0.23 per minute to 0.21 per minute, maintaining a minimum
call duration of sixty seconds per call, while in October 2003 we further
reduced our fixed to mobile interconnection tariff from 0.21 to 0.20,
decreasing the minimum call duration to thirty-two seconds per call. Minimum
call duration decreased further to thirty seconds per call from January 1,
2004, while from April 1, 2004, we once more reduced the fixed-to-mobile
interconnection tariff from 0.20 per - 33 -




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minute to 0.18 per minute, maintaining the minimum call duration at thirty
seconds per call. We apply the same fixed to mobile interconnection tariffs to
all new alternative carriers of fixed telephony that have an interconnection
agreement with us. In addition, in January 2002 in accordance with regulations of the NTPC, mobile
telecommunications operators in Greece moved from a bill and keep
interconnection regime (wherein the operator of the network in which the call
is initiated is entitled to retain the entire amount charged for the call) to
an interconnection regime whereby mobile operators charge other mobile
operators for calls terminating on their network. Accordingly, our airtime
revenues, as well as operating costs increased during the period. Furthermore, on April 1, 2004, all four Greek mobile operators entered into an
agreement to introduce SMS interconnection whereby mobile operators charge each
other for SMSs terminating to their network. SMS interconnection rates between
us, Panafon-Vodafone and Cosmote have initially been set to 0.03 per SMS.
Regarding SMS interconnection with Q-Telecom, it was agreed that Q-Telecom
would pay 0.03 per SMS terminating on ours, Panafon-Vodafones and Cosmotes
network, while they would receive 0.0355 for all SMS terminating on their
network, for a period of one year. Customer Growth Our customer base grew by 17.7% in 2002 and 29.8% in 2001. In 2003 our customer
base decreased by 4.4%, mainly as a result of the change in the disconnection
cycle for prepaid customers. The table below sets forth, for the periods indicated, selected customer data
for our business. At or for the year ended December 31,2001
    
    2002
    
    2003Customers at beginning of period
    
    
    1,645,392
    
    
    
    2,135,338
    
    
    
    2,513,642Total new activations
    
    
    988,819
    
    
    
    1,126,865
    
    
    
    998,291Total disconnections
    
    
    (498,873
    )
    
    
    (748,561
    )
    
    
    (1,109,156
    )Customers at end of period
    
    
    2,135,338
    
    
    
    2,513,642
    
    
    
    2,402,777Of which:Contract customers
    
    
    662,763
    
    
    
    767,916
    
    
    
    817,914Prepaid customers
    
    
    1,472,575
    
    
    
    1,745,726
    
    
    
    1,584,863Customer growth (%)
    
    
    29.8
    
    
    
    17.7
    
    
    
    (4.4
    )Churn (%) (1)
    
    
    26.7
    
    
    
    32.8
    
    
    
    41.6
   (1)
    
    Churn is calculated by dividing the total number of deactivations
(including customers who deactivate and reactivate with us with a
different number) for the year by the average number of customers for the
year. Customer decline in 2003 was the result of negative 160,863 net prepaid
customers additions  due to the cancellation of 382,051 prepaid customers at
the last day of the year resulting from the introduction of a shorter prepaid
disconnection cycle- as well as 49,998 net new contract customers. Total
traffic minutes increased by 27.8% in 2003, as compared to 2002, reaching
approximately 2.7 billion minutes. The increase in average monthly minutes in
2003 versus 2002 was approximately 9.4% as a result of our strategy to focus on
more profitable market segments that resulted in a higher proportion of
higher-traffic contract customers, like business and bundled-minutes based
customers, in our contracts customer base. - 34 -




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Customer Segmentation Our strategy is to develop and reinforce customer segmentation by providing a
broad range of focused and customized services and products aimed at attracting
profitable customers, increasing efficient usage of our network, and
maintaining customer loyalty. In connection therewith, we have introduced
various differentiated tariff plans and our prepaid service. As a result of
new tariff plans and the introduction of prepaid service, a significant number
of our customers migrated to tariff plans that better suited their needs or to
prepaid services. Our revenues from telecommunications services are principally a function of the
average number of customers, the pattern of usage of those customers and the
tariffs we charge for our services. Continued customer and traffic volume
growth will depend on a number of factors, including pricing and the
availability of new services, as well as general economic conditions, the
overall mix of our customers and the level of competition for obtaining new
customers. Management expects that our revenues from telecommunications
services will continue to grow as our customer base expands, though at a slower
pace due to the fact that the mobile telecommunications market in Greece is
approaching saturation, and it is likely that, as the portion of high-end,
high-yielding business and residential customers in our total customer base
continues to grow, the average monthly minutes of use per customer will
continue to increase. Results of Income for the Years Ended December 31, 2003, 2002 and 2001 The accounts previously issued in Greek drachma have been restated using the
euro as the reporting currency. The conversion rate effective on December 31,
2002 was the rate of drachmas 340.750 per 1.00 euro. The financial statements
as reported in euro depict the same trends as would have been presented if we
had continued to present financial statements in drachma. Certain
reclassifications have been made to the presentation of the 2001 and 2002
financial statements to conform to those of 2003. Operating Revenues Our operating revenues consist of revenues from telecommunications services and
sales of handsets and accessories. Our revenues from telecommunications
services consist primarily of monthly service fees and airtime revenues.
Airtime revenues include revenues from outgoing calls, incoming calls from
fixed line networks, sales of prepaid airtime cards (including the prepaid
airtime), incoming calls from other mobile operators networks, roaming
revenues from calls made by customers of international GSM network operators
while traveling in Greece and calls made or received by our customers outside
Greece using another GSM network. We also derive operating revenues from sales of handsets and accessories. We
sell handsets and accessories to our independent distributors at cost, for
on-sale to our contract customers, and directly to our contract customers at a
discount to cost through our direct sales force and at our directly owned
Telestet Center retail stores. Our independent distributors also acquire
handsets from other sources for sale to our contract customers. In addition,
since a portion of the retail price of the prepaid package is included in
revenues from telecommunications services, revenues attributable to handsets
included in prepaid packages are lower than the cost of such handsets to us.
We sold 232,230 handsets directly to contract customers and to master dealers
in 2003, 132,313 in 2002 and 111,843 in 2001 respectively, - 35 -




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which corresponded to approximately 64.0%, 35.8%, and 29.0% of gross contract
customer additions in 2003, 2002 and 2001, respectively. The table below sets forth, for the periods indicated, each major component of
total operating revenues. Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    (in thousands)Operating revenues:Monthly service fees
    
    
    61,316
    
    
    
    80,034
    
    
    
    102,281Airtime revenues:Outgoing calls
    
    
    103,930
    
    
    
    136,184
    
    
    
    164,211Incoming calls from fixed line networks
    
    
    152,263
    
    
    
    167,932
    
    
    
    123,473Incoming calls from other mobile operators networks
    
    
    
    
    
    
    64,556
    
    
    
    119,397Prepaid airtime cards(1)
    
    
    121,051
    
    
    
    140,269
    
    
    
    153,292Roaming revenues from our customers
    
    
    11,211
    
    
    
    12,512
    
    
    
    15,028Roaming revenues from customers of international GSM network operators
    
    
    29,392
    
    
    
    30,187
    
    
    
    36,955Total airtime revenues
    
    
    417,847
    
    
    
    551,640
    
    
    
    612,356Data communications
    
    
    24,170
    
    
    
    32,008
    
    
    
    42,684Other(2)
    
    
    1,468
    
    
    
    2,771
    
    
    
    4,613Total revenues from telecommunications services
    
    
    504,801
    
    
    
    666,453
    
    
    
    761,934Revenues from the sales of handsets and accessories
    
    
    18,956
    
    
    
    23,878
    
    
    
    46,606Total operating revenues
    
    
    523,757
    
    
    
    690,331
    
    
    
    808,540
   (1)
    
    Includes revenues from the sale of prepaid airtime renewal cards and
prepaid airtime, net of discounts allowed, included in prepaid packages
used as of the end of the period.(2)
    
    Includes connection fees associated with certain value-added services,
including data transmission services. Total operating revenues increased by 17.1% in 2003, as compared to 2002. This
was primarily a result of the combined effect of two factors. First, we had a
14.3% increase in revenues from telecommunication services, including the
mobile-to-mobile interconnection related revenues and increased revenues from
outgoing traffic, as a result of a higher portion of high-yielding customers in
our customer base and higher outgoing traffic. Secondly, we had a 95.2%
increase in revenues from the sales of handsets and accessories mainly due to
the expansion of our direct distribution channel and the higher number of
terminal upgrades. Total operating revenues increased by 31.8% in 2002, as compared to 2001. This
was primarily a result of the combined effect of two factors. First, we had a
32.0% increase in revenues from telecommunication services, including the
introduction of mobile-to-mobile interconnection payments in January 2002 and
increased revenues from outgoing traffic partially as a result of a higher
portion of high-yielding customers in our customer base. Secondly, we had a
26.0% increase in revenues from the sales of handsets and accessories. Monthly service fees increased by 27.8% in 2003 as compared to 2002, and
increased by 30.5% in 2002 as compared to 2001. The increase in monthly
services fees in 2003 and in 2002 was primarily due to the further contribution
of bundled-minutes based customers to the growth of our customer base. Total
airtime revenues increased by 11.0% in 2003 compared to 2002, and by 32.0% in
2002 compared to 2001. Revenues from outgoing calls (which exclude prepaid
airtime card revenues) increased by 20.6% in 2003 - 36 -




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compared to 2002, by 31.0% in 2002 compared to 2001, and by 13.2% in 2001, as
compared to 2000. The increase in 2003 and in 2002 was mainly due to a growing
contracts customer base and the increase in outgoing traffic of contract
customers. Revenue from prepaid airtime cards (including the prepaid airtime
included in prepaid packages when purchased) was 153.3 million in 2003
increasing by 9.3%, as compared to 2002, and by 15.9% in 2002 compared to 2001.
If the revenues from prepaid airtime cards, which relate solely to outgoing
calls, are added to the airtime revenues from contracts outgoing calls, the
percentage increase in 2003, compared to 2002, amounts to 14.8% and in 2002
compared to 2001, to 22.3%. Revenues from incoming calls from fixed line networks decreased by 26.5% in
2003, compared to 2002, due to decreased fixed to mobile interconnection
tariffs and the decrease in incoming traffic from fixed line networks. Revenues from incoming calls from other mobile operators increased by 85.0% in
2003 to 119.4 million, compared with 64.6 million in 2002, mainly as a
result of increasing mobile-to-mobile interconnection traffic and increasing
mobile-to-mobile interconnection tariffs. More specifically, the interconnection rate for incoming calls from
Panafon-Vodafone and Cosmote was 0.18 per minute for the period from January
1, 2003 to September 30, 2003 and 0.18 and 0.19 per minute respectively with
30 seconds minimum call duration for the period from October 1, 2003 to
December 31, 2003. The interconnection rate for incoming calls from Q-Telecom
was 0.20 per minute for the period from January 1, 2003 to January 25, 2003 ,
0.20 per minute with 50 seconds minimum call duration for the period from
January 26, 2003 to September 30, 2003 and 0.18 per minute with 30 seconds
minimum call duration for the period from October 1, 2003 to December 31, 2003. Total roaming revenues increased by 21.7% in 2003, as compared to 2002, and
increased by 5.2% in 2002, as compared to 2001. More specifically, roaming
revenues from customers of other operators traveling in Greece increased by
22.4% in 2003, as compared to 2002, and increased by 2.7% in 2002, as compared
to 2001. Roaming revenues generated by our customers traveling outside Greece
increased by 20.1% in 2003, as compared to 2002, and increased by 11.6% in
2002, as compared to 2001. We impose a surcharge of 20.0% of the amount charged
by a GSM network operator in another country to our customers using the
services of that operator. Revenues from the sales of handsets and accessories increased by 95.2% in 2003,
as compared to 2002, due to higher number of terminal upgrades and activations
with terminal purchase from our direct distribution channel, and increased by
26.0% in 2002, as compared to 2001. Cost of Sales and Services Provided Cost of sales and services provided consists of cost of services provided and
cost of handsets and accessories. Cost of services provided consists primarily
of interconnection charges payable to OTE, fixed line operators,
interconnection charges payable to other mobile operators, payroll costs
associated with the expansion of the network, leased line charges payable to
fixed line operators, roaming charges payable to international GSM network
operators for use of their networks, and depreciation of the cost of our GSM
network related equipment. Cost of handsets and accessories also includes the
cost of packaging and certain promotional materials associated with sales of
handsets. - 37 -




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The table below sets forth, for the periods indicated, our total cost of sales
and services provided broken down by major components and expressed as a
percentage of total operating revenues. Year ended December 31,2001
    
    2002
    
    2003
    
    %
    
    
    
    %
    
    
    
    %(in thousands, except percentages)Cost of sales and services provided:Interconnection charges payable to fixed line operators
    
    
    44,748
    
    
    
    8.5
    
    
    
    37,058
    
    
    
    5.4
    
    
    
    20,726
    
    
    
    2.6Interconnection charges payable to other mobile operators
    
    
    
    
    
    
    
    
    
    
    62,186
    
    
    
    9.0
    
    
    
    118,380
    
    
    
    14.6Roaming charges from international GSM network operators.
    
    
    11,536
    
    
    
    2.3
    
    
    
    13,634
    
    
    
    1.9
    
    
    
    13,342
    
    
    
    1.7Depreciation of network equipment (1)
    
    
    61,277
    
    
    
    11.7
    
    
    
    53,881
    
    
    
    7.8
    
    
    
    65,175
    
    
    
    8.1Leased line charges payable to fixed line operators
    
    
    6,258
    
    
    
    1.2
    
    
    
    3,305
    
    
    
    0.5
    
    
    
    2,970
    
    
    
    0.4Payroll
    
    
    12,307
    
    
    
    2.3
    
    
    
    12,242
    
    
    
    1.8
    
    
    
    14,611
    
    
    
    1.8Other (2)
    
    
    13,971
    
    
    
    2.7
    
    
    
    17,271
    
    
    
    2.5
    
    
    
    19,366
    
    
    
    2.4Total cost of services provided
    
    
    150,097
    
    
    
    28.7
    
    
    
    199,577
    
    
    
    28.9
    
    
    
    254,570
    
    
    
    31.5Cost of sales of handsets and accessories
    
    
    45,295
    
    
    
    8.6
    
    
    
    53,175
    
    
    
    7.7
    
    
    
    76,850
    
    
    
    9.5Total cost of sales and services provided
    
    
    195,392
    
    
    
    37.3
    
    
    
    252,752
    
    
    
    36.6
    
    
    
    331,420
    
    
    
    41.0
   (1)
    
    Includes depreciation of computer software and hardware related to our
GSM network and the buildings in which this equipment is located.(2)
    
    Includes the cost of utilities providing electrical power to, and fuel
needed for the operation of, our BTS sites and the cost of purchasing SIM
cards. Total cost of sales and services provided increased by 31.1% in 2003, as
compared to 2002. This was primarily a result of the combined effect of two
factors. First, we had a 27.6% increase in cost of services provided, including
the mobile-to-mobile interconnection related costs. Secondly, we had a 44.5%
increase in cost of sales of handsets and accessories mainly due to the
expansion of our direct distribution channel and the higher number of terminal
upgrades. Total cost of sales and services provided increased by 29.4% in 2002, as
compared to 2001. This was primarily a result of the combined effect of two
factors. First, we had a 33.0% increase in cost of services provided, including
the introduction of mobile-to-mobile interconnection payments. Secondly, we had
a 17.4% increase in cost of sales of handsets and accessories. Interconnection charges payable to fixed line operators decreased by 44.1% in
2003, as compared to 2002, mainly due to the fact that on April 2003 the
administrative fee payable to OTE for calls originated from its network was
eliminated, as well as due to the rerouting of international traffic through
alternative carriers. Interconnection charges payable to fixed line operators
decreased by 17.2% in 2002, as compared to 2001. As a percentage of total
revenues from telecommunications services, these interconnection charges were
2.6% in 2003, as compared with 5.4% in 2002 and 8.5% in 2001. The decrease of
interconnection charges in 2002 and 2001 primarily reflects the rerouting of
international traffic through alternative carriers. Interconnection charges payable to other mobile operators were 118.4 million
in 2003, increasing by 90.4% compared to 2002, mainly due to the increase in
the outgoing traffic and to the change in the interconnection tariffs in 2003. More specifically, the interconnection rates for termination to
Panafon-Vodafones and Cosmotes networks were 0.18 per minute for the period
from January 1, 2003 to September 30, 2003 and 0.18 per - 38 -




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minute with minimum call duration 30 seconds for the period from October 1,
2003 to December 31, 2003. The interconnection rate for termination to Q-Telecoms network was 0.25 per
minute for the period from January 1,2003 to February 20, 2003, 0.21 per
minute with minimum call duration 60 seconds for the period from February 21,
2003 to September 30, 2003 and 0.23 per minute with minimum call duration 30
seconds for the period from October 1,2003 to December 31, 2003. Roaming charges payable to other operators as a percentage of total operating
revenues were slightly lower at 1.7% in 2003, as compared to 1.9% in 2002, and
to 2.3% in 2001. Depreciation as a component of cost of services provided increased by 21.0% in
2003, as compared to 2002, mainly as a result of the continued build-out of our
GSM network. Depreciation as a component of cost of services provided
decreased by 12.1% in 2002, as compared to 2001, mainly as a result of the
reassessment of our allocation of telecommunication systems and equipment
between cost of services provided and selling, general and administrative
related assets. Leased line charges payable to fixed line operators decreased by 10.1% in 2003,
as compared to 2002, mainly due to the implementation of OTEs 2002 Reference
Interconnection Offer that resulted in a credit note from OTE. Leased line
charges payable to OTE decreased by 47.2% in 2002, as compared to 2001, due to
credit notes received from OTE following the determination of a dispute in
January 2002, regarding interconnection fees with OTE and a settlement
agreement with OTE thereof that addressed all pending issues. Cost of sales of handsets and accessories increased by 44.5% in 2003 to
76,850,289 due to increased sales of handsets and accessories versus the
previous year as a result of the expansion of our direct distribution channel.
Cost of handsets and accessories increased by 17.4% in 2002 to 53,174,740,
compared to a decrease by 41.1% to 45,295,338 in 2001. The increase in the
cost in 2002 was mainly due to the increased sales of handsets and accessories
versus the previous year. The decrease in 2001 was primarily due to a change in
our policy to focus on prepaid SIM cards sales rather than prepaid packages
with handsets. Gross Profit Gross profit was 477,120,037, 437,579,213 and, 328,364,989 in 2003, 2002 and
2001 respectively. Our gross margin (gross profit as a percentage of operating
revenues) was 59.0% in 2003, 63.4% in 2002 and, 62.7% in 2001. The decrease in
gross margin from 2002 to 2003 was primarily due to the increase of mobile to
mobile interconnection costs and to the higher cost of sales of handsets and
accessories. The increase in gross margin from 2001 to 2002 was primarily due
to the decrease in 2002 of leased lines costs and the interconnection charges
from OTE. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of:  
    
    Commissions and other payments payable to our master dealers; - 39 -




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
    
    Management fees payable to TIM and/or its affiliates, for technical and other expertise
provided to us;  
    
    Advertising expenses, including marketing expenses relating to billboards, television and
other media and marketing expenses incurred with our independent distributors;  
    
    Payroll expenses not associated with our network;  
    
    Depreciation and amortization, including depreciation of fixed assets other than those
associated with GSM network equipment and amortization of the GSM licenses on a straight line
basis over the term of the licenses; and  
    
    Repair and maintenance expenses associated with our GSM network. The table below sets forth, for the periods indicated, our selling, general and
administrative expenses broken down by major components and expressed as a
percentage of total operating revenues. Year ended December 31,2001
    
    2002
    
    2003
    
    %
    
    
    
    %
    
    
    
    %(in thousands, except percentages)Selling, general and administrative expenses:Commissions to dealers
    
    
    79,143
    
    
    
    15.1
    
    
    
    102,106
    
    
    
    14.8
    
    
    
    103,724
    
    
    
    12.9Management fees
    
    
    14,698
    
    
    
    2.8
    
    
    
    14,021
    
    
    
    2.0
    
    
    
    15,349
    
    
    
    1.9Advertising expenses
    
    
    15,576
    
    
    
    3.0
    
    
    
    13,024
    
    
    
    1.9
    
    
    
    17,155
    
    
    
    2.1Payroll expenses
    
    
    24,898
    
    
    
    4.8
    
    
    
    30,980
    
    
    
    4.5
    
    
    
    34,161
    
    
    
    4.2Depreciation and amortization
    
    
    27,029
    
    
    
    5.2
    
    
    
    42,648
    
    
    
    6.2
    
    
    
    43,606
    
    
    
    5.4Repair and maintenance expenses
    
    
    25,687
    
    
    
    4.9
    
    
    
    30,182
    
    
    
    4.4
    
    
    
    30,015
    
    
    
    3.7Other (1)
    
    
    47,922
    
    
    
    9.1
    
    
    
    65,279
    
    
    
    9.4
    
    
    
    59,127
    
    
    
    7.3Total selling, general and administrative expenses
    
    
    234,953
    
    
    
    44.9
    
    
    
    298,240
    
    
    
    43.2
    
    
    
    303,137
    
    
    
    37.5
   (1)
    
    Includes fees paid to consultants, legal advisers and other third
parties, provision for litigation and claims, utilities and lease payments
other than those associated with our GSM network equipment, Asset
Retirement Obligation (ARO) related expenses, and other administrative
expenses. Commissions to dealers consist of commissions and other payments to our
independent distributors, including our contribution to cooperative advertising
with our independent distributors. Commissions and other payments to our independent distributors marginally
increased by 1.6% in 2003, as compared to 2002, and increased by 29.0% in 2002,
as compared to 2001. This increase in 2003, as and in 2002, although we have
less gross activations in 2003 compared with 2002, is due to higher average
activation payments per additional contract customer mainly on the
bundled-minutes based packages, that resulted in increased billed revenues,
therefore leading to increased commissions on absolute terms. Commission to
dealers as a percentage of total operating revenues decreased to 12.9% in 2003
as compared with 2002, mainly as a result of greater proportional increase in
revenues compared with commissions to dealers. Commission to dealers as a
percentage of total operating revenues decreased to 14.8% in 2002, as compared
to 2001, mainly as a result of greater proportional increase in revenues versus
commissions to dealers, a higher portion of new activations made through our
direct distribution channel resulting in inherently lower commissions, as well
as a greater proportion of prepaid new activations - with lower acquisition and
commission related costs - on the total new activations. - 40 -




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Management fees increased by 9.5% in 2003, as compared to 2002, and decreased
by 4.6% in 2002, as compared to 2001. The increase of management fees in 2003
as compared to 2002 is the result of higher revenues, less mobile-to-mobile
interconnection costs, the basis of which the management fee is calculated. The
decrease of management fees in 2002 is the result of a decrease in the
management fee rate. More specifically, since January 1, 2000, we paid 2.6% and
0.9% of total revenues (net of VAT and other indirect taxes and according our
statutory accounts) to TIM and/or its affiliates and Verizon and/or its
affiliates, respectively. Effective January 1, 2001 the above rates were
reduced to 2.24% and 0.76% respectively. In addition, the management fee to
Verizon and/or its affiliates was reduced to zero in October 2001 as a
consequence of the decrease in its ownership of Stet Hellas to below 20.0%
after the completion of the rights issue and subsequently since August 2, 2002,
when TIM acquired Verizons stake on STET Hellas, the management fee rate to
TIM remained at 2.24%. See Note 9 to the financial statements. Since January
2002 when mobile-to-mobile payments among operators were introduced, the
management fee rate to TIM and/or its affiliates is 2.24% of total revenues,
net of VAT and other indirect taxes, net of mobile-to-mobile interconnection
costs, and according to our statutory accounts. Advertising expenses increased by 31.7% in 2003, as compared to 2002, mainly
due to the launch of a new prepaid tariff plan (the TELESTET For all), and
decreased by 16.4% in 2002, as compared to 2001. Payroll expenses increased by 10.3% in 2003, as compared to 2002, and by 24.4%
in 2002, as compared to 2001, mainly due to higher number of average paid
employees. Depreciation and amortization increased marginally by 2,2% in 2003, as compared
to 2002, mainly as a result of the continued increase in our assets.
Depreciation and amortization increased by 57.8% in 2002, as compared to 2001,
mainly as a result of the reassessment of our allocation of telecommunication
systems and equipment between cost of services and selling, general and
administrative related assets. Depreciation and amortization increased by 15.2% in 2001, as compared to 2000,
mainly as a result of the continued increase in our assets. Repair and maintenance expenses decreased by 0.6% in 2003, as compared to 2002,
mainly due to more efficient cost management. Other expenses decreased by 9.4% in 2003, as compared to 2002, mainly as a
result of decreased provision for litigations and claims. Interest and Other Financial Expense, Net Interest and other financial expense, net, consists of interest charged on our
borrowings principally incurred to finance our network construction, interest
earned on bank deposits and foreign exchange gains and losses associated with
purchases of goods or services denominated in foreign currencies. The table below sets forth, for the periods indicated, interest and other
financial expense, net. - 41 -




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Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    (in thousands)Interest and other financial expense, net:Interest expense, net
    
    
    (16,637
    )
    
    
    (15,076
    )
    
    
    (11,041
    )Foreign exchange gains (losses), net
    
    
    (336
    )
    
    
    605
    
    
    
    223Other(1)
    
    
    336
    
    
    
    
    
    
    
    Total interest and other financial expense, net
    
    
    (16,637
    )
    
    
    (14,471
    )
    
    
    (10,818
    )
   (1)
    
    Includes gains and losses from the sale of certain fixed assets. Interest and other financial expense, net, decreased by 25.2% in 2003, as
compared to 2002, and by 13.0% in 2002, as compared to 2001. These decreases
principally relate to the reduction in foreign exchange differences and the
decrease in interest expense. Interest expense, net, decreased by 26.8% in 2003, as compared to 2002, and by
9.4% in 2002, as compared to 2001. We have benefited from guarantees of our long-term debt, as well as short-term
working capital facilities, by Telecom Italia. Management believes that it can
obtain financing without a guarantee from Telecom Italia, although such
financing may not be on terms as favorable as those obtained with a Telecom
Italia guarantee. Our operating revenues are denominated in euro. Prior to 1999, a significant
portion of our bank borrowings was denominated in U.S. dollars. Prior to July
2000, when the central parity rate for the drachma was announced, we had
entered into forward exchange contracts to hedge our exposure to foreign
exchange rate fluctuations associated with the principal amount of these
borrowings and foreign currency denominated capital expenditure. Since forward
exchange contracts had not been available for the entire term of our foreign
currency denominated loans, we had entered into shorter-term forward exchange
contracts that we regularly renewed. When the GRD entered the EMU at the rate
of 340.750 per 1.00 euro, all legacy currency loans were revalued using the
locking rate and therefore not affected by fluctuations of exchange rate after
this date. Forward exchange contracts are marked to market, with any resulting
gains or losses being reflected in the statements of income. See Item 11.
Quantitative and Quantitative Disclosures about Market Risks. At December 31, 2003, we had no outstanding forward exchange contracts.
Throughout 2003, and more specifically as of December 31, 2003, we had no
non-euro foreign currency denominated debt obligations and thus had not entered
into any forward foreign exchange or other foreign exchange derivative hedging
transactions. All debt was denominated in euro and thus was not subject to
foreign exchange rate risk. Our foreign exchange gains (losses), net, and gains (losses) on forward
exchange contracts, net, aggregated a gain of 223,000 in 2003 and of 604,851
in 2002, compared to losses of 336,252 in 2001. The foreign exchange gain in
2003 and 2002 and the foreign exchange loss in 2001 was mainly due to
fluctuations of the dollar and pounds sterling, the foreign currency in which
some of our suppliers contracts were principally denominated, against the
euro. Income Tax (Provision) Benefit In 2003, we recorded an income tax provision of 63,446,266, a 46.4% increase
from 43,348,943 in 2002. In 2001, we recorded an income tax provision of
35,241,149. The increases reflect an increase in - 42 -




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income before income taxes. As a percentage of income before income taxes, the
provision for income taxes in 2003, 2002 and 2001 was 40.7%, 36.2% and 49.6%,
respectively. The rates primarily reflected the non-deductibility for tax
purposes of certain expenses as well as the partial deductibility of the
management fees paid to TIM and/or its affiliates. See Note 11 to the financial
statements. Management believes this treatment of the income tax provision is
reasonable based on the experience of the tax audits for the years up to 2000.
The tax benefit of the merger with Telepolis, which was completed in December
2002, and the Greek labor law that provides tax benefits to companies for
personnel increases, have been taken into consideration for this provision in
2002. The lack of such tax benefits in 2003 is also one of the reasons for the
increase in the income tax provision as a percentage of income before taxes in
2003, compared to 2002. Liquidity and Capital Resources Our liquidity requirements arise primarily from the need to fund capital
expenditures for the expansion of our operations and for working capital
requirements. To date, these requirements have been funded largely through bank
borrowings and capital contributions from our existing shareholders, as well as
from operating cash flows. We expect to continue to incur additional capital
expenditures in order to expand and improve the quality of our network,
although management believes that the large majority of these requirements will
be met by cash flow from operations. Our results of operations, and subsequently our cash flows from our operations,
are subject to risks and uncertainties. The following discussion should be
read in conjunction with the section entitled Risk Factors. Liquidity The table below sets forth, for the periods indicated certain information about
our cash flows. Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    (in thousands)Cash and cash equivalents at beginning of period
    
    
    7,155
    
    
    
    29,614
    
    
    
    35,581Cash from operating activities
    
    
    133,007
    
    
    
    193,370
    
    
    
    229,916Cash used in investing activities
    
    
    (261,632
    )
    
    
    (105,302
    )
    
    
    (137,579
    )Cash from (used in) financing activities
    
    
    151,084
    
    
    
    (82,101
    )
    
    
    (61,149
    )Cash and cash equivalents at end of period
    
    
    29,614
    
    
    
    35,581
    
    
    
    66,769
 Cash from operating activities increased by 18.9% in 2003, as compared to 2002,
primarily reflecting the increase in net income and non-cash items, mainly
depreciation and deferred income taxes provision. Cash from operating
activities increased by 45.4% in 2002, as compared to 2001, primarily
reflecting the increase in net income and non-cash provision for commitments
and contingencies. Cash used in investing activities, consisting of capital expenditures,
increased by 30.7% in 2003, as compared to 2002, and decreased by 59.8% in
2002, as compared to 2001. The increase in 2003 is due to the continuing
build-out and further selective development of our GSM network and to the
deployment of - 43 -




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UMTS network. The large variance between 2002 and 2001 cash used in investing
activities is attributable to the acquisition in 2001 of the DCS 1800 and UMTS
licenses. In 2003, cash used in financing activities decreased by 25.5%, as compared to
2002, reflecting lower borrowing needs and the repayment of long-term debt, due
to higher cash generated by operating activities. In 2002, cash used in
financing activities decreased by 154.3%, as compared to 2001, reflecting lower
borrowing need and the repayment of short-term debt, due to higher cash
generated by operating activities and lower cash outflows for capital
expenditures. Capital Resources As of December 31, 2003, we were a party to two separate long-term loan
agreements provided by the European Investment Bank of Luxembourg, each
supported either by a direct guarantee or a counter-guarantee from Telecom
Italia, under which we currently have outstanding borrowings denominated in
euro. Each guarantee provides a full and unconditional guarantee of our
obligations under the respective loans until such time as those obligations
have been discharged. Due to a downgrading of Telecom Italias credit rating,
Telecom Italia was substituted as guarantor, by SANPAOLO IMI S.p.A., BANCO
BILBAO VIZKAYA ARGENTARIA S.A. (Milan branch), and SUMITOMO MITSUI BANKING
CORPORATION (London branch), for our 100 million loan with European Investment
Bank, and an amendment of the original contract was signed in March 2004. The
financial costs of this facility after this substitution remain essentially the
same. In addition, we were a party to a long-term syndicated loan agreement
arranged by ABN AMRO Finance (UK) Limited in euro, with an original maturity
date of July, 2004, which was also guaranteed by Telecom Italia. However, in
July 2003 we exercised our option to voluntarily pre pay the entire principal
amount due. As of December 31, 2003, an aggregate of approximately 174.1
million was outstanding under these facilities. See Note 8 to the financial
statements. In December 2001, we entered into an agreement with Telecom Italia for a five
year fixed rate credit facility in an aggregate principal amount of 60
million. See Note 9 to the financial statements. In addition, our short-term borrowings consist of drawdowns under various lines
of credit we maintain with several banks. Furthermore, in 2002, a short-term
financing facility from TIM International N.V. for an amount of 100.0 million,
was made available to us. The aggregate amount of available lines of credit
was 116.7 million and 211.2 million at December 31, 2003 and 2002
respectively, of which approximately 110.4 million and 211.2 million were
unused as of the above dates. We believe that our operating cash flow is sufficient for our present
requirements and commitments. However, the actual amount of our financing
requirements will depend on a number of factors, many of which are beyond our
control. Contractual Commitments The following table sets out our contractual obligations as at December 31,
2003. - 44 -




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Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 year
    
    1-3 years
    
    4-5 years
    
    5 years in thousandsLong-term debt
    
    
    234,067
    
    
    
    74,067
    
    
    
    60,000
    
    
    
    100,000
    
    
    
    Capital lease obligations
    
    
    7,894
    
    
    
    991
    
    
    
    1,484
    
    
    
    1,138
    
    
    
    4,281Operating leases
    
    
    171,146
    
    
    
    21,893
    
    
    
    60,663
    
    
    
    36,984
    
    
    
    51,606Purchase obligations
    
    
    12,913
    
    
    
    12,343
    
    
    
    570
    
    
    
    
    
    
    
    Other long-term liabilities
reflected on our balance
sheet under GAAP(1)
    
    
    44,021
    
    
    
    
    
    
    
    44,021
    
    
    
    
    
    
    
    Total contractual obligations
    
    
    470,041
    
    
    
    109,294
    
    
    
    166,738
    
    
    
    138,122
    
    
    
    55,887
   (1)
    
    Other contractual obligations relate to UMTS future payments. Off Balance Sheet Arrangements We do not engage in off-balance sheet arrangements. Critical Accounting Policies The discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent
assets and liabilities. On an ongoing basis, management evaluates its
estimates, including those related to revenue recognition, doubtful accounts
and long-lived assets. Management bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily available
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe that, of our significant
account policies, the following may involve a higher degree of judgment and
complexity.  
    
    Recognition of Revenues: Revenues from the sale of handsets and
accessories, net of discounts allowed, are recognized upon shipment to
dealers or at point-of-sale (in the case of sales through our retail
outlets), while revenues from the sale of prepaid airtime cards and the
prepaid airtime, net of discounts allowed, included in our prepaid GSM
service packages are recognized based on usage.We recognize revenues from telecommunications services when earned.
Unbilled revenues from the billing cycle dating to the end of each month
are calculated based on traffic and are accrued at the end of the month.
    
    Concentration of credit risk and allowance for doubtful accounts: Due
to the large volume and diversity of our customer base, concentrations
of credit risk with respect to trade accounts receivable are limited.
The allowance for doubtful accounts receivable is stated at the amount
considered necessary to cover potential risks in the collection of
accounts receivable balances. We maintain an allowance for doubtful
accounts for estimated losses relating from the inability of our
subscribers to make required payments. Our calculation is based on
actual historical data of suspended and cancelled subscribers, the
reactivation rate of suspended subscribers and the collectability rate
of cancelled subscribers. - 45 -




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
    
    Impairment: Our long-lived assets subject to amortization are
reviewed for impairment in accordance with SFAS No. 144, Accounting
for the impairment or disposal of long-lived assets which we adopted
effective January 1, 2002. Under SFAS No. 144, these assets are
tested for recoverability whenever events or changes in business or
technology indicate that their carrying amounts may not be
recoverable. An impairment charge is recognized for the amount (if
any) by which the carrying value of the asset exceeds its fair value.
Prior to January 1, 2002, we assessed the impairment of long-lived
assets under SFAS No. 121, Accounting for the impairment of
long-lived assets and for long-lived assets to be disposed of.  
    
    Legal Contingencies: We are currently involved in various claims and
legal proceedings. Periodically, we review the status of each
significant matter and assess our potential financial exposure. If
the potential loss from any claim or legal proceeding is considered
probable and the amount can be estimated, we accrue a liability for
the estimated loss. Significant judgment is required in both the
determination of probability and the determination as to whether an
exposure is reasonably estimable. Because of uncertainties related to
these matters, accruals are based only on the best information
available at the time. As additional information becomes available,
we reassess the potential liability related to our pending claims and
litigation and may revise our estimates. Such revisions in the
estimates of the potential liabilities could have a material impact on
our results of operations and financial position. See Note 15 of the
Notes to the Financial Statements for a description of our material
legal proceedings.  
    
    Accounting for Income Tax: Significant judgment is required in
determining our income tax provision. In the ordinary course of
business there are many transactions and calculations where the
ultimate tax outcome is uncertain. Some of these uncertainties arise
as a consequence of the potential tax treatment of management fees
paid to related parties, the process of identifying items of revenue
and expense that qualify for preferential tax treatment and potential
tax audits. Although we believe that our estimates are reasonable, no
assurance can be given that the final tax outcome of these matters
will not be different than that which is reflected in our historical
income tax provisions and accruals. Such differences could have a
material effect on our income tax provision and net income in the
period in which such determination is made.We record a valuation allowance to reduce our deferred tax assets to the
amount of future tax benefit that is more likely than not to be realized.
While we have considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation
allowance, there is no assurance that the valuation allowance will not
need to be increased to cover additional deferred tax assets that may not
be realizable. Any increase in the valuation allowance could have a
material adverse impact on our income tax provision and net income in the
period in which such determination is made. Recently Issued Accounting Standards In 2003, the FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 provides guidance on the identification of
entities for which control is achieved through means other than through voting
rights (variable interest entities) and how to determine when and which
business enterprise (the primary beneficiary) should consolidate the variable
interest entity. This new - 46 -




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model for consolidation applies to an entity in which either (i) the equity
investors (if any) do not have a controlling financial interest; or (ii) the
equity investment at risk is insufficient to finance the entitys activities
without receiving additional subordinated financial support from other parties.
In addition, FIN 46 requires that the primary beneficiary, as well as all other
enterprises with a significant variable interest in a variable interest entity,
makes additional disclosures. The effective dates and impact of FIN 46 and its
revision FIN 46-R, are as follows:  1.
    
    Special purpose entities (SPEs) created prior to February 1, 2003 -
application of FIN 46 becomes effective for the year ending December 31,
2004.2.
    
    Non-SPEs created prior to February 1, 2003 - adoption of FIN 46-R becomes
effective for the year ending December 31, 2004.3.
    
    All entities, regardless of whether an SPE, that were created subsequent
to January 31, 2003. The provisions of FIN 46 were applicable for variable
interests in entities obtained after January 31, 2003. Adoption of FIN
46-R was required for the year ended December 31, 2003. The adoption of the provisions applicable to SPEs and all other variable
interests obtained after January 31, 2003 did not have an impact on the
Companys financial statements. The Company is currently evaluating the impact
of adopting FIN 46-R applicable to SPEs and non-SPEs created prior to February
1, 2003, but does not expect any impact on the Companys results of operations
or financial position. In November 2002, the EITF reached a consensus on EITF No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company believes that its
current accounting is consistent with the provisions of EITF 00-21 and
therefore does not expect that the application of the provisions of EITF 00-21
will have a material impact on the Companys financial statements. 
 Trend Information The coming years look challenging for Greek mobile operators. The regulatory
environment is uncertain, as Greece has yet to implement the new European
regulatory framework that will most likely put further pressure on
interconnection rates, a major source of revenues for us. Furthermore, our
substantial investments for our UMTS license, network deployment and services
development may not be recovered in the expected timeframe, as the evolution of
these services is still in a rudimentary stage and contingent on widespread
market acceptance. Finally, the expected revenues coming from the summer 2004
Olympic Games may never materialize, or not to the extent expected, as these
are dependent upon the level of roaming traffic created by increased tourist
activity during the games. 
 Item 6. Directors, Senior Management and Employees Board of Directors and Senior Management We are administered by our Board of Directors which is responsible for our
management and administration. - 47 -




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Directors The members of our Board of Directors were elected by a resolution of the
General Assembly of our Shareholders dated July 31, 2002, for a three year
term, ending July 30, 2005. By virtue of the resolution of the Extraordinary
General Meeting of our shareholders dated December 16, 2002, Mr. Attilio
Achler, Mrs. Elisabetta Ripa and Mr. Stefano Rossi succeeded Mr. Giovanni
Fiorillo, Mr. Giuseppe Sala and Mr. Giancarlo Ferrero respectively, for the
remainder of the term of office ending on July 30, 2005. As of April 30, 2003, the members of the Board of Directors were the following: Name
    
    Member of the Board of Directors since
    
    FunctionStylianos Argyros
    
    March 1999
    
    ChairmanNikolaos Varsakis
    
    February 2001
    
    Managing DirectorAttilio Achler
    
    December 2002
    
    MemberGiuseppe Roberto Opilio
    
    July 2002
    
    MemberRoberto Pellegrini
    
    June 2001
    
    MemberElisabetta Ripa
    
    December 2002
    
    MemberStefano Rossi
    
    December 2002
    
    Member
 Stylianos Argyros. Chairman of the Board of Directors, Mr. Argyros has a broad
range of business experience and has held high administrative posts in Greece
as well as abroad. He studied at Amherst (B.Sc. in Chemistry) and M.I.T.
(M.Sc. and Ph.D. in Materials Science). Also Chairman of the Board and Chief
Executive Officer of PREVEZA MILLS S.A and Vice-President of ASPIS BANK.
Member of the Board at: ELAN VENTURES S.A., S&B MINERALS S.A., DELTA HOLDING
S.A. and P.G. NIKAS S.A.. Member of the Executive Committee of the TRILATERAL
COMMISSION. Former Member of the European Parliament (M.E.P.). Mr. Argyros
has served as President and Chairman of the Board of the Federation of Greek
Industries, Vice President of UNICE, World President of the Textile Institute
(U.K.) and Member of the Board of ALBA. Nikolaos Varsakis. Managing Director and Chief Executive Officer. Mr Varsakis
joined us in February 2001 with vast experience in the telecommunications
market. He began his career at the Philips Group, where he held a series of
managerial positions internationally. In 1993, he co-founded Radio Korassidis
Telecom and became the Managing Director. Prior to joining us, he held the
position of general manager at Radio Korassidis Microcenter. Mr. Varsakis
holds a B.A. from University of La Verne and an M.B.A. from the University of
Southern California. Attilio Achler.Member of the Board of Directors. Mr. Achler joined SIP
(Societa Italiana per 1 Esercizio delle Telecomnuicazioni p.a.) in 1971 where
he assumed various positions in the areas of Transmission, Network, National
Public Network/Radio Systems. In 1992, following company reorganization, he
became responsible for the GSM Radio Network of the Mobile Telecommunication
Services division, and in 1994, Mr. Achler assumed the responsibility of the
Mobile Services/Network Administration division of Telecom Italia. A year
later, he joined Telecom Italia Mobile with responsibility for the Network
Administration division. He is currently responsible for the Network
department. Mr Achler holds a bachelors degree in Engineering. Giuseppe Roberto Opilio. Member of the Board of Directors. Mr. Opilio joined
Telecom Italia Mobile in 1999, with 16 years of working experience with
companies such as Parfina Group, Gepi Group S.p.A. American Society for Quality
Control and Galgano Group Consulting and Management Training - 48 -




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Company. Upon joining TIM, he assumed the position of Vice President in Human
Resources and Organizational Development, and a year later he was also assigned
the International Human Resources Organizational Development department. In
2001, he assumed the position of HR Executive Vice President for the TIM Group,
and in February 2004 he became the Executive Vice President for Customer
Operations. Mr. Opilio holds a degree in Chemical Engineering from the
University of Rome. Roberto Pellegrini. Member of the Board of Directors. Mr. Pellegrini joined
Telecom Italia Mobile in 1998 as Marketing and Sales Director. He began his
career with IBM and Amdahl in marketing and sales. In 1991 he was appointed
General Director of GOAL SYSTEMS and in 1992 he was appointed Managing Director
for Italy of the Legent Software Company and subsequently became Vice President
for Southern Europe. In 1995, he joined Telecom Italia as a commercial director
in the division of Mobile Services, and in July 1995, Mr. Pellegrini joined
Telecom Italia Mobile with responsibility for the division of Commecialization
and Operating Marketing. In 1998, he became commercial director adding to his
area of responsibility the Marketing, Advertising and Product Promotion
divisions. Since 1999 he has been the director of the Business department. Mr.
Pellegrini holds a B.S. in Electrical Engineering. Elisabetta Ripa. Member of the Board of Directors. Ms. Ripa joined Telecom
Italia Mobile in 1995 in the department of Planning, Strategic Marketing and
International Affairs, with eight years of industry experience in companies
such as L.D.M. S.r.l., Promomedia Italia S.a.s, SIP and Telesoft America. A
year after joining TIM, she became a member of the staff of the General
Director with the responsibility for the Action Planning and Control division,
Management Europe division (International Affairs) and International Management
division (Planning and Control). In 2001, she began reporting directly to the
Managing Director in the role of Head of Staff, and in August 2002 she also
assumed the responsibility of the Mobile Business Development division. Mrs.
Ripa holds a B.S. in Finance and Commerce. Stefano Rossi. Member of the Board of Directors. Mr. Rossi joined SIPs legal
department with many years of experience as an internal corporate attorney. In
1995 he moved to the International Legal Affairs department of STET S.p.A., the
former holding company of Telecom Italia, where he participated in close
interaction with the International Department to develop major cross border
ventures with the Group. From 1997 to 2000 he served as Legal Project Manager
in STET International assisting and cooperating with TIM and Telecom Italia in
several international projects in the Mediterranean Basin and Latin America. In
2000, Mr. Rossi was appointed Vice President of Subsidiaries Corporate Affairs
of TIM. - 49 -




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Executive Officers In 2002, we completed the restructuring of our management, creating a chief
officer level to which executive directors of related divisions report. These
chief officers report directly to our Chief Executive Officer. The table below
sets forth our executive officers as of April 30, 2004: Name
    
    PositionNikolaos Varsakis
    
    Chief Executive Officer (since February 28, 2001)Ruggero Caterini
    
    Chief Financial Officer (since September 1, 2002)Nikolaos Costaras
    
    Chief Information Officer (since November 1, 2002)Michele Gamberini
    
    Chief Network Officer (since November 1, 2002)Nicola Gatti
    
    Secretary General (since September 1, 2002)Dimitris Papagiannopoulos
    
    Chief Commercial Officer (since October 1, 2001)
 Nikolaos Varsakis.See description above. Ruggero Caterini, Chief Financial Officer. Born in 1961, Mr. Caterini joined us
in September 2002 with 12 years of experience in financial operations. He began
his financial career with Istituto Mobiliare Italiano S.p.A., and joined TIM in
1996, where he was involved in economic evaluations of TIMs international
subsidiaries within the Administration & Control department. In September 1998,
he assumed the role of controller for TIMs South American subsidiaries. A year
later, he was appointed CFO and Investor Relations Director of Tele Celular Sul
Participacoes, TIMs Brazilian subsidiary. Prior to joining us, he was the CFO
of Mobilkom Austria. Mr. Caterini holds a B.S. degree in Mechanical Engineering
from the University of Rome La Sapienza. Nikolaos Costaras, Chief Information Officer. Born in 1955, Mr. Costaras joined
us in November 2002 as an IS Executive Director, having 12 years broad
experience in Information Systems. He began his career with Credit Bank and
assumed a series of managerial positions in Greek IT and telecommunications
companies. Mr. Costaras holds a B.S. in Computer Science and an MSC in Computer
Science and Software Design. Michele Gamberini, Chief Network Officer. Born in 1963, Mr. Gamberini joined us
in September November 2002, with 8 years experience in the sector of radio and
cell planning. Prior to his current position, he has also worked for Omnitel
and Telecom Italia Mobile. Mr. Gamberini holds a B.S. in Electronic Engineering
from the University of Rome La Sapienza, and a post-degree from Istituto
Superiore Poste a Telecomunicazioni, a post-degree telecommunications
specialization school. Nicola Gatti. Secretary General. Born in 1963, he joined us in September 2002
with 16 years of experience in the telecommunications sector. He started his
career in the Research and Development department of Telecom Italia, where he
was involved in many different functions such as the Service Architecture
department and the Key Account department. Before joining STET Hellas as a
Secretary General, he was a project and area manager in the Strategic Marketing
Planning and International Affairs department of TIM. Mr. Gatti holds a B.S. in
Electrical Engineering from the University of Rome La Sapienza. Dimitris Papagiannopoulos. Chief Commercial Officer. Born in 1963, Mr.
Papagiannopoulos joined us in October 2001 with 10 years of experience in
marketing and sales positions. He began his career in Memotek Systems SA and
joined DHL International (Hellas) in 1994. Prior to joining STET Hellas he - 50 -




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was the Commercial Director of DHL International (Switzerland). Mr.
Papagiannopoulos holds a B.S. in Business Administration and an M.Sc. in
Political Science from the London School of Economics. Compensation of Directors and Officers According to the provisions of the Greek laws for sociétés anonymes, the only
competent body to decide on compensation, if any, for the members of the Board
of Directors is the Ordinary General Assembly of the shareholders. By
resolution of our Ordinary General Assembly dated April 22, 2003, it was
decided that Mr. Stylianos Argyros, Chairman of the Board of Directors, should
receive as compensation for the year 2003 the total amount of 68,889.21 gross.
The only other member of our Board of Directors who received compensation in
his capacity as Board Member during 2003 was Mr. Nikolaos Varsakis, our
Managing Director, who received a portion of his salary in connection with his
position as a Board Member. For 2003, the aggregate amount of compensation to
our directors and executive officers was 2,067,074.21 gross. Except as noted above, none of the members of our Board of Directors is
employed by us and, therefore, they do not have service contracts with us
providing for benefits upon termination of their employment. As of December 31, 2003, we have not accrued any amount in our financial
statements to provide pension, retirement or similar benefits to our executive
officers, other than the reserve for staff retirement indemnities, that we
record in our financial statements for all of our employees, including our
executive officers. See note 12 to our financial statements. Board Practices Audit Committee We do not currently have an audit committee but plan to establish one by July
2005. Remuneration Committee According to current Greek law, the only body authorized to decide on
compensation for the members of the Board of Directors is the General Assembly
of Shareholders, as discussed above. We do not have a remuneration committee
and under the current NASDAQ corporate governance rules, we are exempt from
NASDAQs requirement of having a compensation committee. Employees As at December 31, 2003, we had 1,361 full-time equivalent employees, including
300 in marketing and sales, 252 in operations, 373 in network development and
operations, and 436 in information systems and customer service. Our employees
are not covered by a collective bargaining agreement. We do not have a history
of strikes or work stoppages and no material labor-related claims are pending.
Management believes that relations with its employees are good. Share Ownership As of May 31, 2004, none of the members of our Board of Directors nor any of
our executive officers held any of our voting securities. - 51 -




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Stock Option Plans:On March 30, 2000, we introduced a Stock Option Plan for
key employees (employees who are considered essential to the achievement of our
objectives) for 1,300,000 option rights. On December 11, 2000 we introduced a
second stock option plan for our remaining 1,000,000 option rights. The
objectives of these plans include attracting and retaining personnel and
promoting our success by providing executive employees the opportunity to
acquire common stock. Options vest on a pro-rata basis over approximately a
four-year period from the grant dates. Under the first plan, approved on March 30, 2000, by our Shareholders Ordinary
General Assembly, we are authorized to issue and have issued 1,300,000 option
rights, which entitle the bearer to purchase our shares at a price equal to our
listed market price on the NASDAQ Stock Exchange as of the above date, which
was U.S.$28.375. The first plan expired in November 2003, and no options were
exercised. Under the second plan, approved on December 11, 2000, by our shareholders
Extraordinary General Assembly, we are authorized to issue 1,000,000 option
rights, which entitle the bearer to purchase our shares at a price equal to our
listed market price on the NASDAQ Stock Exchange as of such date, which was
U.S.$12.532. As of December 31, 2003, we had outstanding 698,000 option rights
under the second plan. See Note 2 and Note 20 of the financial statements. - 52 -




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Item 7. Major Shareholders and Related Party Transactions Control of Registrant The following table sets forth, as at April 30, 2004, the total number of any
securities held by the owners of more than 5.0% of our voting securities: Identity of
    
    
    
    
    
    PercentTitle of Class
    
    Person or Group
    
    Amount
Owned(1)
    
    of ClassOrdinary Shares
    
    TIM International N.V.
    
    
    67,722,621
    
    
    
    81.40
    %
  (1)
    
    Including 953,851 ADRs and DDRs, each one representing one ordinary share On August 2, 2002, TIM International N.V. acquired the 17.45% stake of Verizon
in STET Hellas, becoming our sole majority shareholder. TIM International N.V. has the same voting rights as our other shareholders. Related Party Transactions TIM (and its affiliates) provides substantial technical and other expertise to
us, including the secondment of employees to fill key management roles. In
particular, TIM provides substantial assistance to us in the areas of technical
planning and training; marketing, product development and assistance in
purchasing and personnel matters. We have an assistance agreement with TIM which provides generally that TIM will
make available to us certain technology, technical plans, know-how and general
assistance in exchange for a management fee. This assistance agreement will
expire on December 31, 2004. While management expects that our reliance on TIM will diminish over time,
failure to renew or extend the assistance agreement upon request could have a
material adverse effect on our financial condition and results of operations. Our second assistance agreement with NYNEX Network Systems International
Subsidiary Company legally ceased to exist on August 2, 2002 as a result of TIM
International N.V. becoming our sole majority shareholder. For further
information on our current and previous assistance agreements, see Note 9 to
our financial statements included elsewhere in this Form 20-F. 
 Item 8. Financial Information See Item 18. Financial Statements. Significant Changes There have not been any significant changes since December 31, 2003, the date
of our most recent annual financial statements, except the approval of a final
dividend for the year ended December 31, 2003 of 8,319,322, or 0.10 per
share, by the Annual General Meeting of our shareholders, held on April 22,
2004. - 53 -




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Legal Proceedings We are party to a number of significant pending legal proceedings discussed in
Note 15(b) to the financial statements. We are also party to a number of other
routine legal and administrative proceedings arising in the ordinary course of
business. Dividend Policy Under Greek law, we are not permitted to distribute dividends if our net
equity, as reflected in our statutory accounts is, or after such distribution
will be, less than the aggregate of our share capital and undistributable
reserves. Furthermore, Greek corporate law requires companies to declare each
year from profits, dividends of at least 35% of after-tax profit, after
allowing for legal reserve, or a minimum of 6% of the paid-in share capital,
whichever is greater. However, the Company can waive such dividend with the
unanimous consent of its shareholders. We paid dividends for our fiscal years
2001, 2002 and 2003 and expect to continue to pay dividends in the future to
the extent we are legally allowed and subject to our financial condition, the
funding needs of our investment program and other relevant factors. As of December 31, 2001, 2002 and 2003 we had, in our statutory accounts which
are prepared in accordance with Greek GAAP, profit available for distribution
in the amounts of 12,494,416, 58,982,142 and 129,564,196 respectively. On
June 10, 2002, we paid dividends of 7,487,390, or 0.09 per share, for our
fiscal year 2001, on May 30, 2003 we paid dividends of 8,319,322 or 0.10 per
share, for our fiscal year 2002 and on May 28, 2004 we paid dividends of
8,319,322 or 0.10 per share, for our fiscal year 2003. 
 Item 9. The Offer and Listing Markets ADSs, each representing one of our ordinary shares, are listed on the NASDAQ
National Market. Dutch Depositary Receipts, or DDRs, each representing one of
our ordinary shares, are listed on Euronext Amsterdam N.V. Nature of Trading Market The table below sets forth the reported high and low prices, for the periods
indicated, of ADSs on NASDAQ and DDRs on Euronext, Amsterdam, respectively.
Our DDRs listed on Euronext, Amsterdam have not traded since July 2002. Euronext AmsterdamNASDAQ
    
    N.V.High
    
    Low
    
    High
    
    Low(in dollars)
    
    (in euros(1)ANNUAL HIGHS AND LOWS1999
    
    
    51.50
    
    
    
    15.00
    
    
    
    43.00
    
    
    
    16.502000
    
    
    37.188
    
    
    
    9.750
    
    
    
    38.00
    
    
    
    10.502001
    
    
    12.625
    
    
    
    3.620
    
    
    
    13.10
    
    
    
    4.502002
    
    
    7.500
    
    
    
    4.250
    
    
    
    9.00
    
    
    
    7.202003
    
    
    13.450
    
    
    
    6.560
    
    
    
    10.15
    
    
    
    5.26QUARTERLY HIGHS AND LOWS
 - 54 -




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Euronext AmsterdamNASDAQ
    
    N.V.High
    
    Low
    
    High
    
    Low(in dollars)
    
    (in euros(1)2002First quarter
    
    
    7.100
    
    
    
    5.300
    
    
    
    8.10
    
    
    
    7.20Second quarter
    
    
    6.970
    
    
    
    4.250
    
    
    
    8.10
    
    
    
    7.30Third quarter
    
    
    6.350
    
    
    
    4.410
    
    
    
    9.00
    
    
    
    8.00Fourth quarter
    
    
    7.500
    
    
    
    4.550
    
    
    
    9.00
    
    
    
    9.002003First quarter
    
    
    8.350
    
    
    
    6.560
    
    
    
    9.00
    
    
    
    9.00Second quarter
    
    
    10.450
    
    
    
    7.800
    
    
    
    9.00
    
    
    
    5.26Third quarter
    
    
    11.630
    
    
    
    9.200
    
    
    
    7.00
    
    
    
    7.00Fourth quarter
    
    
    13.450
    
    
    
    10.550
    
    
    
    10.15
    
    
    
    7.002004First quarter
    
    
    21.650
    
    
    
    12.979
    
    
    
    13.01
    
    
    
    10.15MONTHLY HIGHS AND LOWS2003December 2003
    
    
    13.450
    
    
    
    12.150
    
    
    
    10.15
    
    
    
    10.152004January 2004
    
    
    19.750
    
    
    
    12.979
    
    
    
    11.35
    
    
    
    10.15February 2004
    
    
    19.960
    
    
    
    14.810
    
    
    
    13.01
    
    
    
    11.35March 2004
    
    
    21.650
    
    
    
    16.350
    
    
    
    13.01
    
    
    
    13.01April 2004
    
    
    24.260
    
    
    
    17.110
    
    
    
    15.88
    
    
    
    13.01May 2004
    
    
    18.440
    
    
    
    14.750
    
    
    
    15.88
    
    
    
    15.88
   (1)
    
    Our DDRs listed on Euronext Amsterdam were not traded from July 18, 2002
to May 2, 2003 The Bank of New York, 101 Barclay Street, 22nd Floor, New York, NY 10286,
U.S., is the depositary in respect of the ADRs. At December 31, 2003, there
were 12,202,400 ADSs outstanding, held by twenty-five holders of record
(including the Depositary Trust Company). Since certain of such ADSs are held
by nominees, the number of holders of record may not be representative of the
number of beneficial holders of ADRs in the United States. N.V. Algemeen Nederlands Trustkantoor ANT, Herengracht 420, 1017 BZ Amsterdam,
The Netherlands, is the depositary bank in respect of the DDRs. At December
31, 2003, there were 20,246 DDRs outstanding. - 55 -




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Item 10. Additional Information Articles of Association Article 3 of our articles of association provides that our purpose is:  
    
    Production, trading, installation, exploitation and operation of mobile telephone
communication systems, as well as any other activity relevant to the above in the areas of
mobile telephony, telecommunications, electronics, and informatics in general, as well and
any other similar activity;
    
    Representation of above products in Greece or abroad; and
    
    Participation, in whole or in part, in any other undertaking under any corporate or other
form with similar or related purpose. Our articles contain (amongst others) provisions to the following effect: Share Capital As of April 30, 2004, our share capital was 127,285,626.60, divided in
83,193,220 registered shares of par value of 1.53 each. The Board of
Directors, by virtue of a relevant resolution, which is required to be taken
with a majority of at least two-thirds of its members, has the right to
increase the share capital by issuing new shares, up to the amount of the
initially paid up share capital. The Board has this power for the first five
years of our incorporation, which may be extended by the General Assembly for a
period that can not exceed five years per extension. The General Assembly has
the right, by majority-adopted resolution, to increase the share capital up to
quadruple the initial paid up share capital. Rights of Shareholders Each share that a shareholder owns gives the shareholder the right of one vote
at the General Assembly. In the case of an increase of share capital that is
not carried out through a contribution in right of conversion into shares, a
right of preferential subscription to the entire new capital according to the
proportion of their participation to the existing share capital is granted.
However, by resolution of the General Assembly, this right of preference can be
restricted or abolished. In order to pass such a resolution, the Board of
Directors must submit to the General Assembly a written report stating the
reasons for the restriction or abolition of the right of preference and
justifying the price proposed for the new issue of shares. Minority Rights Upon request by shareholders representing 1/20 of the paid-up share capital,
the Board of Directors is obliged to:  
    
    Convene an extraordinary General Assembly of Shareholders;
    
    Adjourn once the decisions of the general assembly have been adopted; - 56 -




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
    
    Disclose to the General Assembly the amounts within the last two years that were paid by us to members of the Board or to
Directors or other employees;
    
    Provide specific information requested from it concerning our affairs, to the extent that they are useful for the real
estimation of the items on the agenda; and
    
    Adopt a decision on any item on the agenda of the General Assembly made by a roll-call vote. Furthermore, shareholders representing 1/20 of the paid up share capital have
the right to request an audit of the company. Board of Directors The members of the Board of Directors are elected by the General Assembly of
Shareholders for a term of three years which is extended automatically until
the first ordinary General Assembly following the expiration of their term, up
to a period of four years. The resolutions of the Board of Directors are taken
by a majority of half plus one of the number of members who are present or
represented at any meeting, except for the cases where a qualified majority is
required. The articles of association do not allow any grant of credit by us to our
founders, members of the Board of Directors, general managers or managers, or
to their spouses or other relatives. Loans by us to third parties as well as
the granting of credit to third parties or guarantees on their behalf for the
acquisition of our shares is also forbidden. General Assembly of Shareholders The General Assembly of Shareholders is our highest authority and is entitled
to make decisions regarding any of our affairs. Its resolutions are binding on
all shareholders, including those absent or dissenting. It is the only
competent body to decide on the following:  
    
    The extension of the term, or merger or dissolution of the company;
    
    Any amendment of the articles of association;
    
    The increase or decrease of the share capital, except as described above in Share Capital;
    
    The issue of a bond loan, as well as bonds convertible into shares;
    
    The election of the members of the Board of Directors;
    
    The appointment of auditors;
    
    The appointment of liquidators;
    
    The distribution of the net annual profits;
    
    The approval of the annual financial statements; and - 57 -




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
    
    Release of the Board of Directors and auditors from any responsibility for compensation. The General Assembly is held regularly at least once a year, within the first
six months of the end of each financial year. The Board of Directors can also
convene the General Assembly in an extraordinary session whenever it deems
necessary. Distribution of Profits In the distribution of profits, a percentage of at least 1/20 of net profits
for the formation of an ordinary reserve is withheld first. It is followed by
the withholding of the amount required for the payment of a first dividend to
the shareholders (equal to at least 6.0% of the paid-up share capital). The
General Assembly disposes freely of the rest. Dividends The payment of dividends takes place within two months from the resolution of
the General Assembly which approved the annual financial statements. The
distribution of interim dividends or percentages is permitted only if at least
twenty days before the day of the distribution an accounting statement on our
property is published in one of Athens daily newspapers that the Board of
Directors deems best as well as in the Government Gazette and cannot exceed the
half of the net profits shown in the accounting statement. Material Contracts Over the last two years, we have not entered into any material contracts
outside the ordinary course of our business. Exchange Controls and Other Limitations Affecting Security Holders Since 1993, Greek exchange control regulations have not imposed any
responsibilities, limitations or restrictions on non-residents investments,
borrowing, lending or other transfers. Therefore, there are currently no
exchange controls that would restrict the payment of dividends or other capital
distributions to a holder of ordinary shares or ADSs outside Greece, and there
are currently no restrictions that would affect the right of a non-Greek holder
of ordinary shares or ADSs to dispose of those ordinary shares or ADSs, as the
case may be, and receive the proceeds of such disposal outside Greece. There are also no limitations on the import or export of capital, including the
availability of cash and cash equivalents for use by us. However, banks
intervening in the transfer of funds in and from Greece may require the
provision of certain information to comply with their obligations vis-à-vis the
Bank of Greece (i.e. the central bank of the Hellenic Republic). Taxation The following are general discussions of certain tax considerations that may be
relevant to holders of ordinary shares or ADSs of the acquisition, ownership
and disposition of the ordinary shares or ADSs under the laws of Greece and the
United States. These discussions are for the holders information only and do
not constitute tax advice to any holder regarding the acquisition, ownership
and disposition of the - 58 -




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ordinary shares or ADSs. In addition, these discussions are not a complete
analysis or listing of all of the possible tax consequences to the holders of
the acquisition, ownership and disposition of the ordinary shares or ADSs under
the laws of Greece and the United States, and do not address all possible tax
considerations that may be relevant to holders of the ordinary shares or ADSs
in light of their particular circumstances. Holders of ordinary shares or ADSs
should consult their own tax advisors regarding the tax consequences to them of
the acquisition, ownership and disposition of the ordinary shares or ADSs. Greek Taxation Introduction The following discussion of Greek tax considerations is based on tax laws and
regulations in effect in Greece on the date hereof which are subject to change
without notice. Prospective purchasers or holders of ADSs or ordinary shares
should consult their own tax advisers as to the Greek or other tax consequences
arising from the acquisition, ownership and disposition of ADSs or ordinary
shares as they may relate to a purchasers particular circumstances. Taxation of Dividends Under Greek law, the taxable income of sociétés anonymeswhich are established
and operating in Greece, are taxed at a flat rate of 35%, subject to certain
limited exemptions. We are not required to deduct withholding taxes on the payment of dividends on
the ordinary shares or ADSs. Under Greek law, we are not permitted to distribute dividends if our net
equity, as reflected in our statutory accounts is, or after such distribution
will be, less than the aggregate of our share capital and undistributable
reserves. As of December 31, 2001, 2002 and 2003 we had, in our statutory
accounts which are prepared in accordance with Greek GAAP, profit available for
distribution in the amounts of 12,494,416, 58,982,142 and
129,564,196 respectively. On June 10, 2002, we paid dividends of
7,487,390, or 0.09 per share, for our fiscal year 2001, on May 30, 2003
we paid dividends of 8,319,322 or 0.10 per share, for our fiscal year
2002 and on May 28, 2004 we paid dividends of 8,319,322 or 0.10 per
share, for our fiscal year 2003. Taxation of Capital Gains  Ordinary Shares Gains resulting from the sale, exchange or other disposition of ordinary shares
issued by companies listed on the Athens Exchange or any other non-Greek stock
exchange or any internationally recognized stock exchange (the Listed Shares
and the Stock Exchange, respectively) are not subject to Greek tax when
disposed of by:  
    
    Enterprises that are Greek tax residents and maintain double entry
accounting records, provided that such gains are maintained in a
special reserve account in the accounting records of these
enterprises. In the case of distribution of the reserve or
dissolution of the enterprise, these gains are taxed accordingly; - 59 -




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
    
    Individuals that are Greek tax residents or enterprises that are Greek
tax residents, and in each case are not obliged to maintain double
entry accounting records; or
    
    Individuals or enterprises that are not Greek tax residents. The ordinary shares are not currently listed on the Athens Exchange. A portion
of the ordinary shares are traded on NASDAQ in the form of ADSs and on Euronext
Amsterdam in the form of DDRs and consequently it is questionable whether all
ordinary shares or only those ordinary shares, which are traded on these
markets, may be classified as Listed Shares. If ordinary shares become
listed on the Athens Exchange, those ordinary shares will be Listed Shares. Transfer Taxes  Ordinary Shares A transfer tax at a rate of:  
    
    0.3% is imposed on transfers of Listed Shares. If such Listed Shares are
traded on the Athens Exchange, the transfer tax is levied on the seller
(individual or enterprise) irrespective of his nationality or place of
residence. In case the Listed Shares are traded on any other Stock
Exchange, such transfer tax is levied on individuals or enterprises who
are Greek tax residents; and
    
    5.0% is imposed on a real sale price (which is the higher of (1) the
contractual price; and (2) the price resulting from the application of a
formula determined pursuant to a Ministerial Decision issued by the Greek
Ministry of Economy and Finance) on transfers of ordinary shares other
than Listed Shares (non-Listed Shares). Where non-Listed Shares are
issued by a Greek société anonyme, this transfer tax is levied on and
payable by the seller (individual or enterprise) irrespective of his
nationality or place of residence, failing which the purchaser will be
liable for its payment. Where the 5.0% transfer tax is imposed in accordance with the above paragraph,
if the seller (individual or enterprise) of such shares is a tax resident of a
jurisdiction with which Greece has concluded a tax treaty for the avoidance of
double taxation (such as the Greek-U.S. tax treaty of 1953), it will be exempt
from the payment of the 5.0% transfer tax on the condition that the seller
submits to the competent Greek tax authority a claim for the application of the
relevant tax treaty certified by the competent tax authority of its home
jurisdiction. U.S. holders selling ordinary shares would have to submit a U.S.
Internal Revenue Service Form 6166 (but only if prior to July 5, 2004) or U.S.
Internal Revenue Service Form 8802. Under Greek law, the sale of non-Listed Shares may only be effected by means of
a private agreement, which is submitted to the competent Greek tax office for
certification or notarial deed along with a special declaration for the payment
of 5.0% transfer tax. Failure to follow this procedure in connection with the
sale of these non-Listed Shares will result in the related transfer being null
and void and the purchaser will not be entitled to be treated as the owner of
transferred ordinary shares. The private agreement or notarial deed is required to contain at least the
following elements: - 60 -




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
    
    The legal name (if other than a natural person), registered seat, tax office and fiscal number of both the seller and the
purchaser, as well as the type, number, nominal value and (if applicable) serial number of the transferred shares and any
dividend coupons attached thereto;
    
    The sale price and the mode of payment (payment in full or in installments);
    
    The real sale price; and
    
    The amount of transfer tax to be paid. In addition, the seller and the purchaser of ordinary shares should obtain a
Greek tax registration number, unless a registration number has already been
obtained, prior to the transfer of ordinary shares, otherwise such transfer
shall not be completed. The ordinary shares are not currently listed on the Athens Exchange. See the
discussion under the heading Taxation of Capital Gains - Ordinary Shares. As
a result, it is unclear whether the 0.3% or the 5.0% transfer tax and
procedures for transfers described above will apply to ordinary shares prior to
a listing of those ordinary shares on the Athens Exchange. See below for a
discussion of the treatment of ADSs and DDRs for these purposes. Taxation of Capital Gains and Transfer Taxes - ADSs Notwithstanding the above, no Greek tax will be levied on gains arising from
trades of ADSs on NASDAQ made by non-Greek tax residents (individuals or
enterprises). The exercise of the right of a holder of ADSs to receive ordinary shares
underlying such ADSs in accordance with and pursuant to the relevant deposit
agreement in order to exercise direct rights as our shareholders, would require
their registration in our shareholders and shares registries. As a
consequence of withdrawing ordinary shares from the ADR facility, such ordinary
shares will be transferred from the depositary to the holder, and we will
either issue new share certificates evidencing the transferred shares in the
name of the relevant holder, or endorse the existing share certificates with
the name, address and other details of the transferor and transferee. We will
also make an entry into our shareholders and shares registries containing
similar information and signed by or on behalf of the transferor and the
transferee. Finally, in case the transferred ordinary shares represent more
than two percent of our share capital, the relevant transfer will be notified
to the Greek Telecommunications and Posts Commission within fifteen days from
the date of the relevant transfer. The withdrawal of ordinary shares from the ADR facility would require the
transfer of the ordinary shares from the ADR Depositary to the ADR holder. The
deposit of ordinary shares by a holder of ADRs into the ADR facility would
require the transfer of the ordinary shares to the ADR Depositary. It is not
clear which of the 0.3% or 5.0% transfer tax levied on transfers of Listed and
non-Listed Shares would apply to any of the above transfers of ordinary shares.
See the discussion under the heading Transfer Taxes  Ordinary Shares. No
Greek capital gains tax would be levied on any of the above transfers of
ordinary shares made by the ADR Depositary or a holder of ADRs who is not a
Greek tax resident or does not maintain a permanent establishment in Greece. - 61 -




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Until such time as the ordinary shares are listed on the Athens Exchange,
transfers of ordinary shares not effected in accordance with the provisions of
Greek Law described above will result in the following:  
    
    The relevant transfers will be null and void;
    
    Transferees will not be able to exercise their rights as shareholders
(i.e., receive dividends or participate in or vote at a General
Meeting, either directly or by proxy);
    
    Resolutions approved by a General Meeting in which the transferees or
their proxies participated and voted and the actions authorized
pursuant thereto (including, but not limited, to the approval of the
financial statements and the distribution of dividends) may be
invalidated;
    
    Any person who appears and votes at a General Meeting without having
the right to do so is subject to criminal sanctions and fines; and
    
    The non-filing of a tax declaration (such as the declaration regarding
the transfer of ordinary shares) by the person who is obliged to do
so, or the filing of such declaration which subsequently is found to
be inaccurate, would result in such person being liable for the
payment of additional taxes or penalties and, if it were the intent of
such person to evade payment of tax, such person may also be subject
to other administrative or criminal sanctions. The consequences set forth in the items above also apply to transfers of
ordinary shares not effected in accordance with the provisions of Greek law
between persons who are tax residents of a country with which Greece has a tax
treaty exempting such persons from the payment of Greek transfer tax. Finally, pursuant to an express provision of Greek law the transferee remains
jointly and severally liable with the transferor to the tax authorities for the
payment of transfer tax in the event the transferor did not file the relevant
tax declaration and pay the transfer tax. All of the foregoing procedures and consequences will become inapplicable at
such time as the ordinary shares are listed on the Athens Exchange. Stamp Duty The Issuance and transfer of ordinary shares, as well as the payment of
dividends thereon, are exempt from stamp duty. Inheritance or Succession and Donation Taxes Under Greek law, foreign individuals or legal entities who are neither
residents, nor under Greek tax law deemed to be residents, of Greece will be
exempted from inheritance, or succession and donation taxes on ADSs evidencing
ordinary shares, if the country in which they reside provides equal tax
treatment to individuals or legal entities, subject to the provisions of
applicable treaties (if any). U.S. holders of ordinary shares and ADSs evidencing ordinary shares should
consult their tax advisors with regard to the applicability of the double
inheritance tax avoidance treaty of 1950 entered into between Greece and the
United States of America. - 62 -




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Potential purchasers should consult their own tax advisors concerning the
overall Greek tax (including Greek capital gains, transfer, inheritance or
succession. and gift tax) consequences of the purchase, ownership and
disposition of the ordinary shares and ADSs. United States Taxation The following discusses certain U.S. federal income tax considerations that may
be relevant to a U.S. holder (defined below) of the ownership and disposition
of an ordinary share or ADS. For purposes of the following discussion, any
reference to we, us or our is to STET Hellas Telecommunications S.A. only
and not its subsidiaries. The following discussion applies only to U.S.
holders that hold the ordinary shares or ADSs as capital assets and that do not
own, directly or through attribution, 10% or more of the total combined voting
power of all classes of our stock (taking into consideration all ADSs entitled
to vote). In addition, the following discussion does not address U.S. federal
income tax considerations that may be relevant to U.S. holders subject to
special rules including, among others, banks, insurance companies and other
financial institutions, regulated investment companies, tax-exempt entities,
persons holding the ordinary shares or ADSs as part of an integrated, hedging
or conversion transaction or as part of a straddle, certain U.S. expatriates,
persons subject to alternative minimum tax, dealers or traders in securities or
currencies, U.S. holders whose functional currency is not the U.S. dollar, and
partnerships and other entities treated as pass-thru entities for U.S.
federal income tax purposes. For purposes of the following discussion, a U.S. Holder is a beneficial owner
of ordinary shares that is for U.S. federal income tax purposes: (i) a citizen
or individual resident of the United States, (ii) a corporation or other entity
treated as a corporation for U.S. federal income tax purposes created or
organized in or under the laws of the United States or any state thereof
(including the District of Columbia), (iii) an estate the income of which is
subject to U.S. federal income taxation regardless of its source or (iv) a
trust subject to the control of a U.S. person and the primary supervision of a
U.S. Court. The following discussion is based on the U.S. Internal Revenue Code of 1986, as
amended (the Code), U.S. Treasury Regulations thereunder, and judicial and
administrative interpretations thereof, in each case as in effect and available
on the date of this document. All of the foregoing are subject to change or
differing interpretation, which change could apply retroactively and could
affect the tax consequences described below. No ruling will be sought from the
U.S. Internal Revenue Service (the IRS) with respect to any statement or
conclusion in the following discussion, and there is no assurance that the IRS
will not challenge such statement or conclusion or, if challenged, a court will
uphold such statement or conclusion. U.S. holders of ADSs will be treated for U.S. federal income tax purposes as
owners of the ordinary shares underlying the ADSs. Accordingly, except as
noted, the U.S. federal income tax consequences discussed below apply equally
to U.S. holders of the ordinary shares and ADSs. U.S. holders should consult their own tax advisers as to the consequences under
U.S. federal, state, local and applicable foreign tax laws of the ownership and
disposition of the ordinary shares or ADSs. - 63 -




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Dividends Subject to the discussion under   Passive Foreign Investment Company below,
the gross amount of any distribution paid by us to a U.S. holder in respect of
the ordinary shares or ADSs will generally be subject to U.S. federal income
tax as foreign source dividend income to the extent paid out of our current or
accumulated earnings and profits, as determined under U.S. federal income tax
principles. The amount of any distribution of property other than cash will be
the fair market value of such property on the date of the distribution.
Dividends received by a corporate U.S. holder with respect to the ordinary
shares and ADSs will not be eligible for the dividends received deduction
allowed to corporations. To the extent that an amount received by a U.S.
holder exceeds the allocable share of our current and accumulated earnings and
profits, such excess will be applied first to reduce such U.S. holders tax
basis in his ordinary shares or ADSs and then, to the extent such excess is
greater than such U.S. holders tax basis, it will be treated as capital gain.
We do not maintain calculations of our earnings and profits under U.S. federal
income tax principles, and, therefore, U.S. holders should assume that any
distribution will constitute ordinary dividend income. The gross amount of distributions paid in euros will be included in the income
of a U.S. holder of the ordinary shares or ADSs in a U.S. dollar amount
calculated by reference to the spot exchange rate in effect on the day the
distributions are received by the depositary, in the case of the ADSs, or by
the U.S. holder, in the case of the ordinary shares, regardless of whether the
payment is in fact converted into U.S. dollars at that time. If the euros are
converted into U.S. dollars on the date of receipt, the U.S. holder generally
will not be required to recognize any foreign currency gain or loss. If
instead the euros are converted at a later date, any currency gains or losses
resulting from the conversion of the euros generally will be treated by the
U.S. holder as U.S. source ordinary income or loss. A U.S. holder will have a
basis in any euros distributed equal to their U.S. dollar value on the
applicable receipt date. Any dividends paid by us will generally constitute foreign source passive
income or, in the case of certain U.S. holders, financial services income
for U.S. foreign tax credit purposes. Sale or Exchange or Other Disposition Subject to the discussion under Passive Foreign Investment Company below,
gain or loss realized by a U.S. holder on the sale, exchange, or other
disposition of the ordinary shares or ADSs will be subject to U.S. federal
income taxation as capital gain or loss in an amount equal to the difference
between the U.S. holders tax basis in the ordinary shares or ADSs and the
amount realized on the sale, exchange or other disposition. In the case of a
non-corporate U.S. holder, the maximum marginal U.S. federal income tax rate
applicable to such gain will be lower than the maximum marginal U.S. federal
income tax rate applicable to ordinary income if such U.S. holders holding
period for such ordinary shares or ADSs exceeds one year. Any gain or loss
realized will generally be treated as U.S. source gain or loss. The
deductibility of any capital loss may be subject to limitations. The surrender of ADSs in exchange for ordinary shares (or vice versa) will not
be a taxable event for U.S. federal income tax purposes and U.S. holders will
not recognize any gain or loss upon such a surrender. If a U.S. holder receives any foreign currency on the sale, exchange or other
disposition of the ordinary shares or ADSs, such U.S. holder may recognize
ordinary income or loss as a result of currency - 64 -




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fluctuations between the time of the sale of ADSs or ordinary shares and the
time the sale proceeds are converted into U.S. dollars. For purposes of the
preceding sentence, to the extent that proceeds from the sale, exchange or
redemption of an ordinary share or ADS received by a U.S. holder are
denominated in a foreign currency, a gain or loss from such sale, exchange or
redemption will be determined using the U.S. dollar value of the proceeds
received in the foreign currency, calculated by reference to the exchange rate
in effect, in the case of cash method U.S. holder or an electing accrual method
U.S. holder, on the settlement date and, in the case of a non-electing accrual
method U.S. holder, on the date of the sale, exchange or redemption. Foreign Taxes The ability of a U.S. holder to utilize foreign taxes in respect of the
ordinary shares or ADSs, if any, (see Greek Taxation) as a credit to offset
U.S. taxes is subject to complex limitations and conditions. The consequences
of the separate limitation calculation will depend upon the nature and sources
of each U.S. holders income and the deductions allocable thereto.
Alternatively, a U.S. holder may elect to claim all foreign taxes paid as an
itemized deduction in lieu of claiming a foreign tax credit. Any deduction
does not reduce U.S. federal income tax on a dollar-for-dollar basis like a tax
credit. The availability of the deduction may be subject to certain
limitations. Passive Foreign Investment Company Generally, for U.S. federal income tax purposes, we will be a passive foreign
investment company (a PFIC), if either (i) 75% or more of our gross income
is passive income or (ii) 50% or more of the value of our assets, determined
on the basis of a quarterly average, is attributable to assets that produce or
are held for the production of passive income. Passive income generally
includes dividends, interest, royalties and rents not arising from the active
conduct of a trade or business, and gains from the sale of assets that produce
such income. For purposes of determining whether we are a PFIC, we are treated
as if we held our proportionate share of the assets and received our
proportionate share of the income of each of our subsidiaries of which we owned
25% or more, by value. If we were a PFIC in any taxable year during which a U.S. holder owns the
ordinary shares or ADSs, the U.S. holder would be subject to additional taxes
on any excess distributions received and any gain realized from the sale or
other disposition of the ordinary shares or ADSs (whether or not we continued
to be a PFIC). A U.S. holder has an excess distribution to the extent that
distributions on the ordinary shares or ADSs during a taxable year exceed 125%
of the average amount received during the three preceding taxable years (or, if
shorter, the U.S. holders holding period). There are two alternative
elections a U.S. person may make to reduce or eliminate the adverse tax
consequences from holding a share in a PFIC. If we are a PFIC, a U.S. holder
could elect to mark the ordinary shares or ADSs to market and recognize gain or
loss annually while the ordinary shares or ADSs are marketable stock as defined
in U.S. Treasury Regulations. Generally, any gain or loss resulting from the
mark-to-market election will be ordinary income or loss. However, U.S. holders
would not be able to elect to make a qualified electing fund election with
respect to us because we do not intend to prepare the information U.S. holders
would need to make such an election. - 65 -




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Based on our (and our subsidiaries) current and planned activities, we do not
believe that we are a PFIC and we do not expect to become a PFIC in the
foreseeable future. The determination of whether we are a PFIC is made
annually. Therefore, it is possible that we may become a PFIC in the current
or any future year due to changes in our (and our subsidiaries) assets or
income composition. Information Reporting and Backup Withholding A U.S. holder is subject to information reporting with respect to dividends
paid on, or proceeds of the sale, exchange or other disposition of, an ordinary
share or ADS, unless the U.S. holder comes within certain categories of exempt
recipients and, if required, demonstrates such exemption. A U.S. holder that is not an exempt recipient may be subject to backup
withholding with respect to dividends as well as the proceeds from the sale,
exchange or other disposition of an ordinary share or ADS unless the U.S.
holder provides a U.S. taxpayer identification number and otherwise complies
with applicable requirements of the backup withholding rules. Any amount
withheld under these rules will be creditable against the U.S. holders U.S.
federal income tax liability or refundable to the extent that it exceeds such
liability, provided the U.S. holder provides required information to the IRS.
A U.S. holder who does not provide a correct U.S. taxpayer identification
number or otherwise complies with the applicable requirements of the applicable
rules may also be subject to penalties imposed by the IRS. Documents on display All the documents referred to in this Form 20-F may be inspected at the
Securities and Exchange Commissions public reference rooms located at 450
Fifth Street, NW, Washington DC 20549 under the filing number O-29726. You can
obtain information on the operation of the public reference room and copy
charges by calling the Securities and Exchange Commission at + 1-800-SEC-0330. 
 Item 11. Quantitative and Qualitative Disclosures about Market Risk Summarized below are the financial instruments we held as of December 31, 2003
that are sensitive to changes in interest rates. As a matter of policy, we
enter into forward exchange contracts or other derivatives to manage the
exposure attributed to foreign exchange rate fluctuations associated with the
principal amount of our borrowings in foreign currencies. We use these
instruments to reduce risk by creating offsetting market exposures. The
instruments we hold are not held for financial trading purposes. However,
since we did not have borrowing denominated in foreign currency as of December
31, 2003, no foreign exchange forward or other derivatives were outstanding
during this latest reporting period. We do not have any other material market risk exposure. (a) Interest Rate Risk 55.6% of our long term debt is re-priced over the life of respective loan
agreements and bears interest at floating EURIBOR market interest rates plus a
spread. The remaining 44.4% of our long term debt bears interest at fixed rate
euro interest rates over the life of the respective borrowing. The table below
presents information about our debt obligations, including principal cash flows
and related weighted average interest rates by expected maturity dates.
Weighted average variable rates are based on implied forward rates in the yield
curve as of December 31, 2003. - 66 -




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Expected maturity dateThere-2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    after
    
    Total
    
    Fair Value(in thousands of euro, except percentages)Long-term liabilities at
floating interest rate
    
    
    30,046
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    130,046
    
    
    
    130,046Weighted average interest rate
    
    
    2.31
    %
    
    
    
    
    
    
    
    
    
    
    4.11
    %
    
    
    
    
    
    
    
    
    
    
    3.70
    %
    
    
    3.70
    %Long-term liabilities at
fixed interest rate
    
    
    44,021
    
    
    
    
    
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,021
    
    
    
    98,453Weighted average interest rate
    
    
    2.31
    %
    
    
    
    
    
    
    4.34
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.48
    %
    
    
    3.44
    %Total long-term liabilities
    
    
    74,067
    
    
    
    
    
    
    
    60,000
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    234,067
    
    
    
    228,499Weighted average interest rate
    
    
    2.31
    %
    
    
    
    
    
    
    4.34
    %
    
    
    4.11
    %
    
    
    
    
    
    
    
    
    
    
    3.60
    %
    
    
    3.59
    %
 (b) Foreign Exchange Rate Risk Foreign exchange exposure arises from our funding operations and, to a lesser
extent, capital expenditures for GSM network equipment. During 2001 the Greek
drachma was fixed to the euro at the rate of 1.00 to 340.750 drachmas. As
a matter of policy, we seek to hedge non- euro foreign denominated debt into
euro as well as a significant amount of non-euro foreign denominated purchases
of GSM network equipment. All such transactions are undertaken to manage the
risk arising form the underlying activities and no speculative trading is
undertaken. The off-balance sheet risk in outstanding forward exchange
contracts involves both the risk of a counterparty not performing under the
terms of the contract and the risk associated with changes in market value. We
monitor our positions, credit ratings of counterparties and the level of
contracts we enter into with any one party. The counterparties to these
contracts are major financial institutions. We have a policy of entering into
contracts only with parties that meet stringent qualifications and, given the
high level of credit quality of our derivative counterparties, we do not
believe it necessary to obtain collateral arrangements. Throughout 2003 and more specifically as of December 31, 2003, we had no
non-euro foreign currency denominated debt obligations and thus have not
entered into any forward foreign exchange or other foreign exchange derivative
hedging transactions. All debt was denominated in euro and thus was no longer
subject to foreign exchange rate risk. 
 Item 12. Description of Securities Other than Equity Securities Not applicable. 
 Part II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies [None] 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds [None] - 67 -




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##### Table of Contents



Item 15. Controls and Procedures Our management, under the supervision and with the participation of our chief
executive officer and chief financial officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2003. Based
on this evaluation, our chief executive officer and chief financial officer
have concluded that, as of December 31, 2003, our disclosure controls and
procedures were effective in (1) timely alerting them to material information
required to be included in our periodic reports to the Securities and Exchange
Commission and (2) ensuring that information required to be disclosed in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported as and when required. There are inherent limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human error and the
circumvention or overriding of such controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on this evaluation, there were no changes in our internal controls during
the fiscal year ended December 31, 2003 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. 
 Item 16. [Reserved] 
 Item 16A. Audit Committee Financial Expert We are currently in the process of establishing our Audit Committee. Once our
Audit Committee has been established, our Board of Directors will designate or
identify an audit committee financial expert. 
 Item 16B. Code of Ethics Our Code of Ethics, which was adopted on April 23, 2003, applies to directors
and executives including our CEO and senior financial officers. It is a
fundamental policy of our directors, executives and management to conduct our
business with honesty and integrity and in accordance with the highest legal
and ethical standards. Our Code of Ethics also governs our relationship with
our shareholders, customers and the communities in which we operate our
business, our human resources practice, our environmental practice and
confidentiality. Our Code of Ethics is reviewed regularly to ensure it reflects the highest
standards of behavior as well as applicable legal requirements. In addition,
we are in the process of establishing policies that support adherence to the
Code of Ethics and the reporting of any violations. Our Code of Ethics is posted on our internet website which is http://www.tim.com.gr. 
 Item 16C. Principal Accountant Fees and Services Ernst & Young (Hellas) Certified Auditors Accountants S.A., or Ernst & Young,
and their respective affiliates, which we together refer to as Ernst & Young
Entities, have audited our annual financial - 68 -




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##### Table of Contents



statements since our 2001 fiscal year. Ernst & Young acted as our independent
auditor for the fiscal years ended December 31, 2003 and 2002. The chart below sets forth the total amount billed to us by Ernst & Young
Entities for services performed in 2003 and 2002 and breaks down these amounts
by the category of service. 2002
    
    2003
    
    Audit Fees
    
    
    180,778
    
    
    
    230,469Audit-Related Fees
    
    
    17,100
    
    
    
    14,085Tax Fees
    
    
    81,093
    
    
    
    68,330All Other Fees
    
    
    160,500
    
    
    
    63,009Total Fees
    
    
    439,471
    
    
    
    375,893
 Audit Fees The audit fees include the aggregate fees billed in each 2003 and 2002 for
professional services rendered for the audit of our annual financial statements
or services that are normally provided by the auditor in connection with the
audits and regulatory filings or engagements for those financial years
(including comfort letters, consents and other services related to SEC
matters). Audit   Related fees The audit-related fees include the aggregate fees billed in each of the 2003
and 2002 for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported under audit services. For 2003, audit-related fees principally include
fees for advice with regard to the IFRS conversion and for the due-diligence
related to the Telesoft absorbtion by us. For 2002, audit-related fees
primarily include fees for the due-diligence related to the Telepolis
absorbtion by us. Tax Fees The tax fees in 2003 mainly relate to services for tax compliance and advice,
as well as tax services related to our absorbtion of Telesoft. The tax fees in
2002 mainly relate to services for tax compliance and advice, as well as tax
services related to our absorbtion of Telepolis. All Other Fees The other fees in 2003 and 2002 relate to permitted services not included in
the above categories. Pre-approval Policies and Procedures Upon proposal by the Board of Directors, in absense of an audit committee, the
Annual General Meeting of Shareholders appoints the auditor to audit the
Financial Statements of a financial year. The Board of Directors pre-approves
all fees relating to audit services, audit-related services, tax services and
other services provided by Ernst & Young, in advance of any engagement. The
external auditor is present at the meetings when our annual financial
statements are discussed. We comply with the Auditors independence procedure of
our major shareholder TIM. - 69 -




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Item 16D. Exemption from the Listing Standards for Audit Committees Not applicable 
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Not applicable 
 Part III 
 Item 17. Financial Statements See Item 18. Financial Statements - 70 -




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Item 18. Financial Statements The following financial statements, together with the report thereon of Ernst &
Young, are filed as part of this annual report: PageReport of Independent Auditors
    
    
    F-2Balance Sheets as at December 31, 2002 and 2003
    
    
    F-3Statements of Income for the years ended December 31, 2001, 2002 and 2003
    
    
    F-5Statements of Shareholders Equity as at December 31, 2001, 2002 and 2003
    
    
    F-7Statements of Cash Flows for the years ended December 31, 2001, 2002 and
2003
    
    
    F-8Notes to the Financial Statements
    
    
    F-9
 See pages F-1 to F-31. - 71 -




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##### Table of Contents



Item 19. Exhibits EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT1.2
    
    Articles of Association of STET Hellas Telecommunications S.A., as amended on November
14, 20034.1*
    
    Amendment Agreement, dated August 16, 1999, between STET Mobile Holding, N.V. and NYNEX
Network Systems International Subsidiary Company.4.2**/*
    
    Contract of Commercial Co-operation, dated March 24, 1999, between STET S.A.I.C. and
Germanos Batteries S.A.8
    
    Investments in Subsidiary Undertakings11*
    
    Code of Ethics of STET Hellas Telecommunications S.A.12.1
    
    Certification of Chief Executive Officer as required by Rule 13a-14(a) or Rule 15d-14(a).12.2
    
    Certification of Chief Financial Officer as required by Rule 13a-14(a) or Rule 15d-14(a).13.1
    
    Certification of Chief Executive Officer furnished pursuant to Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.13.2
    
    Certification of Chief Financial Officer furnished pursuant to Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
   *
    
    Incorporated by reference to STET Hellass Form 20-Fs filed in prior years.**
    
    Confidential treatment requested for portions of this exhibit. - 72 -




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. STET Hellas Telecommunications S.A.By:
    
    /s/  NIKOLAOS VARSAKISName: Nikolaos VarsakisTitle: Managing Director
 Date: June 17, 2004 - 73 -




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##### Table of Contents



INDEX TO THE FINANCIAL STATEMENTS PageREPORT OF INDEPENDENT AUDITORS
(ERNST & YOUNG  2003, 2002, 2001)
    
    
    F-2BALANCE SHEETS AS AT DECEMBER 31, 2002 AND 2003
    
    
    F-3STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2001, 2002, AND
2003
    
    
    F-5STATEMENTS OF SHAREHOLDERS EQUITY AS AT DECEMBER 31, 2001, 2002 AND
2003
    
    
    F-7STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2002
AND 2003
    
    
    F-8NOTES TO THE FINANCIAL STATEMENTS
    
    
    F-9
 F-1




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##### Table of Contents



[LETTERHEAD] 
 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of:
STET HELLAS TELECOMMUNICATIONS S.A. We have audited the accompanying balance sheets of STET HELLAS
TELECOMMUNICATIONS S.A. (a Greek corporation) as of December 31, 2003 and 2002,
and the related statements of income, shareholders equity and cash flows for
each of the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
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 management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of STET HELLAS TELECOMMUNICATIONS
S.A. as of December 31, 2003 and 2002, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2003, in conformity with U.S. generally accepted accounting principles. As discussed in Note 2 to the financial statements, STET HELLAS
TELECOMMUNICATIONS S.A. changed its method of accounting for asset retirement
obligations effective January 1, 2003. /s/ ERNST & YOUNG
Athens, Greece
February 26, 2004 F-2




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
BALANCE SHEETS
[In thousands (except share and per share data)] December 31,2002
    
    2003
    
    2003Notes
    
    
    
    
    
    U.S.$(1)ASSETSCURRENT ASSETSCash and cash equivalents
    
    
    
    
    
    
    35,581
    
    
    
    66,769
    
    
    
    84,108Accounts receivable, net of
allowance for doubtful accounts
of 38,266 and 44,590 as
of December 31, 2002 and 2003
respectively
    
    
    4
    
    
    
    127,983
    
    
    
    132,191
    
    
    
    166,522Inventories, net
    
    
    
    
    
    
    7,715
    
    
    
    8,783
    
    
    
    11,064Deferred income taxes
    
    
    11
    
    
    
    14,931
    
    
    
    10,396
    
    
    
    13,097Amounts due from related companies
    
    
    
    
    
    
    
    
    
    
    2,570
    
    
    
    3,237Other current assets
    
    
    5
    
    
    
    8,522
    
    
    
    8,493
    
    
    
    10,699Total current assets
    
    
    
    
    
    
    194,732
    
    
    
    229,202
    
    
    
    288,727OTHER ASSETSOther
    
    
    
    
    
    
    2,280
    
    
    
    2,597
    
    
    
    3,2722,280
    
    
    
    2,597
    
    
    
    3,272PROPERTY, PLANT AND EQUIPMENT
    
    
    6Cost
    
    
    
    
    
    
    878,501
    
    
    
    1,024,199
    
    
    
    1,290,182Less:Accumulated depreciation
    
    
    
    
    
    
    (356,702
    )
    
    
    (455,628
    )
    
    
    (573,953
    )521,799
    
    
    
    568,571
    
    
    
    716,229DISTRIBUTION NETWORK
    
    
    2Cost
    
    
    
    
    
    
    29,347
    
    
    
    29,347
    
    
    
    36,969Less:Accumulated amortization
    
    
    
    
    
    
    (11,739
    )
    
    
    (14,673
    )
    
    
    (18,485
    )17,608
    
    
    
    14,674
    
    
    
    18,484LICENSES
    
    
    2Cost
    
    
    
    
    
    
    257,652
    
    
    
    267,694
    
    
    
    337,214Less:Accumulated amortization
    
    
    
    
    
    
    (49,479
    )
    
    
    (56,410
    )
    
    
    (71,059
    )208,173
    
    
    
    211,284
    
    
    
    266,155TOTAL ASSETS
    
    
    
    
    
    
    944,592
    
    
    
    1,026,328
    
    
    
    1,292,867
   (1)
    
    Exchange rate used for the convenience translation of the December 31, 2003
balances: U.S.$1.2597 to 1.00. The accompanying notes are an integral part of these financial statements. F-3




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STET HELLAS TELECOMMUNICATIONS S.A.
BALANCE SHEETS
[In thousands (except share and per share data)] December 31,2002
    
    2003
    
    2003Notes
    
    
    
    
    
    U.S.$(1)LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    
    
    
    
    
    155,533
    
    
    
    168,215
    
    
    
    211,905Current maturities of long-term debt
    
    
    8
    
    
    
    
    
    
    
    74,067
    
    
    
    93,302Amounts due to related companies
    
    
    9
    
    
    
    8,003
    
    
    
    17,416
    
    
    
    21,938Taxes other than income
    
    
    
    
    
    
    3,969
    
    
    
    5,452
    
    
    
    6,867Income taxes payable
    
    
    11
    
    
    
    40,508
    
    
    
    44,546
    
    
    
    56,116Deferred revenue
    
    
    2
    
    
    
    24,528
    
    
    
    22,788
    
    
    
    28,706Other current liabilities
    
    
    10
    
    
    
    14,581
    
    
    
    14,303
    
    
    
    18,018Current portion of capital lease obligations
    
    
    
    
    
    
    4,252
    
    
    
    991
    
    
    
    1,248Liability for an asset retirement obligation S/T
    
    
    
    
    
    
    
    
    
    
    486
    
    
    
    613Total current liabilities
    
    
    
    
    
    
    251,374
    
    
    
    348,264
    
    
    
    438,713LONG-TERM LIABILITIESLong-term debt, net of current maturities
    
    
    8
    
    
    
    222,067
    
    
    
    100,000
    
    
    
    125,970Long term debt due to related companies
    
    
    9
    
    
    
    60,000
    
    
    
    60,000
    
    
    
    75,582Staff retirement indemnities
    
    
    12
    
    
    
    1,217
    
    
    
    1,688
    
    
    
    2,126Deferred income taxes
    
    
    11
    
    
    
    19,217
    
    
    
    21,721
    
    
    
    27,363Other long-term liabilities
    
    
    2
    
    
    
    36,850
    
    
    
    38,692
    
    
    
    48,739Capital lease obligations, less current portion
    
    
    
    
    
    
    251
    
    
    
    6,903
    
    
    
    8,696Liability for an asset retirement obligation L/T
    
    
    
    
    
    
    
    
    
    
    9,644
    
    
    
    12,148339,602
    
    
    
    238,648
    
    
    
    300,624COMMITMENTS AND CONTINGENCIES
    
    
    15
    
    
    
    35,397
    
    
    
    37,897
    
    
    
    47,739SHAREHOLDERS EQUITYCommon Stock par value 1.52 in 2002 and 1.53 in 2003
(Shares authorized, issued and outstanding 83,193,220 in
2002 and 2003)
    
    
    13
    
    
    
    126,454
    
    
    
    127,287
    
    
    
    160,342Additional paid-in capital
    
    
    
    
    
    
    71,186
    
    
    
    71,186
    
    
    
    89,673Retained earnings and statutory reserves
    
    
    
    
    
    
    120,579
    
    
    
    203,046
    
    
    
    255,776Total shareholders equity
    
    
    
    
    
    
    318,219
    
    
    
    401,519
    
    
    
    505,791TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    
    
    
    944,592
    
    
    
    1,026,328
    
    
    
    1,292,867
   (1)
    
    Exchange rate used for the convenience translation of the December 31, 2003
balances; U.S.$1.2597 to 1.00. The accompanying notes are an integral part of these financial statements. F-4




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STET HELLAS
TELECOMMUNICATIONS S.A. 
 STATEMENTS OF INCOME
[In thousands (except share and per share data)]
 Year ended December 31,2001
    
    2002
    
    2003
    
    2003Notes
    
    
    
    
    
    
    
    U.S.$ (1)Operating revenuesRevenues from telecommunication services
    
    
    16
    
    
    
    504,801
    
    
    
    666,453
    
    
    
    761,934
    
    
    
    959,808Sales of handsets and accessories
    
    
    
    
    
    
    18,956
    
    
    
    23,878
    
    
    
    46,606
    
    
    
    58,709Total operating revenues
    
    
    
    
    
    
    523,757
    
    
    
    690,331
    
    
    
    808,540
    
    
    
    1,018,517Cost of sales and services providedCost of services provided
    
    
    17
    
    
    
    (150,097
    )
    
    
    (199,577
    )
    
    
    (254,570
    )
    
    
    (320,681
    )Cost of sales of handsets and accessories
    
    
    
    
    
    
    (45,295
    )
    
    
    (53,175
    )
    
    
    (76,850
    )
    
    
    (96,808
    )Total cost of sales and services provided
    
    
    
    
    
    
    (195,392
    )
    
    
    (252,752
    )
    
    
    (331,420
    )
    
    
    (417,489
    )Gross profit
    
    
    
    
    
    
    328,365
    
    
    
    437,579
    
    
    
    477,120
    
    
    
    601,028Provision for doubtful accounts
    
    
    4
    
    
    
    (5,693
    )
    
    
    (5,081
    )
    
    
    (7,100
    )
    
    
    (8,944
    )Selling, general and administrative expenses
    
    
    18
    
    
    
    (234,953
    )
    
    
    (298,240
    )
    
    
    (303,137
    )
    
    
    (381,861
    )Operating income
    
    
    
    
    
    
    87,719
    
    
    
    134,258
    
    
    
    166,883
    
    
    
    210,223Interest and other financial expense, netInterest expense
    
    
    
    
    
    
    (16,936
    )
    
    
    (15,311
    )
    
    
    (12,234
    )
    
    
    (15,411
    )Interest income
    
    
    
    
    
    
    299
    
    
    
    235
    
    
    
    1,193
    
    
    
    1,503Other financial income, net
    
    
    19
    
    
    
    
    
    
    
    605
    
    
    
    223
    
    
    
    281(16,637
    )
    
    
    (14,471
    )
    
    
    (10,818
    )
    
    
    (13,627
    )Income before taxes
    
    
    
    
    
    
    71,082
    
    
    
    119,787
    
    
    
    156,065
    
    
    
    196,596Provision for income taxes
    
    
    11
    
    
    
    (35,241
    )
    
    
    (43,349
    )
    
    
    (63,446
    )
    
    
    (79,923
    )Net income before cumulative effect of change
in accounting principle, net of tax
    
    
    
    
    
    
    35,841
    
    
    
    76,438
    
    
    
    92,619
    
    
    
    116,673Cumulative effect of change
in accounting principle, net of tax of 588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    (1,260
    )Net income
    
    
    
    
    
    
    35,841
    
    
    
    76,438
    
    
    
    91,619
    
    
    
    115,413Amounts per common shareIncome before cumulative effect of change
in accounting principle
    
    
    
    
    
    
    0.48
    
    
    
    0.92
    
    
    
    1.11
    
    
    
    1.40Cumulative effect of change
in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )Net income per share-basic and diluted
    
    
    
    
    
    
    0.48
    
    
    
    0.92
    
    
    
    1.10
    
    
    
    1.39Weighted average shares outstanding-basic and
diluted
    
    
    
    
    
    
    74,979,847
    
    
    
    83,193,220
    
    
    
    83,193,220
    
    
    
    83,193,220
 F-5




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(1)
    
    Exchange rate used for the convenience translation of the December 31,
2003 balances: U.S.$1.2597 to 1.00. The accompanying notes are an integral part of these financial statements. F-6




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STET HELLAS
TELECOMMUNICATIONS S.A. 
 STATEMENTS OF SHAREHOLDERS EQUITY
[In thousands (except share data)]
 RetainedShare of
    
    
    
    
    
    Additional
    
    earnings andcommon
    
    Common
    
    paid-in
    
    statutorystock
    
    stock
    
    capital
    
    reserves
    
    Total
    
    
    
    
    
    Balance at December 31, 2000
    
    
    72,600,000
    
    
    
    106,530
    
    
    
    587
    
    
    
    19,947
    
    
    
    127,064Proceeds from issuance of shares
    
    
    10,593220
    
    
    
    15,544
    
    
    
    70,819
    
    
    
    
    
    
    
    86,363Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,841
    
    
    
    35,841Balance at December 31, 2001
    
    
    83,193,220
    
    
    
    122,074
    
    
    
    71,406
    
    
    
    55,788
    
    
    
    249,268Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,438
    
    
    
    76,438Capital increase from additional
paid-in capital and retained earnings
    
    
    
    
    
    
    4,380
    
    
    
    (220
    )
    
    
    (4,160
    )
    
    
    Payment of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,487
    )
    
    
    (7,487
    )Balance at December 31, 2002
    
    
    83,193,220
    
    
    
    126,454
    
    
    
    71,186
    
    
    
    120,579
    
    
    
    318,219Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,619
    
    
    
    91,619Capital increase from retained earnings
    
    
    
    
    
    
    833
    
    
    
    
    
    
    
    (833
    )
    
    
    Payment of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,319
    )
    
    
    (8,319
    )Balance at December 31, 2003
    
    
    83,193,220
    
    
    
    127,287
    
    
    
    71,186
    
    
    
    203,046
    
    
    
    401,519
 The accompanying notes are an integral part of these financial statements. F-7




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##### Table of Contents



STET HELLAS
TELECOMMUNICATIONS S.A. 
 STATEMENTS OF CASH FLOWS
[In thousands (except share and per share data)]
 Year ended December 31,2001
    
    2002
    
    2003
    
    2003
    
    
    
    
    
    U.S.$ (1)Cash Flows from Operating Activities:Net income
    
    
    35,841
    
    
    
    76,438
    
    
    
    91,619
    
    
    
    115,413Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    88,306
    
    
    
    96,529
    
    
    
    108,781
    
    
    
    137,031Deferred income taxes
    
    
    5,939
    
    
    
    (894
    )
    
    
    7,626
    
    
    
    9,606Provision for staff retirement indemnities
    
    
    245
    
    
    
    283
    
    
    
    471
    
    
    
    593Provision for commitments and contingencies
    
    
    2,201
    
    
    
    17,642
    
    
    
    2,500
    
    
    
    3,149Provision for doubtful accounts
    
    
    5,693
    
    
    
    5,081
    
    
    
    7,100
    
    
    
    8,944Provision for asset retirement obligation
    
    
    
    
    
    
    
    
    
    
    312
    
    
    
    393Cumulative effect of change in accounting principle for SFAS 143, net of tax
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    1,260Changes in operating assets and liabilities:Accounts receivable
    
    
    15,678
    
    
    
    (53,222
    )
    
    
    (11,308
    )
    
    
    (14,246
    )Inventories
    
    
    4,457
    
    
    
    (2,787
    )
    
    
    (1,068
    )
    
    
    (1,345
    )Amounts due from related companies
    
    
    
    
    
    
    
    
    
    
    (2,570
    )
    
    
    (3,237
    )Other current assets
    
    
    (2,735
    )
    
    
    (704
    )
    
    
    29
    
    
    
    36Accounts payable
    
    
    (26,274
    )
    
    
    43,474
    
    
    
    12,825
    
    
    
    16,159Amounts due to related companies
    
    
    (5,201
    )
    
    
    (13,314
    )
    
    
    9,413
    
    
    
    11,857Taxes other than income
    
    
    744
    
    
    
    992
    
    
    
    1,483
    
    
    
    1,867Income taxes payable
    
    
    6,903
    
    
    
    13,775
    
    
    
    4,038
    
    
    
    5,087Deferred revenue and other current liabilities
    
    
    (1,676
    )
    
    
    10,188
    
    
    
    (2,018
    )
    
    
    (2,544
    )Other non-current assets
    
    
    2,886
    
    
    
    (111
    )
    
    
    (317
    )
    
    
    (400
    )Net Cash provided by Operating Activities
    
    
    133,007
    
    
    
    193,370
    
    
    
    229,916
    
    
    
    289,623Cash Flows from Investing Activities:Capital expenditures
    
    
    (132,505
    )
    
    
    (105,302
    )
    
    
    (137,579
    )
    
    
    (173,307
    )License acquisition
    
    
    (129,127
    )
    
    
    
    
    
    
    
    
    
    
    Net Cash used in Investing Activities
    
    
    (261,632
    )
    
    
    (105,302
    )
    
    
    (137,579
    )
    
    
    (173,307
    )Cash Flows from Financing Activities:Proceeds from issuing common stock
    
    
    86,363
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from short-term borrowings, net of repayments
    
    
    14,116
    
    
    
    (62,550
    )
    
    
    
    
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    Proceeds from long-term debt due to related companies
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    (7,337
    )
    
    
    (109,115
    )
    
    
    (48,000
    )
    
    
    (60,466
    )Net movement in capital lease obligations
    
    
    (2,058
    )
    
    
    (2,949
    )
    
    
    (4,830
    )
    
    
    (6,084
    )Payment of dividends
    
    
    
    
    
    
    (7,487
    )
    
    
    (8,319
    )
    
    
    (10,479
    )Net Cash provided by/(used in) Financing Activities
    
    
    151,084
    
    
    
    (82,101
    )
    
    
    (61,149
    )
    
    
    (77,029
    )Net increase in cash and cash equivalents
    
    
    22,459
    
    
    
    5,967
    
    
    
    31,188
    
    
    
    39,287Cash and cash equivalents at beginning of year
    
    
    7,155
    
    
    
    29,614
    
    
    
    35,581
    
    
    
    44,821Cash and cash equivalents at end of year
    
    
    29,614
    
    
    
    35,581
    
    
    
    66,769
    
    
    
    84,108SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for:- Interest, net of amounts capitalized
    
    
    16,648
    
    
    
    13,006
    
    
    
    10,917
    
    
    
    13,752- Income taxes
    
    
    21,780
    
    
    
    20,509
    
    
    
    47,035
    
    
    
    59,25038,428
    
    
    
    33,515
    
    
    
    57,952
    
    
    
    73,002
   (1)
    
    Exchange rate used for the convenience translation of the December 31, 2003
balances: U.S.$1.2597 to 1.00. The accompanying notes are an integral part of these financial statements. F-8




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A. 
 
  1.
    
    COMPANYS FORMATION AND OPERATIONS:STET HELLAS TELECOMMUNICATIONS S.A. (hereinafter referred to as Stet
Hellas or the Company) was incorporated on July 28, 1992, as a société
anonyme, in order to provide mobile telecommunications services in the
Hellenic Republic (Greece or the State), in accordance with the
provisions of Law 2075/92, subsequently replaced by Law 2246/94 (the
Telecommunications Law). Since June 3, 1998, Stet Hellas shares have
been quoted on the NASDAQ National Market and are listed on the Official
Market of the AEX Effectenbeurs N.V. (the Amsterdam Stock Exchange). TIM
International N.V. is the Companys principle shareholder.Following a competitive tender, Stet Hellas entered into a Concession
Agreement, dated September 14, 1992 (the 1st Concession Agreement), with
the State and, on September 30, 1992, was granted a twenty-year license
(the License) to operate a GSM network in Greece for a concession fee of
91.7 million. The License authorizes Stet Hellas to establish and
operate a mobile telecommunications network according to the GSM standard,
including the authority to lease excess capacity on the microwave
facilities used to connect switches within the GSM network on a dedicated
basis to third parties.Furthermore, subject to applicable European Union (EU) requirements, the
License to operate a GSM network in Greece would be exclusive to Stet
Hellas and Panafon S.A. for a period of eight years from its effective
date. However, pursuant to a license granted to the Hellenic
Telecommunications Organization S.A. (OTE) in 1995, OTE is entitled to
develop mobile telecommunications services using DCS 1800 technology. In
1997, OTE transferred its rights to provide such services to its 70% owned
subsidiary, COSMOTE Mobile Telecommunications S.A. (Cosmote).Following a competitive tender, Stet Hellas entered into a concession
agreement, dated August 6, 2001 (the 2nd Concession Agreement) with the
State and on the same date, was granted a fifteen-year license (the DCS
1800 license) to operate a DCS network in Greece for the concession fee
of 26 million, as well as a twenty-year license (the UMTS license)
to operate a UMTS network in Greece for the concession fee of 147
million.These licenses authorize Stet Hellas to establish and operate a mobile
telecommunications network in the DCS 1800 MHz band, as well as, in the
special range of 2 x 10 MHz + 5 MHz. UMTS is a high-speed standard for
third generation mobile telecommunications that allows Stet Hellas to
provide an extensive range of new services, including mobile multimedia,
video telephony and high-speed Internet access.2.
    
    SIGNIFICANT ACCOUNTING POLICIES:
    
    Basis of Financial Statements:The Company maintains its accounts
under Greek tax and corporate regulations and has made adjustments to
these records to present the accompanying financial statements in
accordance with generally accepted accounting principles in the United
States (U.S. GAAP). F-9




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  
    
    Other Comprehensive Income:Other comprehensive income refers to
changes in net assets from transactions and other events, and
circumstances other than transactions with shareholders. These changes
are recorded directly as a separate component of shareholders equity
and excluded from net income. The Company does not have any components
of comprehensive income other than net income.
    
    Use of Estimates:The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
    
    Foreign Currency Transactions:For the years ended December 31, 2003
and 2002 the Companys functional currency and reporting currency was
the Euro. For the year ended December 31, 2001 the Companys
functional currency was the Greek Drachma and its reporting currency
was the Euro. As of January 1, 2001 the Greek Drachma was fixed at DRS
340.75 to the Euro. Transactions involving other currencies are
converted into Euro using the exchange rates that are in effect at the
time of the transactions. At the balance sheet dates, monetary assets
and liabilities, which are denominated in other currencies, are
adjusted to reflect the current exchange rates. Gains or losses
resulting from foreign currency re-measurements are reflected in the
accompanying statements of income.Net foreign exchange gains (losses) related to currency re-measurements of
(336), 605 and 223 for 2001, 2002 and 2003 respectively, are
included in the accompanying statements of income (see Note 19).
    
    Forward Exchange Contracts:Periodically the Company enters into forward
exchange contracts to hedge the exposure of foreign exchange fluctuations
associated with its normal business transactions. During the year 2003,
the Company had no outstanding forward exchange contracts. Forward
exchange contracts are marked to market, with any resulting gains or
losses being reflected in the accompanying statements of income.The off-balance sheet risk in outstanding forward exchange contracts
involves both the risk of a counterparty not performing under the terms of
the contract and the risk associated with changes in market value. The
Company monitors its positions, the credit ratings of counterparties and
the level of contracts it enters into with any one party. The
counterparties to these contracts are major financial institutions. The
Company has a policy of entering into contracts with parties that meet
stringent qualifications and, given the high level of credit quality of
its derivative counterparties, the Company does not believe it necessary
to obtain collateral arrangements.
    
    Cash and Cash Equivalents:The Company considers time deposits and
certificates of deposits with original maturity of three months or
less to be cash equivalents.
    
    Inventories:Inventories, comprising of SIM cards, prepaid airtime
cards, handsets and related accessories are stated at the lower of
cost or market. Cost is determined using the F-10




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  first-in, first-out (FIFO) method. The Company provides an allowance for
obsolete and slow moving inventories.
    
    Concentration of Credit Risk and Allowance for
Doubtful Accounts:Due to the large volume and
diversity of the Companys customer base,
concentrations of credit risk with respect to trade
accounts receivable are limited. The allowance for
doubtful accounts receivable is stated at the amount
considered necessary to cover potential risks in the
collection of accounts receivable balances.
    
    Property, Plant and Equipment:Property, plant and
equipment in the accompanying balance sheets are
stated at cost including interest costs incurred
during periods of construction based upon the
weighted average borrowing rate. Repairs and
maintenance are charged to expenses as incurred. The
cost and related accumulated depreciation of assets
retired or sold are removed from the accounts at the
time of sale or retirement, and any gain or loss is
included in the accompanying statements of income.
    
    Depreciation:Depreciation is computed based on the
straight-line method at rates equivalent to average
estimated economic useful lives. The rates used are
as follows: Annual ratesBuildings
    
    
    2.5%-5
    %Telecommunications systems and equipment
    
    
    10
    %Transportation equipment
    
    
    25
    %Furniture and equipment
    
    
    20
    %Software
    
    
    25
    %
  Leasehold improvements are amortized over the term of the lease.
    
    Distribution Network:On March 24, 1999, the Company finalized a
formal agreement with Germanos Batteries S.A. (Germanos), a Greek
retail telecommunications and electronics dealer.The total acquisition cost to the Company for the right to use Germanos
distribution network amounted to 29.3 million, which has been
classified as an asset in the accompanying balance sheets and is amortized
over its average estimated useful life of ten years. The estimated
amortization expense for each of the five succeeding fiscal years is
approximately 3 million per year.
    
    Licenses:The License for the GSM 900 network, which was granted to the
Company for a concession fee of 91.7 million, is being amortized over
the term of the License of twenty (20) years. The DCS 1800 License, which
was granted to the Company for a concession fee of 26 million, is
being amortized over the term of the License of fifteen (15) years.The UMTS License, which was granted to the Company for a concession fee of
147 million, is recorded in the Companys financial statements as
follows:  
    
    103 million that represent the amount that was paid within
2001 and represents the 1st part of the concession fee of the
license. F-11




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  
    
    35 million that represent the present value of the future
installments of 44 million. This amount is recorded in other
long-term liabilities.
    
    4.2 million representing the interest expense of the period
from the acquisition of the license and up to December 31, 2003,
which was capitalized. This amount is recorded in other long-term
liabilities.  The UMTS license will start to be amortized when the license enters into
commercial operation in 2004.The Company entered into an agreement to lease a Fixed Wire Access (FWA)
license in the 25 GHz frequency band. This lease is accounted for as a
capital lease and is amortized over the term of the lease of thirteen (13)
years. The present value of the minimum lease payments at the beginning
of the lease term amounted to 8.2 million.The estimated amortization expense for the licenses for each of the five
succeeding fiscal years is approximately 14 million per year.
    
    Goodwill and Other Intangible Assets:Effective January 1, 2002 the
Company adopted Statements of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 no
longer permits the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be reviewed annually (or
more frequently under certain conditions) for impairment in accordance
with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required
by SFAS No. 121, Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed of. The goodwill and
indefinite-lived intangible assets impairment test under SFAS No. 142
requires a two-step approach, which is performed at the reporting unit
level, as defined in SFAS No. 142. Step one identifies potential
impairments by comparing the fair value of the reporting unit to its
carrying amount. Step two, which is performed if there is a potential
impairment, compares the carrying amount of the reporting units
goodwill to its implied value, as defined in SFAS No. 142. If the
carrying amount of the reporting units goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized for an
amount equal to that excess. Intangible assets that do not have
indefinite lives will continue to be amortized over their useful
lives.
    
    Impairment or Disposal of Long-Lived Assets:Long-lived assets subject
to amortization are reviewed for impairment in accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets which the Company adopted effective January 1, 2002. Under
SFAS No. 144, these assets are tested for recoverability whenever
events or changes in business or technology indicate that their
carrying amounts may not be recoverable. An impairment charge is
recognized for the amount (if any) by which the carrying value of the
asset exceeds it fair value.
    
    Reserve for Staff Retirement Indemnities:As more fully discussed in
Note 13, the reserve for staff retirement indemnities is provided for
in accordance with SFAS No. 87 F-12




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  (disclosed in accordance with the requirements of SFAS No. 132R) and is based
on an independent actuarial study.
    
    Income Taxes:Deferred income taxes provide for the
tax effects of temporary differences between
financial reporting and tax basis of assets and
liabilities, using enacted tax rates in effect in the
years in which the differences are expected to
reverse. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not
that a tax benefit will not be realized.
    
    Advertising Costs:Advertising costs are expensed as
incurred. The Company incurred 15,576, 13,024
and 17,155 in advertising costs during 2001,
2002 and 2003, respectively.
    
    Recognition of Revenues:Revenues from the sale of
handsets and accessories, net of discounts allowed,
are recognized upon shipment to dealers or at
point-of-sale (in the case of sales through the
Companys retail outlets), while revenues from the
sale of prepaid airtime cards and the prepaid
airtime, net of discounts allowed, included in the
Companys prepaid GSM service packages are recognized
based on usage.Revenues from telecommunications services are recognized when earned.
Unbilled revenues from the billing cycle dating to the end of each month
are calculated based on traffic and are accrued at the end of the month.
Accrued unbilled revenues for services provided amounted to 10,956 and
14,358 as of December 31, 2002 and 2003, respectively (see Note 4).
    
    Deferred Revenue:Deferred revenue includes monthly service fees
billed to customers in advance and the estimated unused portion of
prepaid airtime cards.
    
    Net Income per Share:Basic earnings per share are computed by
dividing net income by the weighted average number of shares
outstanding during the year. During the periods included in the
financial statements, diluted income per share was equivalent to basic
income per share.
    
    Segment Reporting:The Company provides mobile telecommunications
services throughout the Hellenic Republic. Management considers that
they operate and manage the business as one business and geographical
segment.
    
    Stock Based Compensation:The Company grants stock options for a fixed
number of shares to employees with an exercise price fixed in U.S.
dollars, which differs from its functional and reporting currency.
The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25 Accounting for Stock
Issued to Employees (APB 25). In accordance with EITF 00-23, if
the exercise price is denominated in a currency other than the
currency of the primary economic environment of either the employer or
the employee, the exercise price is not fixed and variable accounting
is required. The guidance in EITF 00-23 is applied to stock options
granted subsequent to January 18, 2001. The impact of applying EITF
00-23 was not significant for all years presented. F-13




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency   in thousands unless otherwise stated)  The following table illustrates the effect on net income and earnings per
share if the company had applied the fair value recognition provisions of
SFAS No. 123 Accounting for Stock-Based Compensation, to stock-based
employee compensation.All amounts in 000s Euro except Earnings per Share At December 31,2001
    
    2002
    
    2003
    
    
    
    Net income as reported
    
    
    35,841
    
    
    
    76,438
    
    
    
    91,619Deduct: Total stock based compensation expense
determined under fair value based method for all
awards
    
    
    (4,186
    )
    
    
    (4,989
    )
    
    
    (1,049
    )Pro forma net income
    
    
    31,655
    
    
    
    71,449
    
    
    
    90,570Earning per share- Basic and diluted:As reported
    
    
    0.48
    
    
    
    0.92
    
    
    
    1.10Pro forma
    
    
    0.42
    
    
    
    0.86
    
    
    
    1.09
  
    
    Fair Value of Financial Instruments:Cash and cash equivalents, accounts
receivable, accounts payable, accruals and short-term borrowings: The
carrying amounts approximate the fair value because of the short-term
maturity of these instruments. Long-term debt including current
maturities: The fair value is based on the current rates offered to the
Company for similar debt on the same maturities. At December 31,
    
    At December 31,2002
    
    2002
    
    2003
    
    2003Carrying value
    
    Fair value
    
    Carrying value
    
    Fair value
    
    
    
    
    
    Long-term liabilities at floating interest rates
    
    
    178,046
    
    
    
    178,046
    
    
    
    130,046
    
    
    
    130,046Long-term liabilities at fixed interest rates
    
    
    104,021
    
    
    
    94,314
    
    
    
    104,021
    
    
    
    98,453
  
    
    Asset Retirement Obligation:Effective January 1, 2003, the Company
changed its method of accounting for asset retirement obligations in
accordance with FASB Statement No. 143, Accounting for Asset Retirement
Obligations. Previously, the Company had not been recognizing amounts
related to asset retirement obligations. Under the new accounting method,
the Company now recognizes asset retirement obligations in the period in
which they are incurred if a reasonable estimate of a fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset.The cumulative effect of the change on prior years resulted in a charge to
income of 1 million (net of income taxes of 0.6 million)
(0.0120 per share), which is included in income for the year ended
December 31, 2003. The effect of the change on the year ended December 31,
2003 was to decrease income before the cumulative effect, gross of tax, of
the accounting change by 0.7 million (0.0084 per share). The pro
forma effects of the application of Statement 143 as if the Statement had
been adopted on January 1, 2001 (rather than January 1, 2003) are
presented below: 2001
    
    2002
    
    2003
    
    
    
    Pro forma amounts assuming the accounting change is applied
retroactively net-of-tax:Pro forma effect on net income
    
    
    659
    
    
    
    341
    
    
    
    444Pro forma effect on net income per common share
    
    
    0.01
    
    
    
    0.00
    
    
    
    0.01
 F-14




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  Over the course of its life, the Companys has leased buildings or land
upon which it constructs its transmission and relay towers. The company
enters into new leases each year and, in most cases, has the right to
renew the initial lease term. The Company is legally required to
dismantle the towers and, where necessary, recondition the building at the
end of the lease life.The Company recognized the fair value of a liability for the asset
retirement obligations and capitalized that cost as part of the cost basis
of the leasehold improvement and depreciates it on a straight-line basis
over the expected life of the leasehold improvements. The following table
describes all changes to the Companys asset retirement obligation
liability: 2003Asset retirement obligation at beginning of year
    
    
    Liability recognized in transition
    
    
    7,005Accretion expense
    
    
    335Capitalization of the period
    
    
    2,813Reversal of restoration expenses
    
    
    (23
    )Asset retirement obligation at end of year
    
    
    10,130
  The pro forma asset retirement obligation liability balances as if
Statement 143 had been adopted on January 1, 2001 (rather than January 1,
2003) are as follows: At December 31,2002
    
    2003
    
    Pro forma amounts of liability for asset retirement obligation at beginning
of year
    
    
    4,181
    
    
    
    7,005Pro forma amounts of liability for asset retirement obligation at end of year
    
    
    7,005
    
    
    
    10,130
  
    
    Recently Issued Accounting Standards:In 2003, the FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 provides guidance on the
identification of entities for which control is achieved through means
other than through voting rights (variable interest entities) and how to
determine when and which business enterprise (the primary beneficiary)
should consolidate the variable interest entity. This new model for
consolidation applies to an entity in which either (i) the equity
investors (if any) do not have a controlling financial interest; or (ii)
the equity investment at risk is insufficient to finance the entitys
activities without receiving additional subordinated financial support
from other parties. In addition, FIN 46 requires that the primary
beneficiary, as well as all other enterprises with a significant variable
interest in a variable interest entity, makes additional disclosures. The
effective dates and impact of FIN 46 and its revision FIN 46-R, are as
follows:  1.
    
    Special purpose entities (SPEs) created prior to February 1,
2003 - application of FIN 46 becomes effective for the year ending
December 31, 2004.2.
    
    Non-SPEs created prior to February 1, 2003 - adoption of FIN
46-R becomes effective for the year ending December 31, 2004. F-15




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STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  3.
    
    All entities, regardless of whether an SPE, that were created
subsequent to January 31, 2003. The provisions of FIN 46 were
applicable for variable interests in entities obtained after January
31, 2003. Adoption of FIN 46-R was required for the year ended
December 31, 2003.  The adoption of the provisions applicable to SPEs and all other variable
interests obtained after January 31, 2003 did not have an impact on the
Companys financial statements. The Company is currently evaluating the
impact of adopting FIN 46-R applicable to SPEs and non-SPEs created prior
to February 1, 2003, but does not expect any impact on the Companys
results of operations or financial position.In November 2002, the EITF reached a consensus on EITF No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21
provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and/or rights to
use assets. The provisions of EITF 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003.
The Company believes that its current accounting is consistent with the
provisions of EITF 00-21 and therefore does not expect that the
application of the provisions of EITF 00-21 will have a material impact on
the Companys financial statements.
    
    Presentation Changes:Certain reclassifications have been made to the
presentation of the 2001 and 2002 financial statements to conform to those
of 2003.3.
    
    TRANSLATIONS OF EURO AMOUNTS INTO U.S. DOLLARS:The financial statements are stated in Euro. The translations of the Euro
amounts into U.S. Dollars are included solely for the convenience of the
reader, using the noon buying rate in New York City for cable transfers in
foreign currencies, as certified for customs purposes by the Federal
Reserve Bank of New York on December 31, 2003, which was U.S.$.1.2597 to
1.00. The convenience translations should not be construed as
representations that the Euro amounts have been, could have been, or could
in the future be, converted into U.S. Dollars at this or any other rate of
exchange.4.
    
    ACCOUNTS RECEIVABLE: At December 31,2002
    
    2003
    
    Customers for services rendered
    
    
    81,659
    
    
    
    94,113Customers for sales of handsets and accessories
    
    
    19,542
    
    
    
    21,169Unbilled revenues
    
    
    10,956
    
    
    
    14,358Interconnection fees receivable
    
    
    51,697
    
    
    
    43,527International GSM network operators for roaming services
    
    
    830
    
    
    
    1,919Other
    
    
    1,565
    
    
    
    1,695166,249
    
    
    
    176,781Less: Allowance for doubtful accounts
    
    
    (38,266
    )
    
    
    (44,590
    )127,983
    
    
    
    132,191
  The movement of the allowance for doubtful accounts receivable was as
follows: F-16




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated) Balance at December 31, 2000
    
    
    27,492Provision
    
    
    5,693Balance at December 31, 2001
    
    
    33,185Provision
    
    
    5,081Balance at December 31, 2002
    
    
    38,266Provision
    
    
    7,100Write offs
    
    
    (776
    )Balance at December 31, 2003
    
    
    44,590
  5.
    
    OTHER CURRENT ASSETS:Other current assets are analyzed as follows: At December 31,2002
    
    2003
    
    Receivable from the Greek Post Office (ELTA)
    
    
    816
    
    
    
    1,020Prepaid expenses
    
    
    4,834
    
    
    
    6,548Other
    
    
    2,872
    
    
    
    925Total
    
    
    8,522
    
    
    
    8,493
  6.
    
    PROPERTY, PLANT AND EQUIPMENT:The major classes of property, plant and equipment are as follows: At December 31,2002
    
    2003
    
    Cost:Land
    
    
    3,407
    
    
    
    3,407Buildings
    
    
    38,925
    
    
    
    45,237Telecommunications systems and equipment
    
    
    521,487
    
    
    
    619,019Transportation equipment
    
    
    963
    
    
    
    828Furniture and equipment
    
    
    85,216
    
    
    
    96,208Software
    
    
    195,024
    
    
    
    231,421Capital leases
    
    
    9,125
    
    
    
    7,650Construction in progress
    
    
    24,354
    
    
    
    20,429878,501
    
    
    
    1,024,199Accumulated depreciation
    
    
    (356,702
    )
    
    
    (455,628
    )Net book value
    
    
    521,799
    
    
    
    568,571
  Total interest costs incurred during the years ended December 31, 2002 and
2003 amounted to 17,200 and 14,202, respectively. Interest costs
capitalized related specifically to property, plant and equipment for 2002
and 2003 amounted to 134 and 126, respectively.7.
    
    SHORT-TERM BORROWINGS:Short-term borrowings consist of drawdowns under various lines of credit
maintained by the Company with several banks and a short-term financing
facility in the amount of 100 million from TIM International N.V., the
Companys principle shareholder. The aggregate amount of available lines
of credit was 211.2 million and  110.2 million at December 31,
2002 and 2003, respectively, of which approximately 211.2 million and
 110.2 million were unused as of the above dates. F-17




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  The weighted average interest rate on short-term borrowings at December
31, 2002 and 2003 was 4.57%.8.
    
    LONG-TERM DEBT:Long-term debt is analyzed as follows: At December 31,2002
    
    2003
    
    (i) Loans from European Investment Bank of: Equivalent of 74,067 drawn-down as follows:- 44,021, repayable on May 31, 2004, bearing interest at
5.65%
    
    
    44,021
    
    
    
    44,021- 14,673, repayable on May 31, 2004, bearing interest at the
Euribor borrowing rate plus 0.15%. (2.27% at December 31, 2003)
    
    
    14,673
    
    
    
    14,673- 15,373, repayable on May 31, 2004, bearing interest at the
Euro interbank borrowing rate plus 0.15%. (2.27% at December 31,
2003)
    
    
    15,373
    
    
    
    15,373 100,000 repayable on December 14, 2007, bearing interest at the
Euribor borrowing rate plus 0.60%. (2.72% at December 31, 2003)
    
    
    100,000
    
    
    
    100,000(ii) Syndicated loan arranged by ABN AMRO Finance (UK) Ltd.: 48,000, repayable on July 14, 2004, bearing interest at the Euro
interbank borrowing rate plus 0.40% (3.597% at December 31, 2002),
repaid in 2003
    
    
    48,000
    
    
    
    Total long-term debt
    
    
    222,067
    
    
    
    174,067Less: Current maturities
    
    
    
    
    
    
    74,067Long-term debt, net of current maturities
    
    
    222,067
    
    
    
    100,000
  Minimum future payments of long-term debt for years subsequent to December 31,
2003, are as follows: Maturity
    
    Amount2004
    
    
    74,0672005
    
    
    2006
    
    
    2007
    
    
    100,000174,067
  The loans from European Investment Bank and ABN AMRO Finance (UK) Limited
are guaranteed by Telecom Italia S.p.A. (Telecom Italia) (see Note 9).
Each guarantee provides a full and unconditional guarantee of the
Companys obligations under the respective loans until such time as those
obligations have been discharged.Management believes that it can obtain financing without a guarantee from
the Telecom Italia group, although such financing may not be on terms as
favourable as those obtained with a Telecom Italia group guarantee.9.
    
    AMOUNTS DUE TO/FROM RELATED COMPANIES:The Company purchases fixed assets, goods and services from certain
related companies in the normal course of business. Furthermore, it also
sells handsets and accessories to a related company. These related
parties consist of companies that have common ownership and/or management
with the Company and affiliates of such companies. The Company believes
that the terms of such transactions are comparable to those that would F-18




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  be attainable by the Company in the ordinary course of business from
unaffiliated third parties under similar circumstances.TIM International N.V. (TIM Intl), a wholly owned subsidiary of Telecom
Italia Mobile S.p.A. (TIM), is the Companys principle shareholder
holding directly through ordinary shares 80.257% of the total STET Hellas
ordinary shares.On December 12, 2001 the company entered into an agreement with Telecom
Italia S.p.A. (Telecom Italia), based on which Telecom Italia provides
STET Hellas with a credit facility of 60 million. This facility has
been fully utilized and is repayable in December 14, 2006 bearing interest
at 5.7%. The terms and conditions of this agreement are similar to those
of a bank loan agreement.Account balances with related companies are as follows: At December 31,2002
    
    2003
    
    Due from:IT Telecom
    
    
    
    
    
    
    1,832Telecom Italia Mobile S.p.A.
    
    
    
    
    
    
    422Telecom Italia Sparkle
    
    
    
    
    
    
    315Other
    
    
    
    
    
    
    1
    
    
    
    2,570Due to:Telesoft Software Development and Consulting Services S.A.
    
    
    1,079
    
    
    
    IT Telecom
    
    
    
    
    
    
    3,899Telecom Italia Mobile S.p.A.
    
    
    3,729
    
    
    
    8,040Telecom Italia Lab S.p.A.
    
    
    1,681
    
    
    
    Telecom Italia S.p.A.
    
    
    1,087
    
    
    
    3,580Sodalia S.p.A.
    
    
    427
    
    
    
    Telecom Italia Sparkle
    
    
    
    
    
    
    1,125Telemedia Applicazioni
    
    
    
    
    
    
    715Other
    
    
    
    
    
    
    578,003
    
    
    
    17,416
  Transactions with related companies consisted of the following: At December 31,2002
    
    2003
    
    Purchase of fixed assets
    
    
    2,437
    
    
    
    4,020Management fees
    
    
    14,021
    
    
    
    15,349Other services
    
    
    7,706
    
    
    
    7,818Total
    
    
    24,164
    
    
    
    27,187
  Purchases of fixed assets from related parties represented approximately
2% and 2.9% of the Companys total purchases for 2002 and 2003,
respectively.The Company had signed technical support and assistance agreements with
Stet International and NYNEX Network Systems Company, an affiliate of
Verizon Europe Holdings II B.V. (Verizon/NYNEX), each of which expires
on December 31, 2004. F-19




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  Effective January 1, 2001 the Company paid management fees under these
agreements equal to 2.24% and 0.76% respectively. As of October 1, 2001
the management fee to Verizon/NYNEX became zero as a consequence of
decrease of Verizon/NYNEX ownership on Stet Hellas below 20% after the
rights issue. On August 2, 2002, TIM International N.V. acquired the
17.45% stake of Verizon/NYNEX in Stet Hellas, becoming the sole majority
shareholder. Since then, the assistance agreement with Verizon/NYNEX
legally ceased to exist.For the years ended December 31, 2002 and 2003 management fees related to
TIM amounted to 14,021 and 15,349 respectively. All costs of doing
business with its shareholders and other related parties have been
accounted for by the Company in the accompanying financial statements.10.
    
    OTHER CURRENT LIABILITIES:Other current liabilities are analyzed as follows: At December 31,2002
    
    2003
    
    Accrued interest on loans
    
    
    878
    
    
    
    276License fee to National Telecommunications and Postal Committee (NTPC)
    
    
    2,001
    
    
    
    2,107Payroll and related expenses
    
    
    5,706
    
    
    
    7,378Other accrued liabilities
    
    
    5,996
    
    
    
    4,542Total
    
    
    14,581
    
    
    
    14,303
  11.
    
    INCOME TAXES:In accordance with Greek tax regulations, the income tax rate applicable
to the Company was 40% for fiscal year 2000. Pursuant to Law 2873/2000,
the tax rate for companies whose shares are not listed on the Athens Stock
Exchange (such as the Company) was reduced to 37.5% for fiscal year 2001
and was reduced to 35% for fiscal year 2002 and onwards.Tax returns are filed annually but the profits or losses declared for tax
purposes remain provisional until such time as the tax authorities examine
the returns and the records of the taxpayer and a final assessment is
issued.In late 2000, the tax authorities commenced the tax audit of the Companys
books for the Fiscal years 1998 to 2000. The tax audit was completed in
2001 and additional income taxes and penalties of 15,642 were
assessed. This amount was partially provided for in 2000 as probable
future tax assessments of 7,337 and the remaining amount of 8,305
was recorded as an expense in 2001.The provision for income taxes reflected in the accompanying statements of
income is analyzed as follows: F-20




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated) Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    Income taxesCurrent Expense
    
    
    (29,303
    )
    
    
    (44,243
    )
    
    
    (55,820
    )Deferred (Expense) / Benefit
    
    
    (5,938
    )
    
    
    894
    
    
    
    (7,626
    )Total provision for income taxes
    
    
    (35,241
    )
    
    
    (43,349
    )
    
    
    (63,446
    )
  The reconciliation of the provision for income taxes to the amount
determined by the application of the Greek statutory tax rate (37.5% in
2001 and 35% in 2002 and 2003) to pretax income is summarized as follows: Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    Income tax at the statutory rate:
    
    
    (26,656
    )
    
    
    (41,926
    )
    
    
    (54,623
    )Effect of change in statutory tax rate
    
    
    (370
    )
    
    
    
    
    
    
    Tax from share capital increase
    
    
    (1,007
    )
    
    
    
    
    
    
    Tax losses from subsidiary carryforwards
    
    
    (656
    )
    
    
    2,553
    
    
    
    Effects of non-taxable income and
expenses not deductible for tax
purposes:- Non deductible expenses
    
    
    (5,375
    )
    
    
    (5,269
    )
    
    
    (4,995
    )- Management fees
    
    
    (1,177
    )
    
    
    (1,227
    )
    
    
    (1,343
    )- Tax incentives
    
    
    
    
    
    
    2,520
    
    
    
    - Valuation allowance increase for
unrecognised provision for bad debts
    
    
    
    
    
    
    
    
    
    
    (2,485
    )Provision for income taxes
    
    
    (35,241
    )
    
    
    (43,349
    )
    
    
    (63,446
    )
  Deferred income taxes relate to the temporary differences between the book
and the tax bases of assets and liabilities. Significant components of
the Companys deferred tax assets and liabilities are summarized below: At December 31,2002
    
    2003
    
    Deferred tax assets:Staff retirement indemnities
    
    
    (426
    )
    
    
    (591
    )Reserve for litigation and claims
    
    
    (12,389
    )
    
    
    (13,264
    )Deferred airtime revenue
    
    
    (5,131
    )
    
    
    (4,574
    )Stock devaluation
    
    
    (162
    )
    
    
    Property, plant and equipment
    
    
    (2,608
    )
    
    
    (6,197
    )Other
    
    
    (3,197
    )
    
    
    (3,138
    )Provision for bad debts
    
    
    
    
    
    
    (2,485
    )Valuation allowance
    
    
    
    
    
    
    2,485Deferred tax assets
    
    
    (23,913
    )
    
    
    (27,764
    )Deferred tax liabilities:Property, plant and equipment
    
    
    27,811
    
    
    
    38,559Other
    
    
    387
    
    
    
    530Deferred tax liability
    
    
    28,198
    
    
    
    39,089Net deferred tax liability
    
    
    4,285
    
    
    
    11,325
 F-21




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  A valuation allowance of 2,485 has been recorded against the provision
for bad debts as it is more likely than not that it will not be realized.The Company has tax-free reserves in the amount of 307. The Company
does not plan to distribute dividends out of the tax-free reserves,
however if a dividend were paid from these reserves a withholding tax of
35% of the amount distributed from the tax free reserves would be
remitted.12.
    
    STAFF PENSION AND RETIREMENT INDEMNITIES:
    
    Staff Pension:The Companys employees are covered by one of several
Greek State sponsored pension funds. Each employee is required to
contribute a portion of their monthly salary to the fund, with the
Company also contributing a portion. Upon retirement, the pension fund
is responsible for paying the employees retirement benefits. The
Companys contributions to the pension funds for the years ended
December 31, 2001, 2002 and 2003, have been charged to expenses and
amounted to 6,069, 6,765 and 7,756, respectively.
    
    Staff Retirement Indemnities:Under Greek labor law, employees are
entitled to termination payments in the event of dismissal or
retirement with the amount of payment varying in relation to the
employees compensation, length of service and manner of termination
(dismissed or retired). Employees who resign or are dismissed with
cause are not entitled to termination payments. The indemnity payable
in case of retirement is equal to 40% of the amount which would be
payable upon dismissal without cause.The provisions and liability for such retirement indemnities have been
accounted for in the accompanying financial statements in accordance with
SFAS No. 87 and are based on an independent actuarial study. These
retirement indemnities are paid to the individuals at the time they retire
from the Company.The components of the staff retirement indemnity cost recognized by the
Company in accordance with SFAS No. 87 are as follows: Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    Service cost
    
    
    195
    
    
    
    212
    
    
    
    372Interest cost
    
    
    49
    
    
    
    68
    
    
    
    87Net amortization and deferrals
    
    
    2
    
    
    
    4
    
    
    
    12246
    
    
    
    284
    
    
    
    471Additional cost of extra benefits
    
    
    35
    
    
    
    56
    
    
    
    54281
    
    
    
    340
    
    
    
    525
  The following is a reconciliation of the projected benefit obligation
recorded for staff retirement indemnities: At December 31,2002
    
    2003
    
    Projected benefit obligation at beginning of year
    
    
    1,143
    
    
    
    1,594Service cost
    
    
    212
    
    
    
    372
 F-22




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated) At December 31,2002
    
    2003
    
    Interest cost
    
    
    68
    
    
    
    87Benefits paid directly by the Company
    
    
    (56
    )
    
    
    (54
    )Extra payments or expenses
    
    
    56
    
    
    
    54Actuarial loss
    
    
    171
    
    
    
    334Projected benefit obligation at end of year
    
    
    1,594
    
    
    
    2,387
 At December 31,2002
    
    2003
    
    Projected benefit obligation at end of year
    
    
    1,594
    
    
    
    2,387Fair value of plan assets
    
    
    
    
    
    
    1,594
    
    
    
    2,387Unrecognised transitional asset/(obligation)
    
    
    
    
    
    
    Unrecognised net actuarial loss
    
    
    (377
    )
    
    
    (699
    )Unrecognised prior service cost
    
    
    
    
    
    
    Accrued pension cost
    
    
    1,217
    
    
    
    1,688
  The total accumulated benefit obligation for the termination obligations,
which are unfounded, is 634 and 862 as at December 31, 2002 and
2003, respectively.  The projected future benefit payments under this plan are as follows: Year
    
    As at December 31, 20032004
    
    
    31,9322005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009-2013
    
    
    167,277
  The assumptions underlying the actuarial valuation of staff retirement
indemnities are: Year ended December 31,2002
    
    2003Discount rate
    
    
    5.5
    %
    
    
    5.0
    %Assumed rate of increase in future compensation levels
    
    
    4.5
    %
    
    
    4.5
    %Price inflation
    
    
    2.5
    %
    
    
    2.5
    %
  13.
    
    SHARE CAPITAL:On October 10, 2001 the Company increased its share capital through a
rights offering. The shares increased from 72,600,000 to 83,193,220 and
the net proceeds from this offering were approximately 86.4 million.
On September 17, 2002 the Company increased its share capital per Board of
Directors approval, through a transfer of retained earnings and additional
paid-in capital. The nominal value per share increased from 1.47 to
1.52. On October 16, 2003 the Company increased its share capital per
Board of Directors approval, through a transfer of retained earnings. The
nominal value per share increased from 1.52 to 1.53. As of
December 31, 2003 the share
capital was approximately 127.3 million and additional paid-in capital
71.2 million. F-23




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  14.
    
    LEGAL RESERVE:Under Greek corporate law, corporations are required to transfer a minimum
of five percent of their annual net profit shown in their statutory books
to a legal reserve, until such reserve equals one-third of the paid-in
share capital. The legal reserve as at December 31, 2003 is 7,791.15.
    
    COMMITMENTS AND CONTINGENCIES:  (a)
    
    Commitments:  (i)
    
    Capital Commitments:The Company has a number
of outstanding capital commitments on supplier contracts
which at December 31, 2003, amounted to approximately  13
million.(ii)
    
    Lease Commitments:At December 31, 2003, the
Company was a party to a number of non-cancelable lease
agreements. The operating leases relate to real estate
property and transportation leases, which expire on various
dates through 2014. The capital leases relate to the Service
Center equipment and the lease for a fixed wireless access
license. The amortization of assets recorded under capital
leases is included within depreciation expense.  The future minimum lease payments under these agreements for the periods
shown at December 31, 2003 are as follows: Operating
    
    CapitalYear
    
    leases
    
    leases
    
    2004
    
    
    21,893
    
    
    
    1,5372005
    
    
    20,919
    
    
    
    1,2002006
    
    
    20,266
    
    
    
    1,2002007
    
    
    19,478
    
    
    
    1,0622008
    
    
    18,987
    
    
    
    787Thereafter
    
    
    69,603
    
    
    
    5,573Total minimum rental commitments
    
    
    171,146
    
    
    
    11,359Less interest costs (average rate 7%)
    
    
    
    
    
    
    (3,465
    )Present value of minimum lease payments
    
    
    
    
    
    
    7,894
  Total rent expense under operating leases for 2001, 2002 and 2003 amounted
to 15,698, 16,750 and 19,596 respectively, and is included in
the accompanying statements of income.Capital lease amounts included in assets are as follows: Year ended December 31,2002
    
    2003
    
    Property, plant and equipment
    
    
    9,125
    
    
    
    7,650Licenses
    
    
    
    
    
    
    8,1999,125
    
    
    
    15,849Accumulated amortization
    
    
    (4,808
    )
    
    
    (6,324
    )Total
    
    
    4,317
    
    
    
    9,525
 F-24




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  (b)
    
    Litigation and Claims:The Company is a party to various litigation and claims, the major
of which are:  (i)
    
    Mobitel Arbitration:Mobitel S.A. (Mobitel) a
distributor of the Company and its parent, Interamerican
Group, submitted a request for arbitration (the Initial
Claims) to the International Court of Arbitration of the
International Chamber of Commerce (the ICC International
Court of Arbitration or the Tribunal) seeking compensation
on several commercial issues. The Initial Claims dated
December 26, 1996 and July 15, 1997 requested damages in an
aggregate amount of 13.4 million plus VAT and interest
and 132.1 million, respectively.The Company has vigorously denied these claims and on April
16, 1997, filed a counterclaim (the Counterclaim) against
Mobitel and Interamerican.On October 9, 2000, the Tribunal issued an interim award
which ruled that, in principle, Mobitel is entitled to a 6%
compensation calculated on the Companys revenues from both
outgoing and incoming calls. The Company has filed an
objection with the Tribunal, claiming that the issue of the
quantification of Mobitels claim must be decided by the
Greek courts, based on a specific provision in the Mobitel
Agreement.A series of legal actions took place and in 2002, Mobitel
calculated its claims as follows: claims for the commission
on revenues generated by all calls (including incoming calls)
made by customers acquired by Mobitel amount to U.S.$19.6
million plus interest of U.S.$9.6 million; claims for the
Companys failure to achieve a 45% market share amount to
U.S.$8.8 million plus interest; and claims for the damages as
a result of the breach of the agreement amount to U.S.$109.4
million.As of January 30, 2002 the Company quantified its
counterclaim against Mobitel as follows: 22.7 million for
bad debts; U.S.$255.4 million for the loss of market share as
a result of the failure of Mobitel and Interamerican to
fulfil their obligations; and U.S.$611.2 million plus the
legal interest for damages and loss of income incurred for
the illegal termination by Mobitel of the distribution and
sales agreement with the Company.The tribunal issued on November 2003 an Interim Award on the
Companys claim for bad debts awarding in favour of the
Company an amount of 1.5 million and rejecting the
corresponding claim of Mobitel for commissions for bad debts. F-25




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  While no assurance can be given as to the outcome of these
proceedings, if the Companys Counterclaim and the Revised
Claim  Additional Request were unsuccessful, the award of
substantially all the amounts
claimed by Mobitel and Interamerican would have a material
adverse effect on the Companys financial condition and
results of operations.(ii)
    
    Interamerican Greek Life Insurance Company
S.A.:Interamerican Greek Life Insurance Company S.A., filed
a claim with the First Instance Court in Athens against the
Company, requesting an amount of 11.7 million for moral
damages incurred. The first hearing before the court took
place on April 5, 2001 and the Court issued decision no.
9800/2001 requesting further evidence.(iii)
    
    DELAN Arbitration:The Company and Delan
Cellular Services S.A. (DELAN) were party to an agreement
dated September 25, 1996, whereby DELAN agreed to develop and
market prepaid telecommunications services through the
Companys network in exchange for 50% of the revenues from
prepaid airtime cards sold by DELAN and from prepaid airtime
included in prepaid service packages sold to prepaid
customers by DELAN. On January 27, 1997, the Company
terminated the agreement due to DELANs failure to perform
and instead pursued development of B-Free with a different
contractor. On February 26, 1998, DELAN filed a claim
against the Company for actual damages in an amount of
343 as well as a claim in an aggregate amount of 79.5
million for loss of anticipated profits.The first hearing before an arbitration tribunal occurred on
March 18, 1998. Due to the resignation of one of the
arbitrators, the evidence submission and the hearing
procedure were repeated and were only completed in January
2001. The two parties filed closing briefs on March 6, 2001.
The arbitrators decision remains pending however they have
issued an interim decision appointing an independent
chartered accountant to deliver a report to the Tribunal
evaluating the claim based on the contract and the actual
figures arising from the Companys operations of pre-paid
mobile telephony between 1997 and 2002.Management and legal counsel believe that the Companys
defense is strong and well founded and the Company will
vigorously defend its position; however, an adverse result
could have a material adverse effect on the Companys
financial condition and results of operations.(iv)
    
    Vasilias Enterprises S.A. Litigation:On March
14, 2001, Vasilias Enterprises S.A. (Vasilias), one of the
Companys master dealers, filed a claim with the Athens Court
of First Instance, requesting an amount of approximately
9.1 million for moral damages and for other amounts to
which Vasilias was entitled in relation to business
activities performed on behalf of the Company. The hearing
before the Athens Court of First F-26




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  Instance took place on April  , 2003. The Court has awarded Vasilias the amount of
1.7 million against which the court offset the Companys
counterclaim of 1.0 million. Both parties appealed the
decision. The
hearing before the Athens Court of Appeals took place on May
20, 2004. The decision of the Court remains pending.(v)
    
    Lantec Communications S.A. Litigation:On
March 21, 2002, a claim amounting to approximately 52.7
million was filed by an ex-master dealer, Lantec
Communications S.A. (Lantec) against the Company, seeking
damages relating to the termination by the Company of its
exclusive agreement with Lantec. The hearing before the
Multimember First Instance Court of Athens took place on
March 24, 2004. The decision of the Court remains pending.
The Company believes that the claim is without merit and
intends to contest the case vigorously.  16.
    
    REVENUES FROM TELECOMMUNICATIONS SERVICES:Revenues from telecommunications services reflected in the accompanying
statements of income are analyzed as follows: Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    Monthly service fees
    
    
    61,316
    
    
    
    80,034
    
    
    
    102,281Airtime revenues:Outgoing calls
    
    
    103,930
    
    
    
    136,184
    
    
    
    164,211Incoming calls from fixed line networks
    
    
    152,263
    
    
    
    167,932
    
    
    
    123,473Incoming calls from other mobile operators network
    
    
    
    
    
    
    64,556
    
    
    
    119,397Prepaid airtime cards
    
    
    121,051
    
    
    
    140,269
    
    
    
    153,292Roaming revenues from the Companys customers
    
    
    11,211
    
    
    
    12,512
    
    
    
    15,028Roaming revenues from customers of international
GSM network operators
    
    
    29,392
    
    
    
    30,187
    
    
    
    36,955417,847
    
    
    
    551,640
    
    
    
    612,356Data communications
    
    
    24,170
    
    
    
    32,008
    
    
    
    42,684Other
    
    
    1,468
    
    
    
    2,771
    
    
    
    4,613Total
    
    
    504,801
    
    
    
    666,453
    
    
    
    761,934
  Prepaid airtime cards include revenues from the sale of prepaid airtime
renewal cards and prepaid airtime, net of discounts allowed, included in
B-Free packages used as of the end of the period.17.
    
    COST OF SERVICES PROVIDED:Cost of services provided reflected in the accompanying statements of
income is analyzed as follows: Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    Interconnection charges from fixed line operators
    
    
    44,748
    
    
    
    37,058
    
    
    
    20,726Interconnection charges from other mobile operators
    
    
    
    
    
    
    62,186
    
    
    
    118,380Depreciation
    
    
    61,277
    
    
    
    53,881
    
    
    
    65,175
 F-27




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated) Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    Roaming charges from international GSM network operators
    
    
    11,536
    
    
    
    13,634
    
    
    
    13,342Payroll
    
    
    12,307
    
    
    
    12,242
    
    
    
    14,611Leased lines
    
    
    6,258
    
    
    
    3,305
    
    
    
    2,970Utilities
    
    
    2,838
    
    
    
    4,486
    
    
    
    4,672SIM cards
    
    
    5,371
    
    
    
    4,608
    
    
    
    3,210Installations rentals
    
    
    5,762
    
    
    
    8,177
    
    
    
    11,484Total
    
    
    150,097
    
    
    
    199,577
    
    
    
    254,570
  18.
    
    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:Selling, general and administrative expenses reflected in the accompanying
statements of income are analyzed as follows: Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    Commissions to dealers
    
    
    79,143
    
    
    
    102,106
    
    
    
    103,724Management fees
    
    
    14,698
    
    
    
    14,021
    
    
    
    15,349Advertising expenses
    
    
    15,576
    
    
    
    13,024
    
    
    
    17,155Payroll
    
    
    24,898
    
    
    
    30,980
    
    
    
    34,161Depreciation
    
    
    18,777
    
    
    
    33,368
    
    
    
    33,550Amortization of intangibles
    
    
    8,252
    
    
    
    9,280
    
    
    
    10,056Repair and maintenance
    
    
    25,687
    
    
    
    30,182
    
    
    
    30,015Consultancy and other third party fees
    
    
    11,623
    
    
    
    11,447
    
    
    
    18,013Provision for litigation and claims
    
    
    2,935
    
    
    
    18,603
    
    
    
    2,500Utilities
    
    
    6,614
    
    
    
    7,274
    
    
    
    8,855Rentals
    
    
    11,964
    
    
    
    11,122
    
    
    
    13,726Other
    
    
    14,786
    
    
    
    16,833
    
    
    
    16,033Total
    
    
    234,953
    
    
    
    298,240
    
    
    
    303,137
  19.
    
    OTHER FINANCIAL INCOME/(EXPENSE), NET:Other financial income/(expense), net in the accompanying statements of
income are analyzed as follows: Year ended December 31,2001
    
    2002
    
    2003
    
    
    
    Foreign currency exchange gains/(losses), net
    
    
    (336
    )
    
    
    605
    
    
    
    223Other
    
    
    336
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    605
    
    
    
    223
  20.
    
    STOCK OPTION PLANS:The Company issued two stock option plans to selective employees of the
Company. The objectives of these plans include attracting and retaining
personnel and promoting the success of the Company by providing executive
employees the opportunity to acquire common stock.Under the first plan, approved on March 30, 2000, by the Companys
Shareholders General Assembly (the 1st Plan), the Company issued
1,300,000 option rights, which entitled the bearer to purchase shares of
the Company at a price equal to the listed market price of Stet Hellas on
the NASDAQ Stock Exchange as of the above date, which was U.S.$28.375.
This plan expired as of November 30, 2003. Included in the rollforward F-28




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  below are outstanding options of 827,000, 535,000, and none, and weighted
average exercise prices per option of Euro 27.06, Euro 27.06, and none at
December 31, 2001, 2002, and 2003, respectively.

Stet Hellas approved on December 11, 2000, by the companys Shareholders
Extraordinary General Assembly the 2nd Plan, Stet Hellas was authorized
to issue 1,000,000 option rights, which entitle the bearer to purchase
shares of Stet Hellas at a price equal to the listed market price of Stet
Hellas on the NASDAQ Stock Exchange as of such date, which was US$12.532.
Included in the rollforward below are outstanding options of 935,000,
569,000 and 698,000 and weighted average exercise prices per option of
Euro 15.88, Euro 11.73, and Euro 9.94 at December 31, 2001, 2002 and 2003
respectively.Options vest on a pro-rata basis over approximately a four-year period
from the grant dates.The Company has adopted the disclosure provisions of FASB Statement 123,
as modified by FAS 148, but opted to remain under the expense recognition
provisions of Accounting Principles Board (APB) Opinion No 25, Accounting
for Stock Issued to Employees in accounting for options granted under the
Stock Option Plans. Accordingly, for the year ended December 31, 2003, no
compensation expense was recognized for options granted under the plans in
the accompanying financial statements. F-29




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  The movement in the options outstanding during the years ended December
31, 2001, 2002 and 2003, is as follows: Number of
    
    Weightedshares
    
    averagesubject to
    
    exercise priceoption
    
    (Euro)Outstanding at December 31, 2000
    
    
    1,965,000
    
    
    
    25.01Granted during the period
    
    
    175,000
    
    
    
    14.09Exercised during the period
    
    
    
    
    
    
    Forfeited during the period
    
    
    (378,000
    )
    
    
    27.51Expired during the period
    
    
    
    
    
    
    Outstanding at December 31, 2001
    
    
    1,762,000
    
    
    
    23.39Granted during the period
    
    
    
    
    
    
    Exercised during the period
    
    
    
    
    
    
    Forfeited during the period
    
    
    (658,000
    )
    
    
    20.79Expired during the period
    
    
    
    
    
    
    Outstanding at December 31, 2002
    
    
    1,104,000
    
    
    
    19.27Granted during the period
    
    
    177,500
    
    
    
    11.73Exercised during the period
    
    
    
    
    
    
    Forfeited during the period
    
    
    (48,500
    )
    
    
    11.73Expired during the period
    
    
    (535,000
    )
    
    
    29.51Outstanding at December 31, 2003
    
    
    698,000
    
    
    
    9.94Exercisable at December 31, 2001
    
    
    619,000
    
    
    
    23.82Exercisable at December 31, 2002
    
    
    341,367
    
    
    
    21.25Exercisable at December 31, 2003
    
    
    232,667
    
    
    
    9.94
  Prior to 2002, the Company had used the Black-Scholes option pricing model
to estimate the fair value of stock options granted to employees. Starting
in 2002, the Company revisited the use of the Black-Scholes option-pricing
model and concluded that certain other option-pricing models, in
particular binomial models, were better adapted to capturing the
complexity of the fair value of these options. Therefore, effective
January 1, 2002, the Company adopted the Cox-Ross-Rubenstein (CRR)
binomial model for estimating the fair value of employee stock options.
The CRR model uses a binomial tree to assess the probabilities that the
price of the underlying stock might follow over the life of the option.In contrast to the Black-Scholes model, the CRR model takes into account
possible future stock prices at specified times between the grant date and
the option maturity. An additional strength of the CRR model is that it is
specifically designed to value options that can be exercised at any time
(so called American options), as opposed to those that can only be
exercised at the end of their maturity (so called European options). The
Companys employees are free to exercise their vested stock options once
they are vested, therefore they are considered to be American type call
options. Also, the Group F-30




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##### Table of Contents



STET HELLAS TELECOMMUNICATIONS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(currency -  in thousands unless otherwise stated)  has historically paid dividends, which it
anticipates doing in the future. The CRR model
also has the flexibility to incorporate assumptions related to the payment
level of future dividends. The CRR model was designed for these types of
options, therefore it provides more useful fair value information.The weighted average fair value of options granted in 2001 was estimated
using the Black-Scholes stock option-pricing model while the weighted
average fair value of options granted in 2003 was estimated using the CRR
model. No options were granted in 2002. The following weighted average
assumptions were used: Year ended December 31,2001
    
    2003Dividend yield
    
    
    1.48
    %
    
    
    0.93
    %Annual standard deviation (volatility)
    
    
    57
    %
    
    
    68
    %Risk free interest rate
    
    
    5
    %
    
    
    2.70
    %Expected life (years)
    
    
    4
    
    
    
    2
  All options granted are treated as indexed options under the disclosure
requirements of SFAS No. 123. Furthermore, the weighted average exercise
price and weighted average fair value at grant date were estimated at
11.73 and 1.19, respectively, for the options granted in 2003 and
14.09 and 3.61, respectively, for those granted in 2001.The following table provides details of all options outstanding as at
December 31, 2003. Outstanding
    
    ExercisableWeightedWeighted
    
    average
    
    
    
    
    
    Weightedaverage
    
    remaining
    
    
    
    
    
    averageexercise price
    
    contractual
    
    
    
    
    
    exercise pricePlan
    
    Number
    
    ()
    
    life
    
    Number
    
    ()2nd Plan
    
    
    698,000
    
    
    
    9.94
    
    
    
    1.00
    
    
    
    232,667
    
    
    
    9.94
  21.
    
    SUBSEQUENT EVENTSDividends declared:On February 26, 2004 the Board of Directors proposed
for formal approval at the Annual General Meeting a final dividend in
respect to the year ended December 31, 2003 of 8,319. On April 22,
2004 the General Assembly unanimously approved the proposed dividend. The
dividend was paid on May 28, 2004 to registered holders of the Companys
shares as at May 6, 2004. F-31