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As filed with the Securities and Exchange Commission on March 30, 2007
   SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2006
 Commission file
number: 1-15156
 
 TELEKOM AUSTRIA AG
  AUSTRIA
 Lassallestrasse 9, 1020 Vienna, Austria
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of each class
       Name of each exchange on which registeredAmerican Depositary Shares,
   
 New York Stock Exchangerepresenting Common StockCommon Stock, no par value
    
    Vienna Stock ExchangeNew York Stock Exchange*
 
 *
    
    Not for trading, but only in connection with the registration of American Depositary Shares,
pursuant to the requirements of the Securities and Exchange Commission.





Securities registered or to be registered pursuant to Section 12(g) of the Act.







Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.







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:


Common Stock, no par value
   
    
    500,000,000


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. þ Yes o No


If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 o Yes þ No


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. þ Yes o No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):


þ o o


Indicate by check mark which financial statement item the registrant has elected to follow. o Item 17 þ Item 18


If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). o Yes þ No










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##### 



TABLE OF CONTENTS
 PART IItem 1.
    
    Identity of Directors, Senior Management and Advisors
    
    
    3Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    3Item 3.
    
    Key Information
    
    
    33.1. Selected Financial and Other Data
    
    
    33.2. Dividends
    
    
    73.3. Exchange Rate Information
    
    
    83.4. Risk Factors
    
    
    9Item 4.
    
    Information on the Company
    
    
    154.1. History and Development of the company
    
    
    154.2. Business Overview
    
    
    17Strategy
    
    
    17Wireline
    
    
    19Wireless
    
    
    32Property and Equipment
    
    
    44Research and Development
    
    
    444.3.
Regulation and Legal Framework
    
    
    46Item 5.
    
    Operating and Financial Review and Prospects
    
    
    625.1. Overview
    
    
    625.2. Results of Operations
    
    
    695.3. Results of Operations
    
    
    845.4.
Liquidity and Capital Resources
    
    
    99Item 6.
    
    Directors, Senior Management and Employees
    
    
    108Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    115Item 8.
    
    Financial Information
    
    
    117Item 9.
    
    The Offer and Listing
    
    
    120Item 10.
    
    Additional Information
    
    
    12110.1. Memorandum and Articles of Association
    
    
    12110.2. Taxation
    
    
    13410.3. Documents on Display
    
    
    140Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    141Item 12.
    
    Description of Securities Other than Equity Securities
    
    
    143PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    143Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    143Item 15.
    
    Controls and Procedures
    
    
    143Item 16A.
    
    Audit Committee Financial Expert
    
    
    145Item 16B.
    
    Code of Ethics
    
    
    145Item 16C.
    
    Principal Accountant Fees and Services
    
    
    146Item 16D.
    

Exemptions
from the Listing Standards for Audit Committees
    
    
    147Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    148PART IIIItem 17.
    
    Financial Statements
    
    
    149Item 18.
    
    Financial Statements
    
    
    149Item 19.
    
    Exhibits
    
    
    149Exhibit 1.1Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1




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REFERENCES
  FORWARD-LOOKING STATEMENTS
  
    
    the level of demand for telecommunications services or equipment, particularly with
regard to access lines and subscribers, traffic, bandwidth and new products;
    
    competitive forces in liberalized markets, including pricing pressures, technological
developments, alternative routing developments and new access technologies, and our ability
to retain market share in the face of competition from existing and new market entrants;
    
    the effects of our tariff reduction initiatives or other marketing initiatives;
    
    the impact of insolvencies of our major customers or suppliers;
    
    the regulatory developments and changes, including the levels of tariffs, the terms of
interconnection, unbundling of access lines and international settlement arrangements;
    
    our ability to achieve cost savings and realize productivity improvements;
    
    the success of new businesses, operating and financial initiatives, many of which
involve start-up costs, and new systems and applications;
    
    the successful integration of acquired subsidiaries;
    
    our ability to secure the licenses we need to offer services and the cost of these
licenses and related network infrastructure expansions;
    
    the progress and success of our domestic and international investments, joint ventures
and alliances;
    
    the impact of our new business strategies and transformation processes including the
restructuring of operations;
    
    the availability, terms and deployment of capital and the impact of regulatory and
competitive developments on capital expenditures;
    
    the outcome of current and future litigation in which we are or will be involved;
    
    the level of demand for our shares which can affect our business strategies;
    
    our ability to further reduce our existing workforce;
    
    changes in the law including regulatory, civil servants and social security, pensions and tax law;
    
    concerns over health risks associated with the use of wireless handsets or radio
frequency emissions from transmission masts; and
 1




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
    
    general economic conditions, government and regulatory policies, new legislation and
business conditions in the markets we serve.
  2




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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisors
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 3.1. SELECTED FINANCIAL AND OTHER DATA
      3




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Selected Financial Data according to IFRS
    
    Year ended December 31,2006
    
    2005
    
    2004
    
    2003(in EUR millions, except per share information)Consolidated statements of operations (3):Operating revenues (1)
    
    
    4,759.6
    
    
    
    4,365.2
    
    
    
    4,042.9
    
    
    
    3,959.8Other operating income
    
    
    59.2
    
    
    
    54.8
    
    
    
    50.5
    
    
    
    46.7Operating expenses:Materials
    
    
    (385.2
    )
    
    
    (350.1
    )
    
    
    (327.5
    )
    
    
    (299.6
    )Employee costs, including benefits
and taxes
    
    
    (768.3
    )
    
    
    (698.5
    )
    
    
    (692.0
    )
    
    
    (719.3
    )Depreciation and amortization
    
    
    (1,123.9
    )
    
    
    (1,121.4
    )
    
    
    (1,114.8
    )
    
    
    (1,133.1
    )Impairment charges
    
    
    (10.5
    )
    
    
    (17.4
    )
    
    
    (1.3
    )
    
    
    (6.8
    )Other operating expenses
    
    
    (1,758.5
    )
    
    
    (1,612.9
    )
    
    
    (1,488.3
    )
    
    
    (1,472.7
    )Total operating expenses
    
    
    (4,046.4
    )
    
    
    (3,800.3
    )
    
    
    (3,623.9
    )
    
    
    (3,631.5
    )Operating income
    
    
    772.4
    
    
    
    619.7
    
    
    
    469.5
    
    
    
    375.0Other income (expense):Interest income
    
    
    20.0
    
    
    
    32.7
    
    
    
    17.5
    
    
    
    17.8Interest expense
    
    
    (133.5
    )
    
    
    (144.9
    )
    
    
    (142.1
    )
    
    
    (175.0
    )Foreign exchange differences
    
    
    (0.3
    )
    
    
    1.3
    
    
    
    0.0
    
    
    
    (0.1
    )(Loss) income from investments
    
    
    (0.7
    )
    
    
    3.8
    
    
    
    10.5
    
    
    
    (4.8
    )Equity in earnings of affiliates
    
    
    0.0
    
    
    
    0.6
    
    
    
    0.5
    
    
    
    19.1Income before income taxes
    
    
    657.9
    
    
    
    513.2
    
    
    
    355.9
    
    
    
    232.0Income tax expense
    
    
    (96.1
    )
    
    
    (104.3
    )
    
    
    (135.5
    )
    
    
    (80.8
    )Net income
    
    
    561.8
    
    
    
    408.9
    
    
    
    220.4
    
    
    
    151.2Attributable to:Equity holders of the parent
    
    
    561.8
    
    
    
    408.9
    
    
    
    219.8
    
    
    
    147.2Minority interests
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.6
    
    
    
    3.9Basic and fully diluted earnings per
share
    
    
    1.19
    
    
    
    0.84
    
    
    
    0.44
    
    
    
    0.30
 Year ended December 31,2006
    
    2005
    
    2004
    
    2003(in EUR millions)Consolidated cash flow data:Cash generated from operations
    
    
    1,589.9
    
    
    
    1,637.7
    
    
    
    1,319.2
    
    
    
    1,325.6Cash used in investing activities
    
    
    (971.6
    )
    
    
    (1,780.9
    )
    
    
    (509.3
    )
    
    
    (643.9
    )Cash used in financing activities
    
    
    (608.8
    )
    
    
    (28.1
    )
    
    
    (719.5
    )
    
    
    (512.5
    )Effect of exchange rate differences
    
    
    (1.2
    )
    
    
    (0.1
    )
    
    
    (4.1
    )
    
    
    5.4Net increase (decrease) in
cash and cash equivalents
    
    
    8.3
    
    
    
    (171.4
    )
    
    
    86.3
    
    
    
    174.6
 4




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Selected Financial Data according to IFRS
    
    At December 31,2006
    
    2005
    
    2004
    
    2003(in EUR millions)Consolidated balance sheet data:Assets:Current assets
    
    
    1,160.2
    
    
    
    1,096.5
    
    
    
    1,275.7
    
    
    
    1,143.7Property, plant and equipment, net
    
    
    3,216.0
    
    
    
    3,583.0
    
    
    
    3,746.7
    
    
    
    4,277.3Goodwill and Intangible assets, net
    
    
    3,043.7
    
    
    
    2,852.4
    
    
    
    1,439.1
    
    
    
    1,489.2Investments and long-term financial assets
    
    
    81.5
    
    
    
    90.5
    
    
    
    83.8
    
    
    
    114.7Other assets and deferred tax assets
    
    
    58.2
    
    
    
    74.3
    
    
    
    135.8
    
    
    
    233.3Due from related parties (long-term)
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    
    7,559.7
    
    
    
    7,696.7
    
    
    
    6,681.1
    
    
    
    7,258.2Liabilities:Current liabilities
    
    
    1,657.3
    
    
    
    1,855.5
    
    
    
    1,942.3
    
    
    
    1,853.1Long-term debt, net of current portion
    
    
    2,750.1
    
    
    
    2,557.7
    
    
    
    1,647.2
    
    
    
    2,342.3Lease obligations, net of current portion
    
    
    57.4
    
    
    
    68.7
    
    
    
    63.5
    
    
    
    72.0Employee benefit obligations
    
    
    111.6
    
    
    
    109.5
    
    
    
    107.9
    
    
    
    164.4Other liabilities and deferred income taxes
    
    
    159.8
    
    
    
    186.6
    
    
    
    121.8
    
    
    
    113.0Total liabilities
    
    
    4,736.2
    
    
    
    4,778.0
    
    
    
    3,882.7
    
    
    
    4,544.8Stockholders equity
    
    
    2,823.5
    
    
    
    2,918.7
    
    
    
    2,798.4
    
    
    
    2,713.4Total liabilities and stockholders equity
    
    
    7,559.7
    
    
    
    7,696.7
    
    
    
    6,681.1
    
    
    
    7,258.2
  Selected Financial Data according to U.S. GAAP
    
    Year ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(in EUR millions, except per share information)Consolidated statements of operations (3):Operating revenues (1) (2)
    
    
    4,771.3
    
    
    
    4,377.3
    
    
    
    4,056.3
    
    
    
    3,969.8
    
    
    
    3,118.1Operating income
    
    
    764.8
    
    
    
    620.0
    
    
    
    452.7
    
    
    
    369.8
    
    
    
    57.4Net income (loss) before income taxes and
minority interests
    
    
    669.4
    
    
    
    523.5
    
    
    
    350.1
    
    
    
    232.6
    
    
    
    43.8Minority interests
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    (0.6
    )
    
    
    (3.4
    )
    
    
    (4.9
    )Net income
    
    
    620.8
    
    
    
    417.1
    
    
    
    227.3
    
    
    
    134.2
    
    
    
    12.8Basic and fully diluted earnings (loss) per
share
    
    
    1.31
    
    
    
    0.85
    
    
    
    0.46
    
    
    
    0.27
    
    
    
    0.03Basic and fully diluted earnings (loss) per share
excluding extraordinary items
    
    
    1.31
    
    
    
    0.85
    
    
    
    0.46
    
    
    
    0.27
    
    
    
    0.03Basic and fully diluted earnings (loss) per share
excluding cumulative effect of change in
accounting principle
    
    
    1.31
    
    
    
    0.85
    
    
    
    0.46
    
    
    
    0.29
    
    
    
    0.03
 5




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Selected Financial Data according to U.S. GAAP
    
    At December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(in EUR millions)Consolidated balance sheet data:Assets:Total current assets
    
    
    1,160.0
    
    
    
    1,204.6
    
    
    
    1,273.9
    
    
    
    1,124.8
    
    
    
    865.2Total assets
    
    
    8,132.6
    
    
    
    8,411.9
    
    
    
    7,242.5
    
    
    
    7,896.3
    
    
    
    8,534.3Liabilities:Total current liabilities
    
    
    1,632.2
    
    
    
    1,929.6
    
    
    
    1,887.4
    
    
    
    1,794.9
    
    
    
    2,614.2Total long-term liabilities
    
    
    3,681.6
    
    
    
    3,612.8
    
    
    
    2,613.5
    
    
    
    3,462.0
    
    
    
    3,410.6Total stockholders equity
    
    
    2,818.8
    
    
    
    2,869.5
    
    
    
    2,741.6
    
    
    
    2,639.4
    
    
    
    2,509.5Total liabilities and stockholders equity
    
    
    8,132.6
    
    
    
    8,411.9
    
    
    
    7,242.5
    
    
    
    7,896.3
    
    
    
    8,534.3Share capital
    
    
    1,090.5
    
    
    
    1,090.5
    
    
    
    1,090.5
    
    
    
    1,090.5
    
    
    
    1,090.5
 At December 31,Other data
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Wireline (in thousands)Fixed access lines
    
    
    2,642.6
    
    
    
    2,801.9
    
    
    
    2,906.7
    
    
    
    3,010.8
    
    
    
    3,097.3Fixed access channels
    
    
    3,240.7
    
    
    
    3,433.7
    
    
    
    3,570.7
    
    
    
    3,684.2
    
    
    
    3,762.3Internet customers in Austria
    
    
    1,505.9
    
    
    
    1,424.2
    
    
    
    1,187.0
    
    
    
    1,026.6
    
    
    
    846.5thereof ADSL customers
    
    
    571.4
    
    
    
    468.5
    
    
    
    298.4
    
    
    
    207.6
    
    
    
    143.1Customers Czech On Line
    
    
    148.2
    
    
    
    187.9
    
    
    
    247.1
    
    
    
    279.4
    
    
    
    275.3Wireless customers (in thousands)Austria
    
    
    3,630.5
    
    
    
    3,392.2
    
    
    
    3,273.6
    
    
    
    3,163.2
    
    
    
    3,001.4Bulgaria
    
    
    4,267.9
    
    
    
    3,594.2
    
    
    
    n.a.
    
    
    
    n.a.
    
    
    
    n.a.Croatia
    
    
    1,912.3
    
    
    
    1,612.9
    
    
    
    1,308.6
    
    
    
    1,210.5
    
    
    
    1,097.8Slovenia
    
    
    420.9
    
    
    
    359.6
    
    
    
    363.3
    
    
    
    361.5
    
    
    
    350.0Liechtenstein
    
    
    4.8
    
    
    
    4.2
    
    
    
    3.5
    
    
    
    2.5
    
    
    
    2.0Total
    
    
    10,236.4
    
    
    
    8,963.1
    
    
    
    4,949.0
    
    
    
    4,737.7
    
    
    
    4,451.2Full-time equivalent employees
    
    
    15,428
    
    
    
    15,595
    
    
    
    13,307
    
    
    
    13,890
    
    
    
    14,951
 
 (1)
    
    In 2003, the Austrian Supreme Court ruled that no contractual relationship exists between
value added service providers (VASP) and Telekom Austria, with the contractual relationship
being established directly between the VASP and the customers. We are no longer considered the
primary obligor and ceased reporting revenues on a gross basis beginning on October 1, 2003.
Had the ruling been in effect for all of 2003 and 2002, revenues and expenses in the
accompanying consolidated statements of operations would have been lower by EUR 45.9 million
and EUR 51.2 million, respectively. This change had no impact on operating income.(2)
    
    On June 28, 2002 we acquired the remaining 25.001% of mobilkom austria AG & Co KG from
Telecom Italia Mobile International, which also held certain blocking rights that precluded us
from consolidating mobilkom austria in prior years. Our consolidated figures now include
mobilkom austria groups results of operations since June 28, 2002 and are therefore not
directly comparable with previous years.(3)
    
    Starting from July 12, 2005, we included the results of operations of Mobiltel AD in our
consolidated financial statements (see note (2) of the accompanying consolidated financial
statements). Therefore consolidated 2006 financial statements of Telekom Austria include
figures for Mobiltel. Results for 2005 include contributions from Mobiltel only for the period
from July 12, 2005 through December 31, 2005. 6




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3.2. DIVIDENDS
  Shares outstandingTotal dividends
    
    
    as of date ofFor the fiscal year
    
    Dividends declared and paid per share
    
    
    declared and paid
    
    
    declarationEUR
    
    
    USD
    
    
    EUR
    
    
    number2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    0.13
    
    
    
    0.16
    
    
    64.6 million
    
   
    496.8 million2004
    
    
    0.24
    
    
    
    0.29
    
    
    117.9 million

    
    491.1 million2005
    
    
    0.55
    
    
    
    0.71
    
    
    261.2 million

    
    474.9 million
    7




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3.3. EXCHANGE RATE INFORMATION
   Year or Month
    
    End of period
    
    
    High
    
    
    Low
    
    
    AverageUSD per EUR 1.00 (1)2002
    
    
    1.0485
    
    
    
    1.0485
    
    
    
    0.8594
    
    
    
    0.94952003
    
    
    1.2597
    
    
    
    1.2597
    
    
    
    1.0361
    
    
    
    1.14112004
    
    
    1.3538
    
    
    
    1.3625
    
    
    
    1.1801
    
    
    
    1.24782005
    
    
    1.1842
    
    
    
    1.3476
    
    
    
    1.1667
    
    
    
    1.24002006
    
    
    1.3197
    
    
    
    1.3327
    
    
    
    1.1860
    
    
    
    1.2661October 2006
    
    
    1.2773
    
    
    
    1.2773
    
    
    
    1.2502November 2006
    
    
    1.3261
    
    
    
    1.3261
    
    
    
    1.2705December 2006
    
    
    1.3197
    
    
    
    1.3327
    
    
    
    1.30732007January 2007
    
    
    1.2998
    
    
    
    1.3286
    
    
    
    1.2904February 2007
    
    
    1.3230
    
    
    
    1.3246
    
    
    
    1.2933March 2007 (through
March 28)
    
    1.3331
    
    
    1.3359
    
    
    1.3094
 
 (1)
    
    Based on the U.S. Federal Reserve Bank noon buying rate for the euro. The average exchange
rates for 2002, 2003, 2004, 2005 and 2006 are calculated using the rate on the last business
day of each month during the period specified. 8




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3.4. RISK FACTORS
 You should carefully consider the risks described below and other information in this
document. The occurrence of any of the following events could harm Telekom Austria and lead to a
decline in the value of your ordinary shares.
 Risks relating to our business
 We expect continuing competition in the fixed line and mobile communications markets which may
have a negative impact on our revenues and profitability.
       At year-end, approximately 68 % of our revenues were generated in the Austrian market. Both the
Austrian mobile communications and fixed line markets are saturated, highly competitive and
characterized by fierce competition. If this development continues our profitability may decline.
  9




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We may neither realize the expected level of demand for our products and services nor the
expected level or timing of revenues generated by those products and services as a result of lack
of market acceptance or technological change.
    We may be adversely affected if we fail to successfully implement our Internet and broadband
strategy in Austria.
  
    
    Internet usage in Austria grows more slowly than anticipated, for reasons such as
changes in Internet users preferences;
    
    broadband penetration in Austria does not grow as we expect;
    
    competition increases, for reasons such as the entry of new competitors,
consolidation in the industry or technological developments introducing new platforms
for Internet access and/or Internet distribution or other operators having the ability
to provide broadband connections superior to those that we can offer; and
    
    we experience any network interruptions or related problems with network
infrastructure.
  As a result of our high number of civil servants, we are limited in our ability to adjust our
operating expenses according to the changing market environment.
  10




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##### Table of Contents



Regulatory decisions and changes in the regulatory environment could adversely affect our
business
      To the extent we need to enter into mobile radio agreements with various Austrian federal
provinces we may incur additional costs for relocation of existing installations and may be limited
in our locations in Austria.
   The risk relating to system failures due to natural or human failure and the technological
dependency on third parties may have an impact on our reputation and the rate of customer
satisfaction.
  Technological change could increase competition, render existing technologies obsolete or
require us to make substantial additional investments.
  11




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##### Table of Contents



From Lake Constance to the Black Sea  our acquisition of the 3rd License in Serbia is an
important step forward and closes a geographical gap. Nevertheless this acquisition presents us
with significant challenges.
    The growth of Telekom Austria may slow down in the Southern and South-Eastern European countries in the future as penetration has rapidly increased in the past and reached a high level of usage.
  Organic
growth.
  New
competitors.
 
 Suitable
acquisition targets.
  Greenfield
operations.
  Changes
in  law.
   The Groups business may be adversely affected by exchange rate fluctuations.
    Actual or perceived health risks or other problems relating to mobile handsets or transmission
masts could lead to litigation or decreased mobile communications usage.
  12




---



##### Table of Contents



Risks relating to disputes and litigation with regulators, competitors and other private
parties.
  Risks relating to our shares
 Our major shareholder, ÖIAG, continues to exercise significant influence over our strategic
direction and major corporate actions.
 Österreichische Industrieholding AG
 The future sale of a substantial number of our shares or ADSs could negatively affect our
share price and could lead to a change in control in Telekom Austria in the event that they are
sold to another investor.
    Currency fluctuations may adversely affect the trading prices of our common stock and ADSs and
the value of any distributions we make.
  Shareholders rights are governed by Austrian law and differ in some respects from the rights
of shareholders under U.S. law.
  13




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##### Table of Contents



It may not be possible for shareholders to enforce judgments of U.S. courts against members of
our Supervisory Board or Management Board.
  14




---



##### Table of Contents



Item 4. Information on the Company
 Aktiengesellschaft
   
 4.1. HISTORY AND DEVELOPMENT OF THE COMPANY
 Poststrukturgesetz
 ,
 ÖIAG-Gesetz 2000 Post and
   15




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##### Table of Contents



Aktiengesellschaft),
  16




---



##### Table of Contents



4.2. BUSINESS OVERVIEW
  
    
    Wireline,
    
    Wireless and
    
    Other activities (financing and other activities of the company).
   
 Strategy
       17




---



##### Table of Contents



Overview of Telekom Austrias revenues
  2006
    
    2005
    
    2004(in EUR millions)Operating revenues:Wireline
    
    
    2,119.5
    
    
    
    2,123.9
    
    
    
    2,170.5Wireless
    
    
    2,902.6
    
    
    
    2,484.8
    
    
    
    2,121.4Other activities & intercompany eliminations
    
    
    (262.5
    )
    
    
    (243.5
    )
    
    
    (249.0
    )Consolidated operating revenues
    
    
    4,759.6
    
    
    
    4,365.2
    
    
    
    4,042.9
  18




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##### Table of Contents



Wireline
  Market position
    Primary services
  
    
    Switched voice telephony;
    
    Payphones and value-added services (VAS);
    
    Business data and IT-solutions including wholesale;
    
    Internet access & media;
    
    Wholesale voice & Internet and
    
    Other (customer premises equipment and directory services).
 Switched voice telephony
 Services
  19




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##### Table of Contents



Access lines
  At December 31,2006
    
    
    2005
    
    
    2004(in thousands)Number of fixed lines:PSTN access lines
    
    
    2,244.2
    
    
    
    2,374.5
    
    
    
    2,455.5Basic ISDN access lines
    
    
    391.3
    
    
    
    420.1
    
    
    
    443.6Multi ISDN access lines
    
    
    7.1
    
    
    
    7.3
    
    
    
    7.6Total access lines
    
    
    2,642.6
    
    
    
    2,801.9
    
    
    
    2,906.7Total access channels
    
    
    3,240.7
    
    
    
    3,433.7
    
    
    
    3,570.7
  Traffic volume
  Year ended December 31,2006
    
    
    2005
    
    
    2004(in millions of minutes)(1)Traffic minutes:National (local + national long distance)
    
    
    3,491
    
    
    
    3,866
    
    
    
    4,174Fixed-to-mobile
    
    
    793
    
    
    
    839
    
    
    
    854International
    
    
    412
    
    
    
    442
    
    
    
    467Total voice minutes
    
    
    4,696
    
    
    
    5,147
    
    
    
    5,495
 (1)
    
    All amounts exclude traffic minutes that were not generated from our customers such as
interconnection traffic that originated in networks of other providers or payphone traffic.
  20




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##### Table of Contents



Tariffs
    Year ended December 31,2006
    
    
    2005
    
    
    2004(in EUR)Average tariffs:National (local + national long distance)
    
    
    0.042
    
    
    
    0.040
    
    
    
    0.040Fixed-to-mobile
    
    
    0.172
    
    
    
    0.189
    
    
    
    0.187International
    
    
    0.179
    
    
    
    0.181
    
    
    
    0.185Average voice tariff
    
    
    0.076
    
    
    
    0.077
    
    
    
    0.075
    Pay phones and value-added services
 Public pay phone services
  21




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##### Table of Contents



Value-added services (VAS)
  
    
    Toll-free services, which enable users to call a telephone number free of charge;
    
    Shared cost service, which allows callers and call recipients to share call charges;
    
    Premium rate services, which charge the callers a higher than standard telephone rate
in exchange for services provided, a portion of which is passed on to the service
provider called;
    
    Event-based premium rate services, where each call is charged regardless of the
duration. A portion of the charge is passed on to the service provider;
    
    Interactive Voice Response (IVR ) Solutions usually used as a completion of value
added services in order to automatize the interaction between caller and service
provider;
    
    Voice Virtual Private Network (VPN ); VPNs are network services that form a virtual
network designed for the exclusive use of a corporate or governmental entity using the
infrastructure of one or more carriers; and
    
    Calling cards.
  Business data and IT-solutions
  
    
    Leased lines and related services;
    
    Business data services;
    
    Corporate network services;
    
    Electronic payment solutions;
    
    Safety and security solutions;
    
    IT-solution services; and
    
    Business applications.
  Leased lines and related services
  22




---



##### Table of Contents



Business data services
  ATM service:
 Media Broadcast services:
 IP-MPLS services:
 Corporate network services
   Electronic payment solutions
  Safety and Security Solutions
  IT-solution services
   Business applications
  23




---



##### Table of Contents



Internet access & media
  Austria
    At December 31,2006
    
    
    2005
    
    
    2004Dial-up retail customers
    
    
    934,500
    
    
    
    955,700
    
    
    
    888,600ADSL retail customers
    
    
    571,400
    
    
    
    468,500
    
    
    
    298,400Total customers
    
    
    1,505,900
    
    
    
    1,424,200
    
    
    
    1,187,000Internet dial-up traffic (in millions of minutes)
    
    
    1,425
    
    
    
    2,287
    
    
    
    3,376Average Internet dial-up tariff (in EUR/min.)
    
    
    0.018
    
    
    
    0.017
    
    
    
    0.016
         24




---



##### Table of Contents



Czech On Line
   
    
    Free dial-up Internet access through PSTN and ISDN;
    
    Broadband Internet Access based on wholesale and local loop unbundling for access for
customers via frame relay, leased lines, and wireless point-to-point and
point-to-multipoint access services;
    
    PSTN voice services for business customers for local, national and international
calls based on direct access and carrier pre-selection, and for residential customers
based on carrier pre-selection;
    
    VoIP (Voice over Internet Protocol) services for business and residential customers;
 25




---



##### Table of Contents




    
    VAS (value added services) such as global Internet roaming, web hosting, domain
registration, virtual mailboxes, anti-Spam and anti-virus software;
    
    Content services, including a news aggregator and a customized search engine for
Czech content; and
    
    Free customer support 24 hours a day, seven days a week.
  Wholesale voice & Internet
  National wholesale services
 
    
    Call origination and termination;
    
    Transit and access to other services;
    
    Toll-free and premium rate services;
    
    Unbundling of local loop and collocation;
    
    Signaling services for mobile applications (roaming, SMS);
    
    Wholesale terminating segments of leased lines;
    
    Broadband solutions for ISP and other telecommunications providers; and
    
    Emergency and directory inquiry services.
  International wholesale services
 
    
    Call termination  We deliver international incoming calls to Telekom Austria
customers or subscribers of other network operators;
    
    Voice transit service  Consisting of routing traffic via our international network.
We also act as account intermediary;
    
    Signaling for international roaming;
    
    Bandwidth transit services  Due to Austrias geographic location, we are in a
position to offer transit capacity on our international network among the eight
countries that border Austria;
    
    International Internet access  We provide connections to the networks of other
European countries, the United States and worldwide;
    
    Satellite services  We provide bandwidth to our national and international customers
through our own teleport. A teleport is a satellite antenna station that provides
connectivity to various international satellites;
 26




---



##### Table of Contents




    
    International VPNs  We provide VPNs for national retail business customers through
our international partners throughout the world; and
    
    TAJetstream  In 2006 our European backbone network was extended to Zagreb and
Bucharest. We implement backbone capacities pursuant to actual demand. Telekom Austria
is evaluating further options for extending the international network to other Eastern
and South-Eastern European countries.
 Traffic volume
  Tariffs
   Other services ( customer premises equipment and directory services)
 Customer premises equipment
  Directory services
  Competition
   27




---



##### Table of Contents



Sales and marketing
  
    
    Residential retail sales: in this marketing segment we serve about 1.9 million
residential customers. The customer base is segmented according to customer needs in
telecommunications services;
    
    Small offices/home offices (SOHOs) and small and medium-sized enterprises (SMEs); and
    
    Top SMEs and key accounts.
 shop.telekom.at
   28




---



##### Table of Contents



Customer service
     Networks
  Switched network
     29




---



##### Table of Contents



Data networks
  Backbone network infrastructure.
  Access infrastructure.
  Advanced services.
 International network
  Next generation network
   30




---



##### Table of Contents



Information technology/Operations support systems
  31




---



##### Table of Contents



Wireless
      Austria
   Competition
  32




---



##### Table of Contents



Customers and traffic
  
    
    Business customers: individual business solutions are offered to this group of sole
proprietorships and larger corporations and organizations;
    
    Residential contract customers: residential contract customers , having typically
medium to high usage of mobile communications services, are included in this group; and
    
    Prepaid customers: customers, having typically low usage of mobile communications
services, without fixed contract are served in this group.
  At December 31,2006
    
    
    2005
    
    
    2004(in thousands)Customers at end of periodContract
    
    
    2,207.0
    
    
    
    1,929.5
    
    
    
    1,778.8Prepaid
    
    
    1,423.5
    
    
    
    1,462.7
    
    
    
    1,494.8Total customers
    
    
    3,630.5
    
    
    
    3,392.2
    
    
    
    3,273.6Net additions
    
    
    238.2
    
    
    
    118.6
    
    
    
    110.4Market InformationTotal market for mobile services
    
    
    9,374.2
    
    
    
    8,670.5
    
    
    
    7,993.0Our total market share
    
    
    38.7
    %
    
    
    39.1
    %
    
    
    41.0
    %
  33




---



##### Table of Contents



Year ended December 31,2006
    
    
    2005
    
    
    2004Traffic (in millions of minutes)
    
    
    6,512
    
    
    
    5,332
    
    
    
    4,751Average number of customers (in thousands)
    
    
    3,482.8
    
    
    
    3,302.9
    
    
    
    3,184.4Minutes per customer per month
    
    
    156
    
    
    
    135
    
    
    
    124
 Tariffs
     Products and Services
   Vodafone live!
 34




---



##### Table of Contents



M-commerce services.
  A1 NAVI.
 A1 over IP.
 Call completion service.
 Business customers.
 Push mail services.
 International roaming services.
 35




---



##### Table of Contents



Vodafone World Options
  Sales and Distribution
  
    
    Increasing sales through direct channels and developing them into service points for
our customers, e.g. for hardware replacement and handset rental in case of handset
damages;
    
    Strengthening the focus on valuable business customers; and
    
    Improving the usage and number of data products, such as mobile broadband, Vodafone
live! or Blackberry.
     www.a1.net
 36




---



##### Table of Contents



A1 Online Bill.
   Global System for Mobile Communications (GSM).
 Wireless Application Protocol (WAP).
 General Packet Radio Service (GPRS).
 Enhanced Data Rates for Global Evolution (EDGE).
 Universal
Mobile Telecommunications System (UMTS).
 37




---



##### Table of Contents



High Speed Downlink Packet Access (HSDPA).
 High Speed Uplink Packet Access (HSUPA).
  At December 31,2006
    
    
    2005
    
    
    2004GSM stations
    
    
    5,497
    
    
    
    5,407
    
    
    
    5,363UMTS stations
    
    
    2,688
    
    
    
    2,110
    
    
    
    1,721Total
    
    
    8,185
    
    
    
    7,517
    
    
    
    7,084
    Information technology/Operations support systems
    38




---



##### Table of Contents



Bulgaria
   Competition
  Products and Services
   Postpaid Business
 Postpaid
Residential
  39




---



##### Table of Contents



Prepaid.
 Distribution
  Network and Technology
     Croatia
   40




---



##### Table of Contents



Competition
   Products and Services
        Networks
  41




---



##### Table of Contents



Slovenia
   Competition
   Products and Service
   Networks
  42




---



##### Table of Contents



Liechtenstein
   Serbia
  43




---



##### Table of Contents



Property and Equipment
   
 Research and Development
       Wireline
  44




---



##### Table of Contents



Wireless
     Capital expenditures
  45




---



##### Table of Contents



4.3. REGULATION AND LEGAL FRAMEWORK
 Regulation
 Austria
 Liberalization
  The European Union
       46




---



##### Table of Contents



Development of Regulation in Austria
      Results of the regulation of operators with significant market power/ Review of the regulatory
framework for electronic communications
  
    
    Implementation of harmonized and liberalized frequency & spectrum management;
    
    Development of better regulation;
    
    Further harmonization of the internal market;
 47




---



##### Table of Contents




    
    Strengthening consumer protection and user rights; and
    
    Implementation of obligatory security measures.
   Market Analysis
    
  
    
    In the retail market of publicly available international telephone services provided at
a fixed location for residential customers; and
    
    In the wholesale market of wholesale trunk segments of leased lines;
    access to the public telephone network at a fixed location for residential
customers access to the public telephone network at a fixed location for non-residential
customers
 48




---



##### Table of Contents



Carrier
Selection and Carrier Preselection Resale-Standard also offered on a retail-minus basis
 publicly available local and/or national telephone services provided at a
fixed location for residential customers publicly available local and/or national telephone
services provided at a fixed location for non-residential customers publicly available
international telephone services provided at a fixed location for non-residential customers
 minimum set of leased lines
  call termination on individual public telephone networks
provided at a fixed location call origination on the public telephone network provided at a
fixed location transit services in the fixed public
telephone network
 call termination on individual
public telephone networks provided at a fixed location call origination on the public
telephone network provided at a fixed location wholesale unbundled access (including shared access) to metallic loops and sub-loops for the
purpose of providing broadband and voice services
 wholesale terminating segments of leased lines
   access and call origination on public mobile telephone networks
 call termination on individual mobile networks ,
 voice call termination on individual
mobile networks
 49




---



##### Table of Contents



wholesale national market for international roaming on public mobile networks
    
    
    a decrease of Mobiltels termination rates to cost oriented levels;
    
    imposition of wholesale access to Mobiltels network on cost oriented levels;
    
    imposition of national roaming obligations;
    
    imposition of accounting separation and development of cost accounting system; and
    
    imposition of number portability on cost oriented levels.
    50




---



##### Table of Contents



Ordinances under the Telecommunications Act of 2003
  
    
    The Telecommunications Market Ordinance (Märkteverordnung) , which became effective on
October 17, 2003, defines the markets that may be subject to regulation (see also 
Results of the regulation of operators with significant market power  Market analysis).
The review of the ordinance was published in February 2006 and for the first time included
voice over broadband (VOB-services) in certain markets.
    
    The Mobile Number Portability Ordinance (Nummernübertragungsverordnung), established
the legal and regulatory framework for the portability of mobile subscriber numbers and
stipulated the requirements and the timeframe of a porting, customer protection and
transparency of costs (see also  Interconnection and specific network access below).
    
    The Numbering, Tariffs and Value-added Services Ordinance (Kommunikationsparameter-,
Entgelte und Mehrwertdiensteverordnung) was released on May 15, 2004 and revised on
October 18, 2006. In the first release the numbering parameters and the requirements for
allocation of numbers changed only slightly (some number-ranges were removed and some new
ones were added, such as a number-range for convergent services), the main ambition was to
optimize consumer protection in cases of value-added-services, resulting from an ever
increasing number of objections against these services (especially dialer-abuse). Maximum
prices for shared cost services and premium rate services, several complex and detailed
transparency rules as well as prohibitions for misuse were added.
    
    The Ordinance of Legal Interception Cost (Überwachungskostenverordnung) was adopted on
August 12, 2004 and introduces the fees to be paid by courts and governmental authorities
for the interception of voice communications.
    
    The Ordinance of Legal Interception (Überwachungsverordnung)was adopted on November
2001. Telekom Austria implemented the European Telecommunications Standards Institute -
Standards (the ETSI) which is an independent, non-profit organization, whose mission is to
produce telecommunications standards for today and for the future. Refunding of the
implementation cost by the Republic of Austria is still under negotiation.
    
    The Ordinance of Collecting Data for Statistics (Kommunikations-Erhebungs-Verordnung)
was adopted on September 20, 2004 and sets out the frequency and details of information a
telecommunications service provider is required to provide to the Regulatory Authority for
statistical purposes.
    
    The Ordinance on Itemized Billing
(Einzelentgeltnachweisverordnung), which was enacted
on May 1, 2004, sets forth the standards for itemized billing.
    
    The Ordinance of Universal Services (Universaldiensteverordnung) was amended on
October 24, 2006 to enable the implementation of a Payphone Access Charge for calls to
free of charge numbers.
   The Regulatory Authority
 Telekom-Control-Kommission Rundfunk und Telekom
Regulierungs-GmbH Telekom-Control-Kommission Rundfunk und Telekom
Regulierungs-GmbH
 51




---



##### Table of Contents



Telekom-Control-Kommission
 Telekom-Control-Kommission
 Telekom-Control-Kommission
 Rundfunk und Telekom Regulierungs-GmbH
 Rundfunk und Telekom Regulierungs-GmbH Telekom-Control-Kommission Rundfunk und Telekom Regulierungs-GmbH Telekom-Control-Kommission Rundfunk und
Telekom Regulierungs-GmbHs Rundfunk und Telekom Regulierungs-GmbH
 Communications Authority
  Other regulatory bodies
  Regulation of market entry
  GSM
  52




---



##### Table of Contents




    
    mobilkom austria AG;
    
    T-Mobile Austria GmbH, (formerly max.mobil Gesellschaft für Telekommunikation GmbH, took over tele.ring Telekom Service
GmbH & Co KG in 2006); and
    
    ONE GmbH (formerly Connect Austria Gesellschaft für Telekommunikation GmbH).
  UMTS
    Major regulatory decisions affecting Telekom Austria
 Wholesale line rental
   Current tariffs: voice telephony services and leased lines
  53




---



##### Table of Contents



Minimum set of leased lines and access to terminating segments of leased lines (see also 
Results of the regulation of operators with significant market power  Market analysis)
 terminating segments of leased lines
 Fixed-to-mobile tariffs
  Tariffs for special services
 Fernsprechentgeltzuschussgesetz
 Interconnection and specific network access
  General principles
 
    54




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##### Table of Contents



Interconnection in Austria
  Call termination in Austria
  
    
    Local exchange interconnection allows access to all customers within a local area;
    
    Single transit interconnection is interconnection via a single transit switch. In technical terms, this is known as
single transit or single tandem call termination. We offer seven long distance exchanges for single transit
interconnection; and
    
    Double transit interconnection is interconnection via two transit switches. In technical terms, this is known as double
transit or double tandem call termination.
  Regulation of interconnection and access fees
    Single tandem
    
    
    Double tandemRates
    
    Local
    
    
    (One main switch)
    
    
    (Two main switches)(EUR per minute)
    
    
    (EUR per minute)
    
    
    (EUR per minute)Origination
    
    Peak
    
    
    0.0082
    
    
    
    0.0128
    
    
    
    0.0290Off-peak
    
    
    0.0048
    
    
    
    0.0071
    
    
    
    0.0110Termination
    
    Peak
    
    
    0.0082
    
    
    
    0.0128
    
    
    
    0.0225Off-peak
    
    
    0.0048
    
    
    
    0.0071
    
    
    
    0.0087Transit
    
    Peak
    
    
    n.a.
    
    
    
    0.0028
    
    
    
    0.0060Off-peak
    
    
    n.a.
    
    
    
    0.0014
    
    
    
    0.0031
  55




---



##### Table of Contents



Carrier selection
  
    
    Pre-selection. The customer chooses the network operator for all
local, long distance, international, fixed-to-mobile calls, and
calls to special service numbers on a permanent basis with the
opportunity for call by call override; and
    
    Call-by-call selection. The customer dials a prefix number or
Carrier Access Code and a network operator code, or Carrier
Identification Code, each time prior to dialing the called partys
number to identify the network operator to be used to route the
call.
  Number portability (see also  Ordinances and the Telecommunication Act of 2003)
 ,
  56




---



##### Table of Contents



Nummernübertragungsverordnung
 Access to local subscriber lines
       Wholesale bitstream Services
   57




---



##### Table of Contents



Payphone Access Charge
  International Roaming
    Frequency spectrum
    Numbering
   58




---



##### Table of Contents



Universal service
     Legal framework
 Rights of way
   Ordinance regulating lawful interception
  Competition law and general legal framework
  59




---



##### Table of Contents



(Bundeswettbewerbsbehörde)
  Procurement law and telecommunications act
  Customer protection and data protection
 Customer protection
     60




---



##### Table of Contents



Einzelentgeltnachweisverordnung
 Data protection
 
       61




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##### Table of Contents



Item 5. Operating and Financial Review and Prospects
 
 5.1. OVERVIEW
 The following discussion should be read in conjunction with the consolidated financial
statements included elsewhere in this annual report. Those financial statements have been prepared
in accordance with International Financial Reporting Standards as endorsed by the European Union
(IFRS), which differ in certain material respects from U.S. GAAP. For a discussion of the principal
differences between IFRS and U.S. GAAP as they relate to Telekom Austria, see notes (36) and (37)
of the accompanying consolidated financial statements.
  
    
    Wireline;
    
    Wireless and
    
    Other activities (covering internal financial services).
   Accuracy of forward-looking statements
  Certain factors and trends affecting our financial results
   Wireline
 
    
    Decreasing voice traffic volumes, mainly due to fixed-to-mobile substitution;
 62




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##### Table of Contents




    
    Continued pricing pressure due to strong competition and regulatory constraints;
    
    Introduction of new VAS, including services combining voice, data and video (Triple
Play), to partly offset declining voice revenues;
    
    Migration of Internet users from dial-up to broadband, supported by our new ADSL
tariffs;
    
    Growth in revenues from content and services for business customers provided on the
Internet; and
    
    Reduction in operating expenses due to cost-cutting measures and reduction of staff
as well as decreasing depreciation and amortization costs due to lower capital
expenditures.
 Wireless
 
    
    Increasing competition based on ongoing reduction of tariffs and saturated markets;
    
    Penetration of mobile services continues to grow due to:- mobile voice traffic growth, driven by fixed to mobile substitution;- value added services growth (such as short messages, multimedia messages, browsing,
contents and interactive services) enabled by the increasing penetration of UMTS and
innovative handsets and the development of the mobile broadband;
    
    Emerging growth in VAS driven by the introduction of new technologies as well as
new and improved handsets leading to increased customer demand;
    
    New products and services due to significant growth in the use of broadband
wireless technologies such as EDGE/UMTS, HSDPA and HSUPA; and
    
    Expansion of Telekom Austria in targeted international markets, particularly in
south-eastern European countries.
 Open competition
   Regulatory environment
  Technological change
  63




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Tariff reductions and reforms
   Claims against the Republic of Austria
   Seasonality
   64




---



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Critical accounting policies
   Valuation of long-lived assets, intangible assets and goodwill
     Valuation of employee benefit obligations
  65




---



##### Table of Contents



Contractual termination benefits.
  Service awards
 Severance BAWAG Allianz Mitarbeitervorsorgekasse AG
 Pension benefits
  66




---



##### Table of Contents



Valuation of tax assets
   Business Combinations
   New accounting pronouncements
  67




---



##### Table of Contents



Recent developments
      68




---



##### Table of Contents



5.2. RESULTS OF OPERATIONS
 2006 compared to 2005
 The following discussion should be read in conjunction with the consolidated financial
statements included elsewhere in this annual report. Those financial statements have been prepared
in accordance with International Financial Reporting Standards as endorsed by the European Union
(IFRS), which differ in certain material respects from U.S. GAAP. For a discussion of the principal
differences between IFRS and U.S. GAAP as they relate to Telekom Austria, see notes (36) and (37)
of the accompanying consolidated financial statements.
 OVERVIEW
 Consolidated operating results
  Consolidated operating results
 2006
    
    
    2005
    
    
    2006/2005(in EUR millions)
    
    
    (% change)Operating revenues
    
    
    4,759.6
    
    
    
    4,365.2
    
    
    
    9.0Other operating income
    
    
    59.2
    
    
    
    54.8
    
    
    
    8.0Operating expenses:Materials
    
    
    (385.2
    )
    
    
    (350.1
    )
    
    
    (10.0
    )Employee costs, including benefits and
taxes
    
    
    (768.3
    )
    
    
    (698.5
    )
    
    
    (10.0
    )Depreciation and amortization
    
    
    (1,123.9
    )
    
    
    (1,121.4
    )
    
    
    (0.2
    )Impairment
charges
    
    
    (10.5
    )
    
    
    (17.4
    )
    
    
    39.7Other operating
expenses
    
    
    (1,758.5
    )
    
    
    (1,612.9
    )
    
    
    (9.0
    )Total operating expenses
    
    
    (4,046.4
    )
    
    
    (3,800.3
    )
    
    
    (6.5
    )Consolidated operating income
    
    
    772.4
    
    
    
    619.7
    
    
    
    24.6
   Operating revenues
  69




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Other operating income
  Operating expenses
  Material costs
  Employee costs, including benefits and taxes
  Depreciation and amortization
   Impairment charges
  Other operating expenses
  70




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Operating income
  Other income, taxation and net income
 2006
    
    
    2005
    
    
    2006/2005(in EUR millions)
    
    
    (% change)Consolidated operating income
    
    
    772.4
    
    
    
    619.7
    
    
    
    24.6Other income (expense)Net interest
    
    
    (113.5
    )
    
    
    (112.2
    )
    
    
    (1.2
    )Foreign exchange differences
    
    
    (0.3
    )
    
    
    1.3
    
    
    
    n.a.(Loss) Income from investments
    
    
    (0.7
    )
    
    
    3.8
    
    
    
    n.a.Equity in earnings of affiliates
    
    
    0.0
    
    
    
    0.6
    
    
    
    (100.0
    )Income tax expense
    
    
    (96.1
    )
    
    
    (104.3
    )
    
    
    7.9Consolidated net
income
    
    
    561.8
    
    
    
    408.9
    
    
    
    37.4Interest income
    
    
    20.0
    
    
    
    32.7
    
    
    
    (38.8
    )Interest expense
    
    
    (133.5
    )
    
    
    (144.9
    )
    
    
    7.9(113.5
    )
    
    
    (112.2
    )
    
    
    (1.2
    )
 Net interest
  Foreign exchange differences
  Equity in earnings of affiliates and income from investments
 Omnimedia Werbegesellschaft mbH Omnimedia Werbegesellschaft mbH
 Income tax expense
   71




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Consolidated net income
  72




---



##### Table of Contents



SUPPLEMENTARY INFORMATION
  2006
    
    
    2005(in EUR millions)Net income
    
    
    561.8
    
    
    
    408.9Adjustments:Depreciation and amortization
    
    
    1,123.9
    
    
    
    1,121.4Impairment charges
    
    
    10.5
    
    
    
    17.4Interest income
    
    
    (20.0
    )
    
    
    (32.7
    )Interest expense
    
    
    133.5
    
    
    
    144.9Foreign exchange
differences
    
    
    0.3
    
    
    
    (1.3
    )Equity in earnings of affiliates and income from investments
    
    
    0.7
    
    
    
    (4.4
    )Income tax
expense
    
    
    96.1
    
    
    
    104.3Adjusted EBITDA
    
    
    1,906.8
    
    
    
    1,758.5
   2006
    
    
    2005
    
    
    2006/2005(in EUR millions)
    
    
    (% change)Adjusted EBITDA:Wireline
    
    
    729.4
    
    
    
    789.4
    
    
    
    (7.6
    )Wireless
    
    
    1,175.4
    
    
    
    967.7
    
    
    
    21.5Other activities & eliminations
    
    
    2.0
    
    
    
    1.4
    
    
    
    42.9Adjusted EBITDA
    
    
    1,906.8
    
    
    
    1,758.5
    
    
    
    8.4
 73




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74




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SEGMENT RESULTS
  Wireline
    Revenues
  
    
    Switched voice base traffic charges for national (local and national long-distance),
fixed-to-mobile and international calls;
    
    Switched voice monthly and other voice revenues comprising initial connection fees,
installation fees, monthly rental and other charges;
    
    Public payphone services and value added services (VAS);
    
    Data and IT-solutions including wholesale;
    
    Internet access and media;
    
    Wholesale voice and Internet including interconnection fees paid by other carriers to
access our fixed line network and related carrier services; and
    
    Fees from other services, including equipment sales and directory services.
 75




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2006
    
    
    2005
    
    
    2006/2005(in EUR millions)
    
    
    (% change)Wireline operating revenues:Switched voice base traffic
    
    
    361.0
    
    
    
    398.1
    
    
    
    (9.3
    )Switched voice monthly & other voice revenues
    
    
    520.2
    
    
    
    548.8
    
    
    
    (5.2
    )Payphones & VAS
    
    
    44.9
    
    
    
    48.1
    
    
    
    (6.7
    )Data & IT-solutions including wholesale
    
    
    425.0
    
    
    
    419.7
    
    
    
    1.3Internet access & media
    
    
    268.9
    
    
    
    241.9
    
    
    
    11.2Wholesale voice & internet
    
    
    380.1
    
    
    
    349.3
    
    
    
    8.8Other
    
    
    119.4
    
    
    
    118.0
    
    
    
    1.2Total wireline operating revenues
    
    
    2,119.5
    
    
    
    2,123.9
    
    
    
    (0.2
    )Wireline other operating income
    
    
    48.0
    
    
    
    50.7
    
    
    
    (5.3
    )
 Switched voice base traffic
  2006
    
    
    2005
    
    
    2006/2005(in millions of minutes)(1)
    
    
    (% change)Traffic minutes:National (local + national long distance)
    
    
    3,491
    
    
    
    3,866
    
    
    
    (9.7
    )Fixed-to-mobile
    
    
    793
    
    
    
    839
    
    
    
    (5.5
    )International
    
    
    412
    
    
    
    442
    
    
    
    (6.7
    )Total voice minutes
    
    
    4,696
    
    
    
    5,147
    
    
    
    (8.7
    )
 
 (1)
    
    All amounts exclude traffic minutes that were not generated from our customers such as
interconnection traffic that originated in networks of other providers or payphone traffic.  Switched voice monthly and other voice revenues
     76




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2006
    
    
    2005
    
    
    2006/2005(in thousands)
    
    
    (% change)Number of fixed lines:PSTN access lines
    
    
    2,244.2
    
    
    
    2,374.5
    
    
    
    (5.5
    )Basic ISDN access lines
    
    
    391.3
    
    
    
    420.1
    
    
    
    (6.9
    )Multi ISDN access lines
    
    
    7.1
    
    
    
    7.3
    
    
    
    (2.3
    )Total access lines
    
    
    2,642.6
    
    
    
    2,801.9
    
    
    
    (5.7
    )Total access channels
    
    
    3,240.7
    
    
    
    3,433.7
    
    
    
    (5.6
    )
  Public payphone services and value added services
  Data and IT-solutions including wholesale
  Internet access and media
   Wholesale voice and Internet
   77




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Other revenues (customer premises equipment and directory services)
   Other operating income
  Operating expenses
 2006
    
    
    2005
    
    
    2006/2005(in EUR millions)
    
    
    (% change)Wireline operating expenses:Material expense
    
    
    77.1
    
    
    
    69.0
    
    
    
    11.7Employee costs, including benefits and taxes
    
    
    549.0
    
    
    
    500.1
    
    
    
    9.8Depreciation, amortization and impairment charges
    
    
    636.6
    
    
    
    721.3
    
    
    
    (11.7
    )Interconnection
    
    
    352.4
    
    
    
    340.4
    
    
    
    3.5Maintenance and repairs
    
    
    118.3
    
    
    
    113.6
    
    
    
    4.1Services received
    
    
    48.2
    
    
    
    44.7
    
    
    
    7.8Other  total:
    
    
    293.1
    
    
    
    317.4
    
    
    
    (7.7
    )Other support services
    
    
    86.1
    
    
    
    88.7
    
    
    
    (2.9
    )Other
    
    
    207.0
    
    
    
    228.7
    
    
    
    (9.5
    )Total wireline operating expenses
    
    
    2,074.7
    
    
    
    2,106.5
    
    
    
    (1.5
    )
 Materials
  Employee costs, including benefits and taxes
   Depreciation and amortization including impairment charges
  78




---



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Interconnection
  Maintenance and Repairs
  Services received
  Other support services
  Other operating expenses
   Wireless
    79




---



##### Table of Contents



Revenues
   2006
    
    
    2005
    
    
    2006/2005(in EUR millions)
    
    
    (% change)Wireless operating revenues:Traffic revenues
    
    
    1,442.3
    
    
    
    1,264.7
    
    
    
    14.0Monthly rental
    
    
    483.1
    
    
    
    396.9
    
    
    
    21.7Equipment
    
    
    264.4
    
    
    
    225.6
    
    
    
    17.2Roaming
    
    
    257.9
    
    
    
    204.8
    
    
    
    25.9Interconnection
    
    
    446.9
    
    
    
    392.8
    
    
    
    13.8Other
    
    
    46.2
    
    
    
    13.8
    
    
    
    234.8Discounts
    
    
    (38.2
    )
    
    
    (13.8
    )
    
    
    (176.8
    )Total wireless operating revenues
    
    
    2,902.6
    
    
    
    2,484.8
    
    
    
    16.8Wireless other operating income
    
    
    14.9
    
    
    
    10.5
    
    
    
    41.9
  Traffic revenues
  2006
    
    
    2005
    
    
    2006/2005(in thousands)
    
    
    (% change)Wireless customers:Austria
    
    
    3,630.5
    
    
    
    3,392.2
    
    
    
    7.0Bulgaria
    
    
    4,267.9
    
    
    
    3,594.2
    
    
    
    18.7Croatia
    
    
    1,912.3
    
    
    
    1,612.9
    
    
    
    18.6Slovenia
    
    
    420.9
    
    
    
    359.6
    
    
    
    17.0Liechtenstein
    
    
    4.8
    
    
    
    4.2
    
    
    
    14.3Total customers
    
    
    10,236.4
    
    
    
    8,963.1
    
    
    
    14.2
  80




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Monthly rental
  Equipment
  Roaming
  Interconnection
  Other
  Discounts
  81




---



##### Table of Contents



Other operating income
  Operating expenses
  2006
    
    
    2005
    
    
    2006/2005(in EUR millions)
    
    
    (% change)Wireless operating expenses:Material expenses
    
    
    331.1
    
    
    
    301.9
    
    
    
    9.7Employee costs
    
    
    218.1
    
    
    
    198.8
    
    
    
    9.7Depreciation and amortization
    
    
    498.3
    
    
    
    417.9
    
    
    
    19.2Interconnection
    
    
    315.0
    
    
    
    271.3
    
    
    
    16.1Repairs
    
    
    71.8
    
    
    
    66.2
    
    
    
    8.5Services received
    
    
    303.9
    
    
    
    275.7
    
    
    
    10.2Other  total:
    
    
    502.1
    
    
    
    413.7
    
    
    
    21.4Other support services
    
    
    25.1
    
    
    
    22.4
    
    
    
    12.1Other
    
    
    477.0
    
    
    
    391.3
    
    
    
    21.9Total wireless operating expenses
    
    
    2,240.3
    
    
    
    1,945.5
    
    
    
    15.2
 Materials
  Employee costs, including benefits and taxes
  Depreciation and amortization
  Interconnection
  82




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Repairs
  Services received
  Other support services
  Other operating expenses
  Other activities
  83




---



##### Table of Contents



5.3. RESULTS OF OPERATIONS
 2005 compared to 2004
 OVERVIEW
 The following discussion should be read in conjunction with the consolidated financial
statements included elsewhere in this annual report. Those financial statements have been prepared
in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European
Union which differ in certain material respects from U.S. GAAP. For a discussion of the principal
differences between IFRS and U.S. GAAP as they relate to Telekom Austria, see note (36) and (37) of
the accompanying consolidated financial statements.
 Consolidated operating results
  Consolidated operating results
 2005
    
    
    2004
    
    
    2005/2004(in EUR millions)
    
    
    (% change)Operating revenues
    
    
    4,365.2
    
    
    
    4,042.9
    
    
    
    8.0Other operating income
    
    
    54.8
    
    
    
    50.5
    
    
    
    8.5Operating expenses:Materials
    
    
    (350.1
    )
    
    
    (327.5
    )
    
    
    (6.9
    )Employee costs, including benefits and taxes
    
    
    (698.5
    )
    
    
    (692.0
    )
    
    
    (0.9
    )Depreciation and amortization
    
    
    (1,121.4
    )
    
    
    (1,114.8
    )
    
    
    (0.6
    )Impairment charges
    
    
    (17.4
    )
    
    
    (1.3
    )
    
    
    (1,238.5
    )Other operating expenses
    
    
    (1,612.9
    )
    
    
    (1,488.3
    )
    
    
    (8.4
    )Total operating expenses
    
    
    (3,800.3
    )
    
    
    (3,623.9
    )
    
    
    (4.9
    )Consolidated operating income
    
    
    619.7
    
    
    
    469.5
    
    
    
    32.0
  Operating revenues
  Other operating income
  84




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Operating expenses
  Material expenses
  Employee costs, including benefits and taxes
  Depreciation and amortization
  Impairment charges
  Other operating expenses
  Operating income
  85




---



##### Table of Contents



Other income, taxation and net income
 2005
    
    
    2004
    
    
    2005/2004(in EUR millions)
    
    
    (% change)Consolidated operating income
    
    
    619.7
    
    
    
    469.5
    
    
    
    32.0Other income (expense)Net interest
    
    
    (112.2
    )
    
    
    (124.6
    )
    
    
    9.9Foreign exchange differences
    
    
    1.3
    
    
    
    0.0
    
    
    
    n.a.Income from investments
    
    
    3.8
    
    
    
    10.5
    
    
    
    (64.2
    )Equity in earnings of affiliates
    
    
    0.6
    
    
    
    0.5
    
    
    
    20.0Income tax expense
    
    
    (104.3
    )
    
    
    (135.5
    )
    
    
    23.0Consolidated net income
    
    
    408.9
    
    
    
    220.4
    
    
    
    85.5Interest income
    
    
    32.7
    
    
    
    17.5
    
    
    
    86.7Interest expense
    
    
    (144.9
    )
    
    
    (142.1
    )
    
    
    (2.0
    )(112.2
    )
    
    
    (124.6
    )
    
    
    10.0Consolidated net income attributable to:Equity holders of the parent
    
    
    408.9
    
    
    
    219.8
    
    
    
    86.0Minority interests
    
    
    0.0
    
    
    
    0.6
    
    
    
    (100.0
    )
 Net interest
  Foreign exchange differences
  Income from investments
  Equity in earnings of affiliates
 Omnimedia Werbegesellschaft mbH
 Income tax expense
   86




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Consolidated net income
  87




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SUPPLEMENTARY INFORMATION
  2005
    
    
    2004(in EUR millions)Net income
    
    
    408.9
    
    
    
    220.4Adjustments:Depreciation and amortization
    
    
    1,121.4
    
    
    
    1,114.8Impairment charges
    
    
    17.4
    
    
    
    1.3Interest income
    
    
    (32.7
    )
    
    
    (17.5
    )Interest expense
    
    
    144.9
    
    
    
    142.1Foreign exchange differences
    
    
    (1.3
    )
    
    
    (0.0
    )Equity in earnings of affiliates and income from investments
    
    
    (4.4
    )
    
    
    (11.1
    )Income tax expense
    
    
    104.3
    
    
    
    135.5Adjusted EBITDA
    
    
    1,758.5
    
    
    
    1,585.5
    88




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2005
    
    
    2004
    
    
    2005/2004(in EUR millions)
    
    
    (% change)Adjusted EBITDA:Wireline
    
    
    789.4
    
    
    
    819.0
    
    
    
    (3.6
    )Wireless
    
    
    967.7
    
    
    
    777.5
    
    
    
    24.5Other activities & eliminations
    
    
    1.4
    
    
    
    (11.0
    )
    
    
    n.a.Adjusted EBITDA
    
    
    1,758.5
    
    
    
    1,585.5
    
    
    
    10.9
    89




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##### Table of Contents



SEGMENT RESULTS
  Wireline
    Revenues
  
    
    Switched voice base traffic charges for national (local and national long-distance),
fixed-to-mobile and international calls;
    
    Switched voice monthly and other voice revenues comprising initial connection fees,
installation fees, monthly rental and other charges;
    
    Public payphone services and value added services (VAS);
    
    Data and IT-solutions including wholesale;
    
    Internet access and media;
    
    Wholesale voice and Internet including interconnection fees paid by other carriers to
access our fixed line network and related carrier services; and
    
    Fees from other services, including equipment sales and directory services.
  90




---



##### Table of Contents



2005
    
    
    2004
    
    
    2005/2004(in EUR millions)
    
    
    
    
    
    
    (% change)Wireline operating revenues:Switched voice base traffic
    
    
    398.1
    
    
    
    403.4
    
    
    
    (1.3
    )Switched voice monthly & other voice revenues
    
    
    548.8
    
    
    
    570.1
    
    
    
    (3.7
    )Payphones & VAS
    
    
    48.1
    
    
    
    52.6
    
    
    
    (8.5
    )Data & IT-solutions including wholesale
    
    
    419.7
    
    
    
    441.0
    
    
    
    (4.8
    )Internet access & media
    
    
    241.9
    
    
    
    207.2
    
    
    
    16.7Wholesale voice & internet
    
    
    349.3
    
    
    
    369.0
    
    
    
    (5.3
    )Other
    
    
    118.0
    
    
    
    127.2
    
    
    
    (7.2
    )Total wireline operating revenues
    
    
    2,123.9
    
    
    
    2,170.5
    
    
    
    (2.1
    )Wireline other operating income
    
    
    50.7
    
    
    
    43.7
    
    
    
    16.0
 Switched voice base traffic
  2005
    
    
    2004
    
    
    2005/2004(in millions of minutes)(1)

    
    
    (% change)Traffic minutes:National (local + national long distance)
    
    
    3,866
    
    
    
    4,174
    
    
    
    (7.4
    )Fixed-to-mobile
    
    
    839
    
    
    
    854
    
    
    
    (1.8
    )International
    
    
    442
    
    
    
    467
    
    
    
    (5.3
    )Total voice minutes
    
    
    5,147
    
    
    
    5,495
    
    
    
    (6.3
    )
 
 (1)
    
    All amounts exclude traffic minutes that were not generated from our customers such as
interconnection traffic that originated in networks of other providers or payphone traffic.  Switched voice monthly and other voice revenues
     91




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2005
    
    
    2004
    
    
    2005/2004(in thousands)
    
    
    (% change)Number of fixed lines:PSTN access lines
    
    
    2,374.5
    
    
    
    2,455.5
    
    
    
    (3.3
    )Basic ISDN access lines
    
    
    420.1
    
    
    
    443.6
    
    
    
    (5.3
    )Multi ISDN access lines
    
    
    7.3
    
    
    
    7.6
    
    
    
    (3.9
    )Total access lines
    
    
    2,801.9
    
    
    
    2,906.7
    
    
    
    (3.6
    )Total access channels
    
    
    3,433.7
    
    
    
    3,570.7
    
    
    
    (3.8
    )
  Public payphone services and value added services
  Data and IT-solutions including wholesale
  Internet access and media
    Wholesale voice and Internet
  92




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##### Table of Contents



Other revenues (customer premises equipment, support and services and other operating revenues)
   Other operating income
  Operating expenses
  2005
    
    
    2004
    
    
    2005/2004(in EUR millions)
    
    
    (% change)Wireline operating expenses:Material expense
    
    
    69.0
    
    
    
    71.9
    
    
    
    (4.0
    )Employee costs, including benefits and taxes
    
    
    500.1
    
    
    
    512.8
    
    
    
    (2.5
    )Depreciation, amortization and impairment
charges
    
    
    721.3
    
    
    
    758.5
    
    
    
    (4.9
    )Interconnection
    
    
    340.4
    
    
    
    333.1
    
    
    
    2.2Maintenance and repairs
    
    
    113.6
    
    
    
    116.6
    
    
    
    (2.6
    )Services received
    
    
    44.7
    
    
    
    41.9
    
    
    
    6.7Other  total:
    
    
    317.4
    
    
    
    318.9
    
    
    
    (0.5
    )Other support services
    
    
    88.7
    
    
    
    87.2
    
    
    
    1.7Other
    
    
    228.7
    
    
    
    231.7
    
    
    
    (1.3
    )Total wireline operating expenses
    
    
    2,106.5
    
    
    
    2,153.7
    
    
    
    (2.2
    )
 Materials
  Employee costs, including benefits and taxes
  93




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Depreciation and amortization including impairment charges
   Interconnection
  Maintenance and Repairs
  Services received
  Other support services
  Other operating expenses
   94




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##### Table of Contents



Wireless
    Revenues
   2005
    
    
    2004
    
    
    2005/2004(in EUR millions)
    
    
    (% change)Wireless operating revenues:Traffic revenues
    
    
    1,264.7
    
    
    
    1,141.5
    
    
    
    10.8Monthly rental
    
    
    396.9
    
    
    
    303.9
    
    
    
    30.6Equipment
    
    
    225.6
    
    
    
    180.1
    
    
    
    25.3Roaming
    
    
    204.8
    
    
    
    175.6
    
    
    
    16.6Interconnection
    
    
    392.8
    
    
    
    328.0
    
    
    
    19.8Other
    
    
    13.8
    
    
    
    11.8
    
    
    
    16.9Discounts
    
    
    (13.8
    )
    
    
    (19.5
    )
    
    
    29.2Total wireless operating revenues
    
    
    2,484.8
    
    
    
    2,121.4
    
    
    
    17.1Wireless other operating income
    
    
    10.5
    
    
    
    11.7
    
    
    
    (10.4
    )
  Traffic revenues
  95




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##### Table of Contents



2005
    
    
    2004
    
    
    2005/2004(in thousands)
    
    
    (% change)Wireless customers:Austria
    
    
    3,392.2
    
    
    
    3,273.6
    
    
    
    3.6Bulgaria
    
    
    3,594.2
    
    
    
    
    
    
    
    n.a.Croatia
    
    
    1,612.9
    
    
    
    1,308.6
    
    
    
    23.3Slovenia
    
    
    359.6
    
    
    
    363.3
    
    
    
    (1.0
    )Liechtenstein
    
    
    4.2
    
    
    
    3.5
    
    
    
    20.0Total customers
    
    
    8,963.1
    
    
    
    4,949.0
    
    
    
    81.1
    Monthly rental
  Equipment
  Roaming
  96




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##### Table of Contents



Interconnection
  Other
  Discounts
  Other operating income
  Operating expenses
  2005
    
    
    2004
    
    
    2005/2004(in EUR millions)
    
    
    (% change)Wireless operating expenses:Material expense
    
    
    301.9
    
    
    
    276.3
    
    
    
    9.3Employee costs
    
    
    198.8
    
    
    
    180.3
    
    
    
    10.3Depreciation and amortization
    
    
    417.9
    
    
    
    358.0
    
    
    
    16.7Interconnection
    
    
    271.3
    
    
    
    236.0
    
    
    
    15.0Repairs
    
    
    66.2
    
    
    
    63.7
    
    
    
    3.9Services received
    
    
    275.7
    
    
    
    252.4
    
    
    
    9.2Other  total:
    
    
    413.7
    
    
    
    346.9
    
    
    
    19.3Other support services
    
    
    22.4
    
    
    
    24.0
    
    
    
    (6.7
    )Other
    
    
    391.3
    
    
    
    322.9
    
    
    
    21.2Total wireless operating expenses
    
    
    1,945.5
    
    
    
    1,713.6
    
    
    
    13.5
 Materials
  97




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Employee costs, including benefits and taxes
  Depreciation and amortization
  Interconnection
  Repairs
  Services received
  Other support services
  Other operating expenses
  Other activities
  98




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##### Table of Contents



5.4. LIQUIDITY AND CAPITAL RESOURCES
    Cash flow
    
    2006
    
    
    2005
    
    
    2004(in EUR millions)Cash generated from operationsNet income
    
    
    561.8
    
    
    
    408.9
    
    
    
    220.4Depreciation, amortization and impairment charges
    
    
    1,134.4
    
    
    
    1,138.8
    
    
    
    1,116.1Employee benefit obligation non-cash
    
    
    (0.4
    )
    
    
    3.7
    
    
    
    0.5Allowance for doubtful accounts
    
    
    34.3
    
    
    
    43.4
    
    
    
    23.6Change in deferred taxes
    
    
    8.3
    
    
    
    62.6
    
    
    
    89.0Equity in earnings of affiliates less than (in excess of)
dividends received
    
    
    0.7
    
    
    
    (0.1
    )
    
    
    (0.0
    )Stock compensation
    
    
    13.0
    
    
    
    13.3
    
    
    
    4.6Employee Participation Program
    
    
    10.1
    
    
    
    
    
    
    
    Change in accounts receivable  trade
    
    
    (32.6
    )
    
    
    28.1
    
    
    
    (29.3
    )Change in inventories
    
    
    (20.4
    )
    
    
    (2.6
    )
    
    
    0.4Change in prepaid expenses and other assets
    
    
    (33.8
    )
    
    
    (0.8
    )
    
    
    (26.5
    )Change in accounts payable  trade
    
    
    (35.5
    )
    
    
    (19.6
    )
    
    
    (58.6
    )Change in employee benefit obligation
    
    
    (3.8
    )
    
    
    (12.2
    )
    
    
    (36.8
    )Change in accrued liabilities
    
    
    26.6
    
    
    
    (13.8
    )
    
    
    (50.0
    )Change in other liabilities and deferred income
    
    
    (75.2
    )
    
    
    (12.4
    )
    
    
    48.9Other
    
    
    2.4
    
    
    
    0.4
    
    
    
    16.9Cash generated from operations
    
    
    1,589.9
    
    
    
    1,637.7
    
    
    
    1,319.2Cash used in investing activitiesCapital expenditure, including interest capitalized
    
    
    (996.7
    )
    
    
    (627.6
    )
    
    
    (548.2
    )Acquisitions and investments, net of cash acquired
    
    
    
    
    
    
    (1,185.7
    )
    
    
    (2.2
    )Proceeds from sale of equipment
    
    
    28.1
    
    
    
    24.1
    
    
    
    36.2Other
    
    
    (3.0
    )
    
    
    8.3
    
    
    
    4.9Cash used in investing activities
    
    
    (971.6
    )
    
    
    (1,780.9
    )
    
    
    (509.3
    )Cash used in financing activitiesProceeds from issuance of long-term debt and bonds
    
    
    300.0
    
    
    
    1,169.0
    
    
    
    Principal payments on bonds
    
    
    
    
    
    
    (348.6
    )
    
    
    (2.2
    )Principal payments on long-term debt
    
    
    (244.5
    )
    
    
    (760.5
    )
    
    
    (568.1
    )Changes in short-term bank borrowings
    
    
    3.7
    
    
    
    214.4
    
    
    
    (21.2
    )Purchase of Treasury shares
    
    
    (406.8
    )
    
    
    (184.5
    )
    
    
    (64.2
    )Proceeds from sale of Treasury shares
    
    
    
    
    
    
    
    
    
    
    0.8Dividends paid
    
    
    (261.2
    )
    
    
    (117.9
    )
    
    
    (64.6
    )Cash used in financing activities
    
    
    (608.8
    )
    
    
    (28.1
    )
    
    
    (719.5
    )Effect of exchange rate changes
    
    
    (1.2
    )
    
    
    (0.1
    )
    
    
    (4.1
    )Net increase (decrease) in cash and cash
equivalents
    
    
    8.3
    
    
    
    (171.5
    )
    
    
    86.3Cash and cash equivalents at beginning of period
    
    
    116.8
    
    
    
    288.2
    
    
    
    201.9Cash and cash equivalents at end of period
    
    
    125.1
    
    
    
    116.8
    
    
    
    288.2
 99




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Cash generated from operations
       Cash used in investing activities
    Cash used in financing activities
    100




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##### Table of Contents



Funding sources
   At December 31,
    
    Maturity
    
    2006
    
    
    2005
    
    
    2004(in EUR millions)Face value of Bonds under EMTN Programme
    
    2010-2017
    
    
    1,750.0
    
    
    
    1,750.0
    
    
    
    750.0Fair value adjustment (hedge accounting)
    
    2010-2013
    
    
    (14.2
    )
    
    
    (5.3
    )
    
    
    11.2Discount of EMTN bonds
    
    2010-2017
    
    
    (14.4
    )
    
    
    (16.7
    )
    
    
    (7.7
    )Other
    
    2007
    
    
    42.9
    
    
    
    39.0
    
    
    
    14.0Bonds under EMTN Programme
    
    2010-2017
    
    
    1,764.3
    
    
    
    1,767.0
    
    
    
    767.5Other bonds guaranteed by the Federal Republic of
Austria
    
    2005
    
    
    
    
    
    
    
    
    
    
    149.6Bank debt
    
    2007-2011
    
    
    1,039.5
    
    
    
    790.3
    
    
    
    675.3Bank debt guaranteed by the Federal
Republic of Austria
    
    2007-2011
    
    
    89.0
    
    
    
    297.2
    
    
    
    707.6Total bank debt
    
    
    
    
    1,128.5
    
    
    
    1,087.5
    
    
    
    2,300.0Other
    
    2005
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.22,892.8
    
    
    
    2,854.5
    
    
    
    2,300.2Less current portion of long-term debt
    
    
    
    
    (142.7
    )
    
    
    (296.8
    )
    
    
    (653.0
    )Long-term debt, net of current portion
    
    
    
    
    2,750.1
    
    
    
    2,557.7
    
    
    
    1,647.2
 Bonds
 Telekom Finanzmanagement GmbH TFG
 TFG
 TFG
  101




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##### Table of Contents



Bank debts
           2006
    
    2005
    
    2004Bonds
    
    
    4.32
    %
    
    
    4.32
    %
    
    
    4.56
    %Bank debt
    
    
    4.17
    %
    
    
    4.07
    %
    
    
    4.62
    %
  Moodys
    
    StandardInvestors
    
    &Service
    
    PoorsLong-term debt
    
    
    A3
    
    
    BBB+Short-term debt
    
    P
    -2
    
    
    
    A-2
  102




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Other funding sources
   Capital expenditures
  103




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2006
    
    
    2005
    
    
    2004(in EUR millions)Capital expenditures:Wireline
    
    
    283.9
    
    
    
    314.1
    
    
    
    280.4Tangible
    
    
    260.4
    
    
    
    289.5
    
    
    
    250.8Intangible
    
    
    23.5
    
    
    
    24.6
    
    
    
    29.6Wireless
    
    
    712.8
    
    
    
    313.5
    
    
    
    267.8Tangible
    
    
    300.3
    
    
    
    239.9
    
    
    
    185.8Intangible
    
    
    412.5
    
    
    
    73.6
    
    
    
    82.0Total capital expenditures
    
    
    996.7
    
    
    
    627.6
    
    
    
    548.2
         
    
    Assure sufficient capacity for mobile networks by further investing in UMTS and EDGE
equipment, but also in HSDPA and HSUPA technology;
    
    Extend the access to broadband and optimize broadband backbone network infrastructure;
    
    Make investments (such as software) in customer services supporting access line
retention in the fixed line mass market;
    
    Establish a multi-service-data-network;
    
    Improve our information technology capabilities;
    
    Continue our NGN (next generation networks) strategy towards an integrated broadband
network for voice, data and video (All-IP-Network);
    
    Extend our Triple Play concept;
    
    Respond to increasing demand for bandwidth for new TV services;
    
    Establish Switched Ethernet (VPLS) as one aggregation platform for broadband access;
 104




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##### Table of Contents




    
    Continue our OSS/BSS (operations support systems/business
support systems) strategy
according to our roadmap; and
    
    Establish our services and networks in Serbia and in the Republic of Macedonia.
  Net debt
  2006
    
    
    2005
    
    
    2004(in EUR millions)Long-term debt, net of current portion (1)
    
    
    2,764.6
    
    
    
    2,557.7
    
    
    
    1,647.2Short-term borrowings
    
    
    562.1
    
    
    
    704.1
    
    
    
    821.0Less: Short-term portion of finance and cross border lease
    
    
    (9.4
    )
    
    
    (9.4
    )
    
    
    (9.3
    )Finance lease obligations
    
    
    0.1
    
    
    
    0.6
    
    
    
    1.6Cash and cash equivalents,
short-term and long-term investments
    
    
    (148.3
    )
    
    
    (139.3
    )
    
    
    (312.9
    )Financial instruments, included in other assets
    
    
    (0.1
    )
    
    
    0.0
    
    
    
    (17.8
    )Net debt of Telekom Austria
    
    
    3,169.0
    
    
    
    3,113.7
    
    
    
    2,129.8
 
 (1)
    
    In 2006, long-term debt comprises long-term debt net of current portion and the
value of fixed-to-variable swaps.      105




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Contractual obligations and commercial commitments
  Total
    
    
    Up to 1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    After 5 years(in EUR millions)Contractual obligations:Long-term debt (1)
    
    
    2,892.9
    
    
    
    142.7
    
    
    
    805.4
    
    
    
    700.4
    
    
    
    1,244.4Finance lease payments
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    Operating leases
    
    
    212.1
    
    
    
    41.8
    
    
    
    70.0
    
    
    
    67.3
    
    
    
    33.0Cross border leases
    
    
    80.2
    
    
    
    9.4
    
    
    
    34.8
    
    
    
    20.3
    
    
    
    15.7Purchase obligations (2)
    
    
    321.8
    
    
    
    252.9
    
    
    
    34.8
    
    
    
    9.5
    
    
    
    24.7Total obligations
    
    
    3,507.3
    
    
    
    446.9
    
    
    
    945.0
    
    
    
    797.5
    
    
    
    1,317.8
 
 (1)
    
    Excluding interest accruing over the term of the long-term debts.(2)
    
    Purchase Obligations include purchase commitments for fixed assets and other non-redeemable
contractual commitments such as service agreements. Research and development
  Foreign exchange rate risk
    106




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107




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##### Table of Contents



Item 6. Directors, Senior Management and Employees
 Management Board Members
  Name
    
    Age
    
    Term of appointment
    
    Area of responsibilityBoris Nemsic
    
    
    49
    
    
    July 1, 2002  April 30, 2011
    
    Chairman of the
Board1, Chief Executive
Officer (CEO)1, Vice Chairman2, Chief
Executive Officer mobilkom austria AGStefano Colombo
    
    
    45
    
    
    April 11, 2000  March 31, 2007
    
    Chief Financial Officer (CFO), Vice Chairman3Rudolf Fischer
    
    
    53
    
    
    November 1, 1998  April 30, 2011
    
    Vice Chairman1of the Board,Heinz Sundt
    
    
    59
    
    
    April 11, 2000  May 23, 2006
    
    Chairman of the Board, Chief Executive
Officer (CEO)
 
 1
    
    As of May 24, 20062
    
    From April 11, 2005 until May 23, 20063
    
    Until May 23, 2006 Boris Nemsic
 Stefano Colombo
 Rudolf Fischer
 Heinz Sundt Hochschule für Welthandel
 108




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Hans Tschuden
     109




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##### Table of Contents



Supervisory Board members
  Name
    
    Member since / re-elected
    
    Principal occupationPeter Michaelis (Chairperson)
    
    June 28, 2001 / June 4, 2003
    
    Speaker of the Management
Board of ÖIAGEdith Hlawati (Vice Chairperson)
    
    June 28, 2001 / June 4, 2003
    
    AttorneyHans Haider
    
    June 4, 2003
    
    CEO Österreichische
Elektrizitätswirtschafts-AktiengesellschaftStephan Koren
    
    September 17, 1999 / June 4, 2003
    
    Deputy CEO BAWAG P.S.K.
Bank für Arbeit und
Wirtschaft und
Österreichische
Postsparkasse AGJohann Georg Schelling
    
    June 2, 2006  February 6, 2007
    
    CEO BIG DEAL Marken &
Marketing Beratung GmbH,
CEO XLA-Holding GmbHWilfried Stadler
    
    July 15, 2005
    
    CEO of Investkredit Bank AGHarald Stöber
    
    June 4, 2003
    
    CEO Arcor AG & Co. KGRainer Wieltsch
    
    June 12, 2002 / June 4, 2003
    
    Former member of
Management Board of ÖIAG,
ConsultantWolfgang C. Berndt
    
    June 2, 2006
    
    Former President of
Procter&Gamble Europe,
Middle East and AfricaWilhelm Eidenberger
    
    April 30, 2001
    
    Employee representativeMarkus Hinker
    
    July 15, 2005
    
    Employee representativeWalter Hotz
    
    December 9, 2003
    
    Employee representativeMichael Kolek
    
    March 20, 2002
    
    Employee representativeFranz Kusin
    
    August 6, 2004
    
    Employee representative
     110




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##### Table of Contents



Audit Committee and other Supervisory Board Committees
  Name of committee
    
    Current membersAudit Committee
    
    Rainer Wieltsch, Wolfgang C. Berndt, Michael KolekChairing Committee
(from March 5, 2007
Chairing and
Compensation
Committee)
    
    Peter Michaelis, Edith HlawatiCommittee for
Corporate Structure
(until March 5, 2007)
    
    Peter Michaelis, Rainer Wieltsch, Harald Stöber,
Michael Kolek, Walter HotzPersonnel Committee
(from March 5, 2007
Nomination Committee)
    
    Peter Michaelis, Edith Hlawati, Michael Kolek
 Stock option plans
 Stock Option Plan 2000
  Stock Option Plan 2004
   111




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##### Table of Contents



Stock Option Plan 2004
    
    
    
    Stock Option PlanTranche issued
    
    2004 April
    
    2005 January
    
    2006 January
    
    2004 ExtensionNumber of Options Issued
    
    2,392,925
    
    2,874,100
    
    3,908,468
    
    4,047,472Options received by
Board Members
    
    Nemsic: 96,000
    
    Nemsic: 99,100
    
    Nemsic: 120,000
    
    Nemsic: 120,000Fischer: 96,000
    
    Fischer: 99,100
    
    Fischer: 120,000
    
    Fischer: 120,000Colombo: 96,000
    
    Colombo: 99,100
    
    Colombo: 120,000Sundt: 96,000
    
    Sundt: 99,100Grantee Investment (1
share : no. of
 options)
    
    Employee 1 : 15
    
    Employee 1 : 20
    
    Employee 1 : 28
    
    Employee 1 : 30Board Member 1 : 15
    
    Board Member 1 : 15
    
    Board Member 1 : 24
    
    Board Member 1 : 25Exercise Price
    
    EUR 11.92
    
    EUR 13.98
    
    EUR 18.91
    
    EUR 20.34Vesting Period
    
    about 12 months
    
    about 12 months
    
    about 12 months
    
    about 12 monthsLast Exercise Date
    
    May 30, 2008
    
    May 29, 2009
    
    March 31, 2010
    
    May 31, 2011Outstanding Options
as of Dec. 31, 2006
    
    133,600
    
    420,745
    
    3,570,348
    
    NoneExercise Hurdle met
    
    Yes
    
    Yes
    
    Yes
    
    OpenDecision on Settlement
    
    Cash Settlement only
    
    Cash Settlement only
    
    Cash Settlement only
    
    Open
   Employee Participation Program
     Employees
  112




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2006
    
    
    2005
    
    
    2004Number of Employees (year-end)Wireline
    
    
    9,433
    
    
    
    9,557
    
    
    
    9,682Wireless
    
    
    5,995
    
    
    
    6,038
    
    
    
    3,625Total
    
    
    15,428
    
    
    
    15,595
    
    
    
    13,307
 Civil servants
 of Post- und Telekom Austria AG
   Private law employees
     Inter-company representation of interests
  113




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Adjustment measures with regard to personnel
   Transfer of employees
    Relationship with employees
  114




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##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions
    Relationship with the Republic of Austria and ÖIAG
     Pension contributions for civil servants
  The Republic of Austria as regulator
  115




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##### Table of Contents



Tariffs for special services
 Fernsprechentgeltzuschussgesetz
 The Republic of Austria as customer
  (Bundesbeschaffung GmbH)
 Federal guarantees for Telekom Austria and mobilkom Austria AG loans
  Relationship with Österreichische Post
  116




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##### Table of Contents



Item 8. Financial Information
 8.1 CONSOLIDATED FINANCIAL STATEMENTS
  8.2 OTHER INFORMATION
 Litigation
  Wireline
 Rechnungshof)
   Wireless
     117




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##### Table of Contents



Regulatory matters regarding Telekom Austria and mobilkom austria AG
 Wireline
    
 Wireless
 termination in each
individual mobile network
 termination in each individual mobile
network
  118




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##### Table of Contents



Dividends
 Declaration of dividends
      Payment of dividends
  119




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##### Table of Contents



Item 9. The Offer and Listing
 9.1 MARKETS
   Finanzmarktaufsicht)
   1
 New York
    
    ViennaHigh
    
    Low
    
    High
    
    LowUSD
    
    EUR2002
    
    
    20.0
    
    
    
    14.5
    
    
    
    10.0
    
    
    
    7.22003
    
    
    24.7
    
    
    
    18.9
    
    
    
    11.1
    
    
    
    8.62004
    
    
    38.5
    
    
    
    24.8
    
    
    
    14.4
    
    
    
    9.82005
    
    
    45.4
    
    
    
    36.7
    
    
    
    19.6
    
    
    
    13.9First Quarter
    
    
    40.5
    
    
    
    36.7
    
    
    
    15.5
    
    
    
    13.9Second Quarter
    
    
    40.4
    
    
    
    36.9
    
    
    
    16.6
    
    
    
    14.4Third Quarter
    
    
    43.0
    
    
    
    38.4
    
    
    
    17.6
    
    
    
    15.9Fourth Quarter
    
    
    45.4
    
    
    
    39.1
    
    
    
    19.6
    
    
    
    16.02006
    
    
    55.1
    
    
    
    42.0
    
    
    
    21.1
    
    
    
    16.7First Quarter
    
    
    49.1
    
    
    
    44.8
    
    
    
    20.7
    
    
    
    18.6Second Quarter
    
    
    51.0
    
    
    
    42.0
    
    
    
    20.1
    
    
    
    16.7Third Quarter
    
    
    50.8
    
    
    
    42.6
    
    
    
    20.1
    
    
    
    16.8Fourth Quarter
    
    
    55.1
    
    
    
    46.3
    
    
    
    21.1
    
    
    
    18.0October
    
    
    51.0
    
    
    
    46.3
    
    
    
    20.2
    
    
    
    18.0November
    
    
    54.7
    
    
    
    48.6
    
    
    
    20.7
    
    
    
    18.8December
    
    
    55.1
    
    
    
    51.9
    
    
    
    21.1
    
    
    
    19.32007First Quarter
    
    57.0
    
    46.5
    
    21.6
    
    17.7January
    
    
    57.0
    
    
    
    52.3
    
    
    
    21.6
    
    
    
    20.0February
    
    56.3
    
    49.9
    
    21.3
    
    18.8March
(through 28)
    
    51.1
    
    46.5
    
    19.5
    
    17.7
 
 1
    
    Intraday high and low; Source: Reuters 120




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##### Table of Contents



Item 10. Additional Information
 
 10.1. MEMORANDUM AND ARTICLES OF ASSOCIATION
 Overview
   Shares and share capital
 Stückaktien
 Österreichische Kontrollbank AG
 Authorized Capital in connection with Stock option Plans
  Authorized Capital 2003
   Stock Option Plan 2004Tranche 2004
    
    Tranche 2005
    
    Tranche 2006Decision on potential capital increase up to
    
    EUR 6,543,000
    
    EUR 7,415,400
    
    EUR 9,487,350Exercise Hurdle met
    
    Yes
    
    Yes
    
    YesDecision on settlement date
    
    Cash Settlement only
March 15, 2005
    
    Cash Settlement only
March 6, 2006
    
    Cash Settlement only
March 8, 2007Decision on capital increase revoked
    
    Yes
    
    Yes
    
    Open
 121




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##### Table of Contents



Authorized Capital 2006
   Share Buyback
 Share Buyback in Connection with IPO Stock Option Plan
  Share Buyback Program
   
    
    to settle stock options to be granted to employees, directors and members of the
Management Board of the Company or of an affiliated company and/or for issuance to
employees of the Telekom Austria Group, be it with or without consideration;
    
    to settle convertible bonds;
    
    to use as consideration for the acquisition of enterprises, businesses or parts
thereof, or shares of one or more companies acquisitions, also abroad;
    
    to resell them in accordance with Paragraph 65, Sec. 1b of the Stock Corporation
Act, (i) anytime over the stock exchange or by public offer; (ii) within a period of
five years in any way permitted by law, also other than over the stock exchange; the
Management Board is free to decide the manner in which the shares shall be sold and may
in its free discretion sell to any purchaser chosen by them;
    
    to decrease the Share Capital of the Company according to Paragraph 65 Sec 1 No 8
last sentence in connection with Para 192 of the Stock Corporation Act by up to EUR
109,050,000 by withdrawing these own shares without further Shareholders resolution.
The Supervisory Board is authorized to resolve upon the amendments of the Articles of
Association required by the withdrawal of Shares.
 122




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##### Table of Contents



Number ofshares bought
    
    Percentage of the
    
    Within the respectiveback
    
    share capital
    
    calendar year untilExercise of American Call options
    
    
    3,326,881
    
    
    
    0.7
    %
    
    December 31, 2004Shares used for stock option program
    
    
    -89,748
    
    
    
    0.0
    %
    
    December 31, 2004Share buyback program 2004
    
    
    3,018,561
    
    
    
    0.6
    %
    
    December 31, 2004Share buyback program 2005
    
    
    11,241,412
    
    
    
    2.2
    %
    
    December 31, 2005Share buyback program 2006
    
    
    21,310,870
    
    
    
    4.3
    %
    
    December 31, 2006Shares used for employee participation program
    
    
    -500,503
    
    
    
    -0.1
    %
    
    December 31, 2006Share buyback program 2007
    
    
    1,692,527
    
    
    
    0.3
    %
    
    March 19, 2007Treasury shares cancelled
    
    
    -40,000,000
    
    
    
    -8.0
    %
    
    March 19, 2007Total treasury shares
    
    
    0
    
    
    
    0.0
    %
    
    March 19, 2007
   Convertible Bonds
   Corporate governance
 Vorstand Aufsichtsrat
  123




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##### Table of Contents



Management Board (Vorstand)
  Prokurist
      124




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##### Table of Contents



Supervisory Board (Aufsichtsrat)
     
    
    Acquisition and sale of participating interests as well as the acquisition, sale and
termination of businesses and establishments;
    
    Acquisition and sale of material real estate; material encumbrance of real estate;
    
    Establish and closing down of branches;
    
    Material investments;
    
    Taking and granting material loans and credits;
    
    Commencement and termination of lines of business and types of production;
    
    Determination of general principles of business policy;
    
    Determination of principles for granting of profit shares or commissions on turnover and
pension commitments to managers and senior employees;
    
    Stock options for employees and key employees of the Company or affiliated companies as
well as for members of the Management Board and the Supervisory Board of the Company or
affiliated companies;
    
    Granting of general powers-of-attorney; and
    
    Entering into agreements with Members of the Supervisory Board or businesses in which
members of the Supervisory Board hold a significant stake whereby these Members or
businesses receive more than an insignificant consideration.
   125




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##### Table of Contents



Supervisory Board Committees
      (Präsidium)
  Annual General Meeting (Shareholders meeting)
   Hinterlegungsbescheinigung
 126




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##### Table of Contents




    
    Amendment of the business purpose;
    
    Increase of the share capital with a simultaneous exclusion of preemptive rights;
    
    Authorized capital/conditional capital;
    
    Decrease of share capital;
    
    Dissolution, and continuation of the Company after dissolution;
    
    Transformation into a company with limited liability (GmbH);
    
    Mergers and spin-offs;
    
    Transfer of all of the Companys assets; and
    
    Profit and business transfer agreements.
 Shareholders rights
    
    
    Request a special audit of transactions in connection with the creation of Telekom
Austria or with the management thereof, if the transaction was carried out within the last
two years and, if such request has been rejected by a shareholders resolution, to apply to
a court to request the appointment of special auditors;
 127




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##### Table of Contents




    
    Veto the appointment of auditors and petition the court to request the appointment of
other auditors for a special audit;
    
    Request the adjournment of the AGM if certain items of the annual financial statements
are objected to by minority shareholders;
    
    Veto the appointment of auditors for cause. This veto right may also be exercised by any
shareholder or group of shareholders holding shares with a total nominal value of at least
EUR 700,000;
    
    Petition the court to request the revocation for cause of members of the Supervisory
Board nominated by the shareholders; and
    
    Request separate consolidated financial statements for companies within our group
prepared according to Austrian or foreign accounting principles. This right may also be
exercised by any shareholder or group of shareholders holding shares with an aggregate
nominal value of at least EUR 1,400,000.
  
    
    Request that an AGM be called or, upon court approval, to call the meeting themselves if
the Management Board or the Supervisory Board does not comply with this request;
    
    Request that a topic be put on the agenda of the AGM;
    
    Enforce damages against the Management Board, Supervisory Board or shareholders if audit
reports reveal facts or actions that may constitute a basis for liability;
    
    Petition the court to request the appointment or revocation for cause of liquidators,
and request a special audit of the annual financial statements during the liquidation
period and apply to a court to request the appointment of auditors. This right may also be
invoked by any shareholder or group of shareholders holding shares with a total nominal
value of at least EUR 350,000;
    
    Appeal against a shareholders resolution if by this resolution the depreciation
adjustments and reserves have been affected to an extent exceeding the maximum amounts
permissible under the Stock Corporation Act or our Articles of Association; and
    
    Request separate consolidated financial statements for companies within our group
prepared according to Austrian or foreign accounting principles. This right may also be
exercised by any shareholder or group of shareholders holding shares with an aggregate
nominal value of at least EUR 700,000.
  Important rules regarding acquisitions
 Wiener Zeitung
  128




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##### Table of Contents



Differences in Telekom Austria AGs corporate governance and New York Stock Exchange corporate
governance practices
  Independent Directors
 Vorstand (Aufsichtsrat
 Non-management Directors Meetings
  Nominating/Corporate Governance Committee
  Compensation Committee
 Präsidium
 129




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##### Table of Contents



Audit Committee Composition and Responsibilities
 Prüfungsausschuss
   www.telekom.at
  130




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##### Table of Contents



Preemptive rights
 Wiener Zeitung
    Repurchase of shares
  
    
    Prevention of substantial damage to the Company;
    
    Allocation of shares to employees, key employees or members of the Management or the
Supervisory Boards; the repurchase must be authorized by a resolution of the AGM; not
exceeding 18 months and must identify the price range and the number of shares to be
repurchased;
    
    Compensation for minority shareholders as permitted by law; and
    
    Share Buyback program for up to 10% of the share capital based on an authorization of
the management by a shareholders resolution for a duration of up to 18 months, whereby the
price range and duration must be specified.
  131




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##### Table of Contents




    
    anytime over the stock exchange or by public offer;
    
    within a period of five years in any way permitted by law, also other than over the stock
exchange; the Management Board is free to decide the manner in which the shares shall be
sold and may in its free discretion sell to any purchaser chosen by them; and
   
    
    Authorization to buy back up to 50 million shares, i.e. up to 10% of the current common
stock outstanding listed on the Vienna Stock Exchange;
    
    Authorized price range between EUR 10 and EUR 25;
    
    The authorization by the AGM also extends the use of the repurchased shares:
 
    
    To settle stock options to be granted to employees, directors and
members of the Management Board of the Company or of an affiliated company; and/or
for issuance to employees of the Telekom Austria Group, be it with or without
consideration;
    
    To settle convertible bonds;
    
    As consideration for acquisitions;
    
    To sell the shares in any way permitted by law, also over the counter
and to any purchaser as chosen by us and
    
    To decrease the share capital of the Company by up to EUR 109,050.000
by withdrawing these own shares without further Shareholders resolution.
  Liquidation
   132




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Takeover rules
         Material contracts
  Exchange controls
  133




---



##### Table of Contents



10.2. TAXATION
 Austrian taxation
     Taxation of dividends
 Residents of Austria
 Kapitalertragsteuer
   Non-residents of Austria
   134




---



##### Table of Contents



Special tax rules for U.S. shareholders
  
    
    is a resident of the United States, for purposes of the U.S. treaty;
    
    does not hold the shares or ADSs in connection with the conduct of business through a
permanent establishment, or the performance of services through a fixed base in Austria;
and
    
    is otherwise eligible for benefits under the U.S. treaty with respect to income and gain
from the ordinary shares or ADSs.
 (Kapitalertragsteuer)
  Taxation of capital gains
 Residents of Austria
  
    
    a shareholder disposes of shares or ADSs within 12 months of purchase (deemed
speculative by Individual Income Tax Act);
    
    in the absence of speculative transactions, a shareholder has held a substantial
investment of at least 1% of the share capital at any time during a five year period prior
to the sale of the shares or ADSs; or
    
    the shares or ADSs are part of a domestic business asset.
 135




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##### Table of Contents



Non-residents of Austria
  Taxation of other income  Inheritance and gift tax
 Residents of Austria
  Non-residents of Austria
     136




---



##### Table of Contents



United States federal income taxation
  
    
    A citizen or resident of the United States;
    
    A corporation, or other entity taxable as a corporation, created or organized in or
under the laws of the United States or of any political subdivision therein; or
    
    An estate or trust, the income of which is includible in gross income for U.S. federal
income tax purposes regardless of its source.
    
    
    persons subject to the alternative minimum tax;
    
    tax-exempt entities;
    
    dealers and traders in securities or foreign currencies;
    
    certain financial institutions;
    
    persons who own the shares or ADSs as part of an integrated investment, including a
straddle, hedging or conversion transaction, comprised of shares or ADSs and one or more
other positions for tax purposes;
    
    persons whose functional currency is not the U.S. dollar;
    
    persons who actually or constructively own 10% or more of our voting stock;
    
    partnerships or other entities classified as partnerships for U.S. federal income tax purposes; or
    
    persons who acquired our ADSs or shares pursuant to the exercise of any employee stock
option or otherwise as compensation.
  137




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##### Table of Contents



Taxation of distribution
     Taxation of capital gains
  Passive Foreign Investment Company Rules
  138




---



##### Table of Contents



Information reporting and backup withholding
   139




---



##### Table of Contents



10.3. DOCUMENTS ON DISPLAY
    140




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##### Table of Contents



Item 11. Quantitative and Qualitative Disclosures about Market Risk
    Interest rate risk
   Assets subject to interest rate risk at December 31, 2006Maturities, year ended December 31,2012 and
    
    
    
    
    
    
    Fair2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    thereafter
    
    
    Total
    
    
    Value(in EUR thousands, except percentages)ASSETS:Cash at bank and in hand:Fixed rate
    
    
    125,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,147
    
    
    
    125,147Average interest rate (%) (1)
    
    
    3.72
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.72
    %Short-term investments:Securities available-for-sale
    
    
    23,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,135
    
    
    
    23,135
 
 (1)
    
    Weighted average of the yearend interest rates applicable to the outstanding amounts. 141




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##### Table of Contents



Liabilities and related derivative instruments subject to interest rate risk at December 31, 2006Maturities, year ended December 31,2012 and
    
    
    
    
    
    
    Fair2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    thereafter
    
    
    Total
    
    
    Value(in EUR thousands, except percentages)LIABILITIES:Bank OverdraftsFixed Rate
    
    
    16,839
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,839
    
    
    
    16,839Average interest rate (%) (1)
    
    
    3.42
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.42
    %Short-term borrowingsFixed Rate
    
    
    242,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242,560
    
    
    
    242,560Average interest rate (%) (1)
    
    
    3.69
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.69
    %Asset backed security loan (ABS)
    
    
    150,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,541
    
    
    
    150,541BondsFixed rate (4)
    
    
    41,590
    
    
    
    (1,280
    )
    
    
    (1,280
    )
    
    
    482,215
    
    
    
    (1,280
    )
    
    
    1,244,340
    
    
    
    1,764,306
    
    
    
    1,832,099Average interest rate (%) (1)
    
    
    4.32
    %
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    4.70
    %
    
    
    4.34
    %LoansFixed rate
    
    
    7,458
    
    
    
    186,042
    
    
    
    236,939
    
    
    
    
    
    
    
    210,000
    
    
    
    
    
    
    
    640,439
    
    
    
    572,646Average interest rate (%) (1)
    
    
    7.00
    %
    
    
    5.33
    %
    
    
    4.75
    %
    
    
    
    
    
    
    2.40
    %
    
    
    
    
    
    
    4.17
    %Variable rate
    
    
    93,677
    
    
    
    141,234
    
    
    
    243,756
    
    
    
    4,724
    
    
    
    4,724
    
    
    
    
    
    
    
    488,115
    
    
    
    488,115Average interest rate (%) (1)
    
    
    3.63
    %
    
    
    5.00
    %
    
    
    4.07
    %
    
    
    4.26
    %
    
    
    4.26
    %
    
    
    
    
    
    
    4.26
    %SWAP AGREEMENTS:Fixed to variable interest rate
Swaps in EURFixed to variable (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    300,000
    
    
    
    800,000
    
    
    
    14,133Average pay rate (%)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.19
    %
    
    
    
    
    
    
    3.78
    %
    
    
    3.41
    %Average receive rate (%) (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    5.00
    %
    
    
    3.98
    %FORWARD EXCHANGE CONTRACTS:Notional amount in EUR
    
    
    5,984
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,984
    
    
    
    (1
    )Notional amount in USD
    
    
    7,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,640
 
 (1)
    
    Weighted average of the year-end interest rates applicable to the outstanding amounts.(2)
    
    Represents notional amounts.(3)
    
    Weighted average of the year-end interest rates(4)
    
    The negative amounts shown in the line bonds fixed rate relate to the amortization of discounts
from the issuance of the bonds. Exchange rate risk
   142




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##### Table of Contents



Item 12. Description of Securities Other than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
 Managements
Annual Report on Internal Control over Financial Reporting
      Changes in internal control over financial reporting
  143




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 , .
      
 
 144




---



##### Table of Contents



Item 16. [Reserved]
 Item 16A. Audit Committee Financial Expert
    
  
 Bundesrechenzentrum
 
  
 Item 16B. Code of Ethics
 www.telekom.at
 145




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##### Table of Contents



Item 16C. Principal Accountant Fees and Services
  KPMG Austria GmbH
Wirtschaftsprüfungs- und Steuerberatungsgesellschaft
 For fiscal year
    
    
    For fiscal yearended December
    
    
    ended DecemberType of Fees
    
    31, 2006
    
    
    31,2005(EUR in millions)Audit Fees
    
    
    4.0
    
    
    
    3.6Audit-Related Fees
    
    
    0.1
    
    
    
    0.4Tax Fees
    
    
    0.4
    
    
    
    0.5All Other Fees
    
    
    0.0
    
    
    
    0.0Total
    
    
    4.5
    
    
    
    4.5
  Audit Committee pre-approval policies
 KPMG Austria GmbH, Wirtschaftsprüfungs- und
Steuerberatungsgesellschaft KPMG Austria GmbH, Wirtschaftsprüfungs- und
Steuerberatungsgesellschaft
   146




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##### Table of Contents




    
    Integrated Audits of Telekom Austria and subsidiaries and services associated with SEC registration statements;
    
    Statutory audits of our financial statements and
    
    Internal control audits and reviews.
  
    
    Due diligence pertaining to potential acquisitions and dispositions;
    
    Consultations by the Companys management as to accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or proposed rules,
standards or interpretations by the SEC, FASB, or other regulatory or standard-setting
bodies and
    
    Attestation services not required by statute or regulation (regarding EMTN Programme
including insurance premium).
  
    
    Tax planning;
    
    Local, state, national and international tax compliance and
    
    National and international tax advice.
   
 Item 16D. Exemptions from the Listing Standards for Audit Committees
     147




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##### Table of Contents



Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
  Number of
    
    
    Weighted
    
    
    Total number
    
    
    Maximum numbershares
    
    
    average price
    
    
    of shares
    
    
    that may bePeriod
    
    purchased
    
    
    per share
    
    
    purchased
    
    
    purchasedas of 31. December 2005
    
    
    17,586,854
    
    
    
    14.65
    
    
    
    17,586,854
    
    
    
    32,413,14601. - 31. January 2006
    
    
    2,049,604
    
    
    
    19.69
    
    
    
    19,636,458
    
    
    
    30,363,54201. - 28. February 2006
    
    
    0
    
    
    
    
    
    
    
    19,636,458
    
    
    
    30,363,54201. - 31. March 2006
    
    
    936,900
    
    
    
    19.54
    
    
    
    20,573,358
    
    
    
    29,426,64201. - 30. April 2006
    
    
    3,992,600
    
    
    
    18.79
    
    
    
    24,565,958
    
    
    
    25,434,04201. - 31. May 2006
    
    
    1,670,950
    
    
    
    17.83
    
    
    
    26,236,908
    
    
    
    23,763,09201. - 30. June 2006
    
    
    633,286
    
    
    
    17.55
    
    
    
    26,870,194
    
    
    
    23,129,80601. - 31. July 2006
    
    
    840,000
    
    
    
    17.52
    
    
    
    27,710,194
    
    
    
    22,289,80601. - 31. August 2006
    
    
    980,000
    
    
    
    19.27
    
    
    
    28,690,194
    
    
    
    21,309,80601. - 30. September 2006
    
    
    4,316,613
    
    
    
    19.31
    
    
    
    33,006,807
    
    
    
    16,993,19301. - 31. October 2006
    
    
    3,811,000
    
    
    
    19.15
    
    
    
    36,817,807
    
    
    
    13,182,19301. - 30. November 2006
    
    
    1,013,000
    
    
    
    20.25
    
    
    
    37,830,807
    
    
    
    12,169,19301. - 31. December 2006
    
    
    1,066,917
    
    
    
    20.38
    
    
    
    38,897,724
    
    
    
    11,102,276Total
2006(1),(2)
    
    
    38,897,724
    
    
    
    17.09
    
    
    
    38,897,724
 
 (1)
    
    In this sum, 89,748 shares and 500,503 shares are included which were used to serve stock
option programs and the employee participation program, respectively.(2)
    
    During the year 2006 we purchased 21,310,870 shares. On December 31, 2006, we therefore held
38,307,473 treasury shares purchased at an average price of euro 17.09. 148




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##### Table of Contents



PART III
 
 Item 17.
Financial Statements
  
 Item 18.
Financial Statements
  
 Item 19.
Exhibits
  1.1
    
    The Articles of Association of Telekom Austria AG.1.2
    
    The By-laws of Telekom Austria AG incorporated by reference to Exhibit 3.2 of the
Registration Statement filed on Form F-1 on October 31, 2000.8.1
    
    Subsidiaries as of the date of this filing (Structure of Telekom Austria Group).12.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.12.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.13.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 149




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##### Table of Contents



SIGNATURES
  TELEKOM AUSTRIA AGBy
    
    /s/ Boris NemsicName:
    
    Boris NemsicTitle:
    
    Chief Executive OfficerBy
    
    /s/ Stefano ColomboName:
    
    Stefano ColomboTitle:
    
    Chief Financial Officer
  150




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageTelekom Austria AktiengesellschaftConsolidated Financial StatementsIndependent auditors report
    
    
    F-2Consolidated balance sheets as of December 31, 2006 and 2005
    
    
    F-3Consolidated statements of operations for the years ended December 31, 2006, 2005 and 2004
    
    
    F-4Consolidated statements of cash flows for the years ended December 31, 2006, 2005 and 2004
    
    
    F-5Consolidated statements of changes in stockholders equity for the years ended December
31, 2006, 2005 and 2004
    
    
    F-6Notes to consolidated financial statements
    
    
    F-7
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
 
 
 F-2




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##### Table of Contents



TELEKOM AUSTRIA AG
 
 CONSOLIDATED BALANCE SHEETS
 (in EUR 000s, except share information)
 December 31,Notes
    
    
    2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    125,147
    
    
    
    116,756Short-term investments
    
    
    (5
    )
    
    
    14,530
    
    
    
    15,126Accounts receivable  trade, net of allowances
    
    
    (7
    )
    
    
    712,434
    
    
    
    714,281Receivables due from related parties
    
    
    (8
    )
    
    
    3,291
    
    
    
    23Inventories
    
    
    (9
    )
    
    
    111,299
    
    
    
    90,913Prepaid expenses
    
    
    (14
    )
    
    
    137,061
    
    
    
    121,701Income taxes receivable
    
    
    
    
    
    
    22,216
    
    
    
    9,214Non-current assets held for sale
    
    
    (13
    )
    
    
    
    
    
    
    880Other current assets
    
    
    
    
    
    
    34,172
    
    
    
    27,643TOTAL CURRENT ASSETS
    
    
    
    
    
    
    1,160,150
    
    
    
    1,096,537Investments in associates
    
    
    (4
    )
    
    
    4,399
    
    
    
    3,642Financial assets long-term
    
    
    (3
    )
    
    
    77,060
    
    
    
    86,813Goodwill
    
    
    (11
    )
    
    
    1,188,614
    
    
    
    1,188,356Other intangible assets, net
    
    
    (10
    )
    
    
    1,855,094
    
    
    
    1,664,020Property, plant and equipment, net
    
    
    (12
    )
    
    
    3,215,957
    
    
    
    3,583,030Other assets
    
    
    
    
    
    
    4,942
    
    
    
    6,005Deferred tax assets
    
    
    (23
    )
    
    
    53,373
    
    
    
    68,325Receivable due from related parties, long-term finance
    
    
    (8
    )
    
    
    100
    
    
    
    TOTAL ASSETS
    
    
    
    
    
    
    7,559,689
    
    
    
    7,696,728LIABILITIES
AND STOCKHOLDERS EQUITYCurrent liabilitiesShort-term borrowings
    
    
    (15
    )
    
    
    (562,093
    )
    
    
    (704,060
    )Accounts payable  trade
    
    
    
    
    
    
    (508,357
    )
    
    
    (544,233
    )Provisions and accrued liabilities
    
    
    (16
    )
    
    
    (202,057
    )
    
    
    (176,821
    )Payables to related parties
    
    
    (8
    )
    
    
    (11,830
    )
    
    
    (11,254
    )Income taxes payable
    
    
    
    
    
    
    (22,076
    )
    
    
    (12,757
    )Other current liabilities
    
    
    (18
    )
    
    
    (167,837
    )
    
    
    (206,856
    )Deferred income
    
    
    (17
    )
    
    
    (183,010
    )
    
    
    (199,510
    )TOTAL CURRENT LIABILITIES
    
    
    
    
    
    
    (1,657,260
    )
    
    
    (1,855,491
    )Long-term liabilitiesLong-term debt, net of current portion
    
    
    (19
    )
    
    
    (2,750,135
    )
    
    
    (2,557,703
    )Lease obligations, net of current portion
    
    
    (20
    )
    
    
    (57,365
    )
    
    
    (68,684
    )Employee benefit obligation
    
    
    (21
    )
    
    
    (111,572
    )
    
    
    (109,546
    )Provisions long-term
    
    
    (16
    )
    
    
    (72,705
    )
    
    
    (85,705
    )Deferred tax liabilities
    
    
    (23
    )
    
    
    (44,248
    )
    
    
    (50,854
    )Other liabilities and deferred income
    
    
    
    
    
    
    (42,888
    )
    
    
    (49,979
    )TOTAL LONG-TERM LIABILITIES
    
    
    
    
    
    
    (3,078,913
    )
    
    
    (2,922,471
    )Stockholders equityCommon stock, no par value shares, 560,000,000 authorized
(2005: 560,000,000), 500,000,000 issued (2005: 500,000,000),
461,692,527 outstanding (2005: 482,502,894)
    
    
    (25
    )
    
    
    (1,090,500
    )
    
    
    (1,090,500
    )Treasury shares
    
    
    
    
    
    
    654,597
    
    
    
    256,396Additional paid-in capital
    
    
    
    
    
    
    (461,640
    )
    
    
    (460,128
    )Retained earnings
    
    
    
    
    
    
    (1,924,746
    )
    
    
    (1,624,131
    )Revaluation reserve
    
    
    
    
    
    
    (375
    )
    
    
    (375
    )Translation adjustments
    
    
    
    
    
    
    (811
    )
    
    
    (11
    )Equity attributable to equity holders of the parent
    
    
    
    
    
    
    (2,823,475
    )
    
    
    (2,918,749
    )Minority Interests
    
    
    
    
    
    
    (41
    )
    
    
    (17
    )TOTAL STOCKHOLDERS EQUITY
    
    
    
    
    
    
    (2,823,516
    )
    
    
    (2,918,766
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    
    
    
    
    
    (7,559,689
    )
    
    
    (7,696,728
    )
  F-3




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##### Table of Contents



TELEKOM AUSTRIA AG
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in EUR 000s, except share information)
 twelve months endedDecember 31,Notes
    
    
    2006
    
    
    2005
    
    
    2004Operating revenues
    
    
    (26
    )
    
    
    4,759,560
    
    
    
    4,365,247
    
    
    
    4,042,868Other operating income
    
    
    (27
    )
    
    
    59,172
    
    
    
    54,812
    
    
    
    50,496Operating expensesMaterials
    
    
    
    
    
    
    (385,217
    )
    
    
    (350,151
    )
    
    
    (327,465
    )Employee costs, including benefits and taxes
    
    
    
    
    
    
    (768,283
    )
    
    
    (698,493
    )
    
    
    (692,012
    )Depreciation and amortization
    
    
    (10,11,12
    )
    
    
    (1,123,931
    )
    
    
    (1,121,440
    )
    
    
    (1,114,748
    )Impairment charges
    
    
    (10,11,12
    )
    
    
    (10,480
    )
    
    
    (17,388
    )
    
    
    (1,334
    )Other operating expenses
    
    
    (28
    )
    
    
    (1,758,412
    )
    
    
    (1,612,909
    )
    
    
    (1,488,338
    )OPERATING INCOME
    
    
    
    
    
    
    772,409
    
    
    
    619,678
    
    
    
    469,467Other income (expense)Interest income
    
    
    
    
    
    
    20,050
    
    
    
    32,663
    
    
    
    17,497Interest expense
    
    
    
    
    
    
    (133,498
    )
    
    
    (144,917
    )
    
    
    (142,109
    )Foreign exchange differences
    
    
    
    
    
    
    (405
    )
    
    
    1,349
    
    
    
    2(Loss) income from investments
    
    
    
    
    
    
    (675
    )
    
    
    3,861
    
    
    
    10,497Equity in earnings of affiliates
    
    
    (4
    )
    
    
    20
    
    
    
    570
    
    
    
    552INCOME BEFORE INCOME TAXES
    
    
    
    
    
    
    657,901
    
    
    
    513,204
    
    
    
    355,906Income tax expense
    
    
    (23
    )
    
    
    (96,061
    )
    
    
    (104,271
    )
    
    
    (135,468
    )NET INCOME
    
    
    
    
    
    
    561,840
    
    
    
    408,933
    
    
    
    220,438Attributable to:Equity holders of the parent
    
    
    
    
    
    
    561,816
    
    
    
    408,931
    
    
    
    219,835Minority interests
    
    
    
    
    
    
    24
    
    
    
    2
    
    
    
    603Basic and fully diluted earnings per share
    
    
    (25
    )
    
    
    1.19
    
    
    
    0.84
    
    
    
    0.44Operating revenues include revenues from related parties of
    
    
    
    
    
    
    5,349
    
    
    
    155
    
    
    
    114Other operating income includes other operating income from related parties of
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Operating expenses include operating expenses from related parties of
    
    
    
    
    
    
    49,931
    
    
    
    41,434
    
    
    
    45,393Interest income includes interest income from related parties of
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    1Interest expense includes interest expense from related parties of
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    1
  F-4




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##### Table of Contents



TELEKOM AUSTRIA AG
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in EUR 000s, except share information)
 twelve months endedDecember 31,Notes
    
    
    2006
    
    
    2005
    
    
    2004Cash generated from operationsNet income
    
    
    
    
    
    
    561,840
    
    
    
    408,933
    
    
    
    220,438Adjustments to reconcile net income to cash generated from operationsDepreciation, amortization and impairment charges
    
    
    (10,11,12
    )
    
    
    1,134,411
    
    
    
    1,138,828
    
    
    
    1,116,081Write-offs from and appreciation to investments, net
    
    
    
    
    
    
    1,136
    
    
    
    284
    
    
    
    (5,232
    )Employee benefit obligation  non-cash
    
    
    
    
    
    
    (372
    )
    
    
    3,723
    
    
    
    504Allowance for doubtful accounts
    
    
    (7,28
    )
    
    
    34,323
    
    
    
    43,393
    
    
    
    23,597Change in deferred taxes
    
    
    
    
    
    
    8,349
    
    
    
    62,550
    
    
    
    89,012Equity in earnings of affiliates less
than (in excess of) dividends received
    
    
    (4
    )
    
    
    664
    
    
    
    (72
    )
    
    
    (15
    )Stock compensation
    
    
    (22
    )
    
    
    13,015
    
    
    
    13,322
    
    
    
    4,622Employee Participation Program
    
    
    (22
    )
    
    
    10,065
    
    
    
    
    
    
    
    Asset retirement obligation  accretion expense
    
    
    (16
    )
    
    
    3,380
    
    
    
    3,187
    
    
    
    5,829Gain on sale of investments
    
    
    
    
    
    
    (437
    )
    
    
    (4,013
    )
    
    
    (11,713
    )Loss on disposal / retirement of equipment
    
    
    
    
    
    
    1,430
    
    
    
    7,839
    
    
    
    28,861Other
    
    
    
    
    
    
    (56
    )
    
    
    (6,222
    )
    
    
    6671,767,748
    
    
    
    1,671,752
    
    
    
    1,472,651Changes in assets and liabilities, net of effect of business acquiredAccounts receivable  trade
    
    
    
    
    
    
    (32,634
    )
    
    
    28,094
    
    
    
    (29,292
    )Due from related parties
    
    
    
    
    
    
    (3,624
    )
    
    
    15
    
    
    
    11Inventories
    
    
    
    
    
    
    (20,406
    )
    
    
    (2,583
    )
    
    
    425Prepaid expenses and other assets
    
    
    
    
    
    
    (33,809
    )
    
    
    (838
    )
    
    
    (26,518
    )Accounts payable  trade
    
    
    
    
    
    
    (35,486
    )
    
    
    (19,581
    )
    
    
    (58,564
    )Employee benefit obligation
    
    
    
    
    
    
    (3,812
    )
    
    
    (12,157
    )
    
    
    (36,839
    )Accrued liabilities
    
    
    
    
    
    
    26,584
    
    
    
    (13,843
    )
    
    
    (49,970
    )Due to related parties
    
    
    
    
    
    
    576
    
    
    
    (817
    )
    
    
    (1,570
    )Other liabilities and deferred income
    
    
    
    
    
    
    (75,208
    )
    
    
    (12,389
    )
    
    
    48,884(177,819
    )
    
    
    (34,099
    )
    
    
    (153,433
    )Cash generated from operations
    
    
    
    
    
    
    1,589,929
    
    
    
    1,637,653
    
    
    
    1,319,218Cash from investing activitiesCapital expenditures, including interest capitalized
    
    
    (31
    )
    
    
    (996,726
    )
    
    
    (627,639
    )
    
    
    (548,169
    )Acquisitions and investments, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (1,185,652
    )
    
    
    (2,180
    )Sale of subsidiary, net of cash
    
    
    
    
    
    
    (445
    )
    
    
    
    
    
    
    Proceeds from sale of equipment
    
    
    
    
    
    
    28,121
    
    
    
    24,143
    
    
    
    36,213Purchase of investments  short-term
    
    
    
    
    
    
    (6,611
    )
    
    
    (48,918
    )
    
    
    (51,609
    )Purchase of investments  long-term
    
    
    
    
    
    
    (4,870
    )
    
    
    (1,660
    )
    
    
    (1,997
    )Proceeds from sale of investments  short-term
    
    
    
    
    
    
    7,323
    
    
    
    57,220
    
    
    
    51,909Proceeds from sale of investments  long-term
    
    
    
    
    
    
    1,598
    
    
    
    1,605
    
    
    
    6,502Cash used in investing activities
    
    
    
    
    
    
    (971,610
    )
    
    
    (1,780,901
    )
    
    
    (509,331
    )Cash from financing activitiesProceeds from issuance of bonds and long-term debt
    
    
    
    
    
    
    300,000
    
    
    
    1,168,950
    
    
    
    Principal payments on bonds
    
    
    
    
    
    
    
    
    
    
    (348,616
    )
    
    
    (2,180
    )Principal payments on long-term debt
    
    
    
    
    
    
    (244,478
    )
    
    
    (760,543
    )
    
    
    (568,110
    )Change in short-term borrowings
    
    
    
    
    
    
    3,672
    
    
    
    214,453
    
    
    
    (21,268
    )Purchase of treasury stock
    
    
    
    
    
    
    (406,754
    )
    
    
    (184,465
    )
    
    
    (64,161
    )Proceeds from sale of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    808Dividends paid
    
    
    (25
    )
    
    
    (261,201
    )
    
    
    (117,867
    )
    
    
    (64,579
    )Cash used in financing activities
    
    
    
    
    
    
    (608,761
    )
    
    
    (28,088
    )
    
    
    (719,490
    )Effect of exchange rate changes
    
    
    
    
    
    
    (1,167
    )
    
    
    (103
    )
    
    
    (4,128
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    8,391
    
    
    
    (171,439
    )
    
    
    86,269Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    116,756
    
    
    
    288,195
    
    
    
    201,926Cash and cash equivalents at end of period
    
    
    
    
    
    
    125,147
    
    
    
    116,756
    
    
    
    288,195
  F-5




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##### Table of Contents



TELEKOM AUSTRIA AG
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (in EUR 000s, except share information)
 Common stock
    
    
    Treasury Shares
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    
    Number of
    
    
    
    
    
    
    paid-in
    
    
    Retained
    
    
    Revaluation
    
    
    Translation
    
    
    
    
    
    
    Minority
    
    
    stockholdersshares
    
    
    Par value
    
    
    shares
    
    
    at cost
    
    
    capital
    
    
    earnings
    
    
    reserve
    
    
    adjustment
    
    
    Total
    
    
    interest
    
    
    equityBalance January 1, 2004
    
    
    500,000,000
    
    
    
    1,090,500
    
    
    
    
    
    
    
    
    
    
    
    460,029
    
    
    
    1,177,811
    
    
    
    (5,782
    )
    
    
    (10,679
    )
    
    
    2,711,879
    
    
    
    1,502
    
    
    
    2,713,381Change of tax rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (431
    )
    
    
    
    
    
    
    (431
    )
    
    
    
    
    
    
    (431
    )Net unrealized gains on securities,
net of EUR (565) deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,096
    
    
    
    
    
    
    
    1,096
    
    
    
    
    
    
    
    1,096Net realized gains on securities,
net of EUR 1,368 deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,655
    )
    
    
    
    
    
    
    (2,655
    )
    
    
    
    
    
    
    (2,655
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,696
    )
    
    
    (3,696
    )
    
    
    
    
    
    
    (3,696
    )Unrealized net gain on hedging activities,
net of EUR (2,077) deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,032
    
    
    
    
    
    
    
    4,032
    
    
    
    
    
    
    
    4,032Realized net gain on hedging activities,
net of EUR (138) deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    268Net income recognized directly in equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,386
    )
    
    
    
    
    
    
    (1,386
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219,835
    
    
    
    
    
    
    
    
    
    
    
    219,835
    
    
    
    603
    
    
    
    220,438Total recognized income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,449
    
    
    
    
    
    
    
    219,052Distribution of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,579
    )
    
    
    
    
    
    
    
    
    
    
    (64,579
    )
    
    
    
    
    
    
    (64,579
    )Stock options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,622
    
    
    
    
    
    
    
    4,622Purchase of treasury shares
    
    
    
    
    
    
    
    
    
    
    (6,345,442
    )
    
    
    (72,977
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72,977
    )
    
    
    
    
    
    
    (72,977
    )Issue of treasury shares to employees
    
    
    
    
    
    
    
    
    
    
    89,748
    
    
    
    1,046
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,046
    
    
    
    
    
    
    
    1,046Acquisition of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,105
    )
    
    
    (2,105
    )Balance December 31, 2004
    
    
    500,000,000
    
    
    
    1,090,500
    
    
    
    (6,255,694
    )
    
    
    (71,931
    )
    
    
    464,651
    
    
    
    1,333,067
    
    
    
    (3,472
    )
    
    
    (14,375
    )
    
    
    2,798,440
    
    
    
    
    
    
    
    2,798,440Net unrealized gains on securities,
net of EUR (201) deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    602
    
    
    
    
    
    
    
    602
    
    
    
    
    
    
    
    602Net realized gains on securities,
net of EUR 3 deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Foreign currency translation adjustment,
net of deferred income tax of EUR (308)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,386
    
    
    
    14,386
    
    
    
    
    
    
    
    14,386Realized net gain on hedging activities,
net of EUR (1,058) deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,253
    
    
    
    
    
    
    
    3,253
    
    
    
    
    
    
    
    3,253Net income recognized directly in equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,233
    
    
    
    
    
    
    
    18,233Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    408,931
    
    
    
    
    
    
    
    
    
    
    
    408,931
    
    
    
    2
    
    
    
    408,933Total recognized income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    427,164
    
    
    
    
    
    
    
    427,166Distribution of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117,867
    )
    
    
    
    
    
    
    
    
    
    
    (117,867
    )
    
    
    
    
    
    
    (117,867
    )Stock options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,523
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,523
    )
    
    
    
    
    
    
    (4,523
    )Purchase of treasury shares
    
    
    
    
    
    
    
    
    
    
    (11,241,412
    )
    
    
    (184,465
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (184,465
    )
    
    
    
    
    
    
    (184,465
    )Addition from acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    30Acquisition of minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )Balance December 31, 2005
    
    
    500,000,000
    
    
    
    1,090,500
    
    
    
    (17,497,106
    )
    
    
    (256,396
    )
    
    
    460,128
    
    
    
    1,624,131
    
    
    
    375
    
    
    
    11
    
    
    
    2,918,749
    
    
    
    17
    
    
    
    2,918,766Net unrealized gain/loss on securities,
net of EUR (2) deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Net realized gain/loss on securities,
net of EUR 5 deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Foreign currency translation adjustment
net of EUR 6 deferred income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    800
    
    
    
    
    
    
    
    800Net income recognized directly in equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    
    
    
    
    800Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,816
    
    
    
    
    
    
    
    
    
    
    
    561,816
    
    
    
    24
    
    
    
    561,840Total recognized income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    562,616
    
    
    
    
    
    
    
    562,640Distribution of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (261,201
    )
    
    
    
    
    
    
    
    
    
    
    (261,201
    )
    
    
    
    
    
    
    (261,201
    )Purchase of Treasury shares
    
    
    
    
    
    
    
    
    
    
    (21,310,870
    )
    
    
    (406,754
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (406,754
    )
    
    
    
    
    
    
    (406,754
    )Employee Participation Program
    
    
    
    
    
    
    
    
    
    
    500,503
    
    
    
    8,553
    
    
    
    1,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,065
    
    
    
    
    
    
    
    10,065Balance December 31, 2006
    
    
    500,000,000
    
    
    
    1,090,500
    
    
    
    (38,307,473
    )
    
    
    (654,597
    )
    
    
    461,640
    
    
    
    1,924,746
    
    
    
    375
    
    
    
    811
    
    
    
    2,823,475
    
    
    
    41
    
    
    
    2,823,516
  F-6




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##### Table of Contents



TELEKOM AUSTRIA AG
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (All amounts in EUR 000s)
 (1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
 Description of business, organization and relationship with the Federal Republic of Austria
     Basis of presentation
    F-7




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 New standards/interpretations
    
    Effective*IFRS 7
    
    Financial Instruments: Disclosures
(supersedes IAS 30 Disclosures in the Financial Statements of
Banks and Similar Financial Institutions and the disclosure
requirements of IAS 32 Financial Instruments: Disclosure and
Presentation)
    
    January 1, 2007IFRS 8
    
    Operating Segments
    
    January 1, 2009IFRIC 7
    
    Applying the Restatement Approach under IAS 29 Financial Reporting in
Hyperinflationary Economies
    
    March 1, 2006IFRIC 8
    
    Scope of IFRS 2
    
    May 1, 2006IFRIC 9
    
    Reassessment of Embedded Derivatives
    
    June 1, 2006IFRIC 10
    
    Interim Financial Reporting and Impairment
    
    November 1, 2006IFRIC 11
    
    IFRS 2  Group and Treasury Share Transactions
    
    March 1, 2007IFRIC 12
    
    Service Concession Arrangements
    
    January 1, 2008
 Revised standards/interpretations
    
    Effective*IAS 1
    
    Presentation of Financial Statements  Capital Disclosures
(Amendment)
    
    January 1, 2007
 
 *
    
    This standard/interpretation is effective for annual periods beginning on or after the
presented date.    Principles of consolidation
   F-8




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   Financial instruments
   Cash and cash equivalents
  Marketable securities and other long-term investments
    Derivative financial instruments
  F-9




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (All amounts in EUR 000s)
   Fair value of financial instruments
   Inventories
  Trade accounts receivable
  Property, plant and equipment
  F-10




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
    YearsTransmission equipment
    
    
    3  10Cables and wires
    
    
    15  20Communications equipment
    
    
    4  20Furniture, fixtures and other
    
    
    2  10Buildings and leasehold improvements
    
    
    5  50
  Goodwill and other intangible assets
     F-11




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
     YearsWireless and wireline licenses
    
    

    4  20Patents and proprietary rights
    
    
    2  20Subscriber base
    
    
    3  7Software
    
    
    2  8Other
    
    
    10  30
  Internally developed software
  Impairment of intangible and tangible fixed assets
  F-12




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   Changes in existing decommissioning, restoration and similar liabilities
  Assets held for sale
  Advertising and promotional costs
  F-13




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 Research and development costs
   Income taxes
   Earnings per share
  Accrued liabilities
  F-14




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 Leases
   Employee benefit obligations
     Concentration of risks
   F-15




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Foreign currency translation
 
  
   Balance sheet rates for 1 Euro
    
    
    Average exchange rates for 1 Euroat December 31,
    
    
    for the period ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Bulgarian Lev (BGN)
    
    
    1.9558
    
    
    
    1.9563
    
    
    
    1.9559
    
    
    
    1.9558
    
    
    
    1.9558
    
    
    
    1.9530Croatian Kuna (HRK)
    
    
    7.3504
    
    
    
    7.3715
    
    
    
    7.6712
    
    
    
    7.3254
    
    
    
    7.4038
    
    
    
    7.4943Czech Koruna (CZK)
    
    
    27.4850
    
    
    
    29.0000
    
    
    
    30.4640
    
    
    
    28.3460
    
    
    
    29.7803
    
    
    
    31.9062Hungarian Forint (HUF)
    
    
    251.7700
    
    
    
    252.8700
    
    
    
    245.9700
    
    
    
    264.2746
    
    
    
    247.9480
    
    
    
    251.6906Serbian Dinar (CSD)
    
    
    79.0000
    
    
    
    
    
    
    
    
    
    
    
    78.8852
    
    
    
    
    
    
    
    Slovak Koruna (SKK)
    
    
    34.4350
    
    
    
    37.8800
    
    
    
    38.7450
    
    
    
    37.2354
    
    
    
    38.5928
    
    
    
    40.0270Slovenian Tolar (SIT) *
    
    
    239.6400
    
    
    
    239.5000
    
    
    
    239.7600
    
    
    
    239.5956
    
    
    
    239.5698
    
    
    
    239.0826US Dollar (USD)
    
    
    1.3170
    
    
    
    1.1797
    
    
    
    1.3621
    
    
    
    1.2548
    
    
    
    1.2446
    
    
    
    1.2432
 
 *

    Converted to Euro at a rate of 239.640 as of January 1, 2007. Revenue recognition
 Wireline
  F-16




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
       Wireless
      F-17




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Interest, royalties and dividends
  Share-based compensation
  Use of estimates
   a)
    
    Employee benefit plans: The valuation of the various pension and other
post-employment benefit plans is based on the methodology used applying various
parameters, including the expected discount rate, rate of compensation increase, rate of
employee turnover and pension and salary increase (see note (21)). If the relevant
parameter develops, in a materially different manner than expected, this could have a
material impact on the defined benefit obligation and subsequently on net periodic pension
and service cost.b)
    
    Impairments: The impairment analysis for goodwill, other intangible assets and
tangible assets is generally based upon discounted estimated future net cash flows from
the use and eventual disposal of the assets. Factors such as lower than anticipated sales
and the resulting decreases in net cash flows and
changes in the discount rates used could lead to impairments. For more information on the
carrying value of goodwill, other intangible assets and tangible assets, see notes (10),
(11) and (12).c)
    
    Employee incentive plans: The stock option plans are measured based on the fair value
of the options on the grant date and every subsequent reporting date. The estimated fair
value of these options is based on parameters such as volatility, interest rate, share
price, term of the option, expected exercise pattern and expected dividend yield.
Compensation expense and liabilities could materially differ from the estimated amount as
of the balance sheet date if the used parameters were to change (see note (22)).d)
    
    Deferred taxes: In assessing the recoverability of deferred tax assets, management
considers whether it is probable that all the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is
 F-18




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible.
If the Company does not generate sufficient taxable income, deferred tax assets cannot be
used and will not be recognized (see note (23)).
 (2) BUSINESS COMBINATIONS
      Current assets
    
    
    110,974Tangible assets
    
    
    234,463Intangible assets
    
    
    910,308Deferred tax assets from acquisition
    
    
    7,003Goodwill
    
    
    605,413Current liabilities
    
    
    (380,546
    )Long-term liabilities
    
    
    (273,347
    )Net assets acquired
    
    
    1,214,268
  F-19




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Wireless operating licenses
    
    
    98,989Subscriber base
    
    
    508,682Brand name
    
    
    262,991Software
    
    
    39,568Other
    
    
    78Total intangible assets acquired
    
    
    910,308
   UnauditedActual
    
    
    Pro formaDec. 31,
    
    
    Dec. 31,2006
    
    
    2005Operating revenues
    
    
    4,759,560
    
    
    
    4,682,039Net income
    
    
    561,840
    
    
    
    471,483Weighted average number of common shares outstanding
    
    
    472,668,763
    
    
    
    489,050,517Basic and fully diluted earnings per share
    
    Euro 1.19
    
    Euro 0.96
   Current assets (including cash and cash equivalents acquired of EUR 28,638)
    
    
    102,929Tangible assets
    
    
    268,148Intangible assets
    
    
    758,409Goodwill
    
    
    30,671Current liabilities
    
    
    (371,814
    )Long-term liabilities
    
    
    (209,341
    )Deferred tax liabilities
    
    
    (7,576
    )Net assets
    
    
    571,426
 F-20




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (3) FINANCIAL ASSETS LONG-TERM
  At December 31,
    
    2006
    
    
    2005Other investments
    
    
    748
    
    
    
    748Other financial assets, long-term
    
    
    995
    
    
    
    1,206Marketable securities, long-term (note (6))
    
    
    15,132
    
    
    
    15,239Deposits cross border lease (note (20))
    
    
    60,185
    
    
    
    69,620Financial assets, long-term
    
    
    77,060
    
    
    
    86,813
   (4) INVESTMENTS IN ASSOCIATES
     2006
    
    
    2005
    
    
    2004January 1,
    
    
    3,642
    
    
    
    3,570
    
    
    
    3,555Dividends received
    
    
    (684
    )
    
    
    (498
    )
    
    
    (537
    )Recognized income
    
    
    20
    
    
    
    570
    
    
    
    552Additions
    
    
    1,059
    
    
    
    
    
    
    
    Change in reporting entities (paybox)
    
    
    362
    
    
    
    
    
    
    
    December 31,
    
    
    4,399
    
    
    
    3,642
    
    
    
    3,570
 F-21




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Revenues
    
    
    14,844
    
    
    
    6,308
    
    
    
    6,506Operating income
    
    
    2,799
    
    
    
    3,482
    
    
    
    3,466Net income
    
    
    1,371
    
    
    
    2,186
    
    
    
    2,117
  At December 31,
    
    2006
    
    
    2005Total current assets
    
    
    43,152
    
    
    
    39,018Total assets
    
    
    44,352
    
    
    
    39,501Current liabilities
    
    
    39,711
    
    
    
    36,167Long-term debt
    
    
    1,978
    
    
    
    1,480Total liabilities
    
    
    41,689
    
    
    
    37,647Total stockholders equity
    
    
    2,662
    
    
    
    1,854
 (5) SHORT-TERM INVESTMENTS
  At December 31,
    
    2006
    
    
    2005Marketable securities short-term (note (6))
    
    
    8,003
    
    
    
    7,300Deposits and cross border lease (note (20))
    
    
    6,527
    
    
    
    7,826Short-term investments
    
    
    14,530
    
    
    
    15,126
 F-22




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (6) MARKETABLE SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Faircost
    
    
    holding gains
    
    
    holding losses
    
    
    valueAt December 31, 2006Available-for-saledebt securities
    
    
    5,467
    
    
    
    27
    
    
    
    76
    
    
    
    5,419equity securities
    
    
    119
    
    
    
    
    
    
    
    6
    
    
    
    114mutual funds
    
    
    17,057
    
    
    
    550
    
    
    
    5
    
    
    
    17,602At December 31, 2005Available-for-saledebt securities
    
    
    5,363
    
    
    
    104
    
    
    
    27
    
    
    
    5,440equity securities
    
    
    119
    
    
    
    
    
    
    
    1
    
    
    
    118mutual funds
    
    
    10,472
    
    
    
    442
    
    
    
    24
    
    
    
    10,890Held-to-maturity
    
    
    6,091
    
    
    
    
    
    
    
    
    
    
    
    6,091
   F-23




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Less than 12 months
    
    
    12 months or longer
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Grossunrealized
    
    
    
    
    
    
    unrealized
    
    
    
    
    
    
    unrealizedFair value
    
    
    holding losses
    
    
    Fair value
    
    
    holding losses
    
    
    Fair value
    
    
    holding lossesAt December 31, 2006Non-current assetsAvailable-for-saledebt corporate
securities
    
    
    1,269
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    1,269
    
    
    
    76equity securities
    
    
    114
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    6mutual funds
    
    
    
    
    
    
    
    
    
    
    10,983
    
    
    
    5
    
    
    
    10,983
    
    
    
    5Total
    
    
    1,383
    
    
    
    82
    
    
    
    10,983
    
    
    
    5
    
    
    
    12,366
    
    
    
    87At December 31, 2005Non-current assetsAvailable-for-saledebt corporate
securities
    
    
    1,838
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    1,838
    
    
    
    27equity securities
    
    
    118
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    1mutual funds
    
    
    
    
    
    
    
    
    
    
    4,948
    
    
    
    23
    
    
    
    4,948
    
    
    
    23Total
    
    
    1,956
    
    
    
    28
    
    
    
    4,948
    
    
    
    23
    
    
    
    6,904
    
    
    
    51
 (7) ACCOUNTS RECEIVABLE  TRADE
  2006
    
    
    2005Allowance beginning of the year
    
    
    148,624
    
    
    
    113,710Foreign currency adjustment
    
    
    121
    
    
    
    762Change in reporting entities
    
    
    (175
    )
    
    
    27,763Released
    
    
    (2,971
    )
    
    
    (3,432
    )Charged to expenses
    
    
    37,294
    
    
    
    46,825Amounts written-off
    
    
    (48,188
    )
    
    
    (37,004
    )Allowance at the end of the year
    
    
    134,705
    
    
    
    148,624
 F-24




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 At December 31,
    
    2006
    
    
    2005Accounts receivable-trade  domestic, gross
    
    
    822,107
    
    
    
    812,221Accounts receivable-trade  foreign, gross
    
    
    25,032
    
    
    
    50,684Allowances
    
    
    (134,705
    )
    
    
    (148,624
    )Accounts receivable-trade, net
    
    
    712,434
    
    
    
    714,281
   (8) RELATED PARTY TRANSACTIONS
         F-25




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Revenues
    
    
    5,349
    
    
    
    155
    
    
    
    114Other operating income
    
    
    
    
    
    
    1
    
    
    
    1Expenses
    
    
    49,931
    
    
    
    41,434
    
    
    
    45,393Interest income
    
    
    5
    
    
    
    
    
    
    
    1Interest expenses
    
    
    4
    
    
    
    
    
    
    
    1
 (9) INVENTORIES
  At December 31,
    
    2006
    
    
    2005Spare parts, cables and supplies
    
    
    51,199
    
    
    
    44,209Merchandise
    
    
    59,946
    
    
    
    46,616Prepayments
    
    
    154
    
    
    
    88Inventories
    
    
    111,299
    
    
    
    90,913
  F-26




---



##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (10) OTHER INTANGIBLE ASSETS
 Advances/Customer
    
    
    construction inLicenses
    
    
    Brand names
    
    
    Software
    
    
    base
    
    
    progress/other
    
    
    TotalCostBalance at January 1, 2005
    
    
    569,863
    
    
    
    173,948
    
    
    
    441,223
    
    
    
    138,504
    
    
    
    136,616
    
    
    
    1,460,154Additions
    
    
    4,390
    
    
    
    
    
    
    
    58,300
    
    
    
    69
    
    
    
    35,435
    
    
    
    98,194Disposals
    
    
    
    
    
    
    
    
    
    
    (68,463
    )
    
    
    
    
    
    
    (9,603
    )
    
    
    (78,066
    )Transfers
    
    
    565
    
    
    
    
    
    
    
    28,623
    
    
    
    
    
    
    
    (25,248
    )
    
    
    3,940Translation adjustments
    
    
    1,251
    
    
    
    955
    
    
    
    1,656
    
    
    
    982
    
    
    
    170
    
    
    
    5,014Changes in reporting entities
    
    
    115,117
    
    
    
    262,991
    
    
    
    57,969
    
    
    
    591,846
    
    
    
    6,713
    
    
    
    1,034,636Balance at December 31, 2005
    
    
    691,186
    
    
    
    437,894
    
    
    
    519,308
    
    
    
    731,401
    
    
    
    144,083
    
    
    
    2,523,872Additions
    
    
    7,614
    
    
    
    
    
    
    
    72,217
    
    
    
    
    
    
    
    356,202
    
    
    
    436,033Disposals
    
    
    (3
    )
    
    
    
    
    
    
    (65,941
    )
    
    
    
    
    
    
    (3,830
    )
    
    
    (69,774
    )Transfers
    
    
    202
    
    
    
    
    
    
    
    36,671
    
    
    
    
    
    
    
    (27,967
    )
    
    
    8,906Translation adjustments
    
    
    160
    
    
    
    140
    
    
    
    275
    
    
    
    234
    
    
    
    105
    
    
    
    914Changes in reporting entities
    
    
    
    
    
    
    
    
    
    
    (462
    )
    
    
    
    
    
    
    
    
    
    
    (462
    )Balance at December 31, 2006
    
    
    699,159
    
    
    
    438,034
    
    
    
    562,068
    
    
    
    731,635
    
    
    
    468,593
    
    
    
    2,899,489Accumulated depreciationBalance at January 1, 2005
    
    
    (210,433
    )
    
    
    
    
    
    
    (295,927
    )
    
    
    (55,149
    )
    
    
    (55,895
    )
    
    
    (617,404
    )Additions
    
    
    (42,860
    )
    
    
    
    
    
    
    (77,694
    )
    
    
    (59,583
    )
    
    
    (12,397
    )
    
    
    (192,534
    )Disposals
    
    
    
    
    
    
    
    
    
    
    67,589
    
    
    
    
    
    
    
    8,574
    
    
    
    76,163Transfers
    
    
    
    
    
    
    
    
    
    
    (1,921
    )
    
    
    
    
    
    
    1,929
    
    
    
    8Translation adjustments
    
    
    (327
    )
    
    
    
    
    
    
    (983
    )
    
    
    (350
    )
    
    
    (98
    )
    
    
    (1,758
    )Changes in reporting entities
    
    
    (16,128
    )
    
    
    
    
    
    
    (25,011
    )
    
    
    (83,164
    )
    
    
    (24
    )
    
    
    (124,327
    )Balance at December 31, 2005
    
    
    (269,748
    )
    
    
    
    
    
    
    (333,947
    )
    
    
    (198,246
    )
    
    
    (57,911
    )
    
    
    (859,852
    )Additions
    
    
    (48,735
    )
    
    
    
    
    
    
    (96,747
    )
    
    
    (95,970
    )
    
    
    (11,259
    )
    
    
    (252,711
    )Impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,048
    )
    
    
    (1,048
    )Disposals
    
    
    1
    
    
    
    
    
    
    
    65,730
    
    
    
    
    
    
    
    3,740
    
    
    
    69,471Translation adjustments
    
    
    (58
    )
    
    
    
    
    
    
    (145
    )
    
    
    (53
    )
    
    
    (32
    )
    
    
    (288
    )Changes in reporting entities
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Balance at December 31, 2006
    
    
    (318,540
    )
    
    
    
    
    
    
    (365,077
    )
    
    
    (294,269
    )
    
    
    (66,510
    )
    
    
    (1,044,396
    )Carrying amount atDecember 31, 2006
    
    
    380,619
    
    
    
    438,034
    
    
    
    196,991
    
    
    
    437,366
    
    
    
    402,083
    
    
    
    1,855,094December 31, 2005
    
    
    421,438
    
    
    
    437,894
    
    
    
    185,361
    
    
    
    533,155
    
    
    
    86,172
    
    
    
    1,664,020
    F-27




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  GSM licenses
    
    
    UMTS licensesGranted until
    
    
    2009  2015
    
    
    
    2020  2025License cost
    
    
    444,028
    
    
    
    259,927
       2006
    
    
    2005mobilkom austria
    
    
    145,860
    
    
    
    145,860Si.mobil telekomunikacijske storitve d.d.
    
    
    3,148
    
    
    
    3,150Vipnet d.o.o
    
    
    26,021
    
    
    
    25,947Mobiltel EAD
    
    
    263,005
    
    
    
    262,937Total wireless segment
    
    
    438,034
    
    
    
    437,894
 F-28




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  2007
    
    
    237,9252008
    
    
    218,5472009
    
    
    188,8962010
    
    
    170,9602011
    
    
    138,265Thereafter
    
    
    462,467
 (11) GOODWILL
  Wireline
    
    
    Wireless
    
    
    TotalGoodwill at January 1, 2005
    
    
    32,317
    
    
    
    563,999
    
    
    
    596,316Acquisitions
    
    
    
    
    
    
    605,421
    
    
    
    605,411Impairment
    
    
    (16,317
    )
    
    
    
    
    
    
    (16,317
    )Translation adjustment
    
    
    347
    
    
    
    2,589
    
    
    
    2,946Goodwill at December 31, 2005
    
    
    16,347
    
    
    
    1,172,009
    
    
    
    1,188,356Impairment
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )Translation adjustment
    
    
    
    
    
    
    266
    
    
    
    266Goodwill at December 31, 2006
    
    
    16,347
    
    
    
    1,172,267
    
    
    
    1,188,614
   December 31,
    
    2006
    
    
    2005Goodwill wirelessmobilkom austria
    
    
    364,000
    
    
    
    364,000Si.mobil telekomunikacijske storitve d.d.
    
    
    136,259
    
    
    
    136,340Vipnet d.o.o
    
    
    66,565
    
    
    
    66,374Mobiltel EAD
    
    
    605,443
    
    
    
    605,295Total wireless
    
    
    1,172,267
    
    
    
    1,172,009Goodwill wirelineTelekom Austria AG
    
    
    15,107
    
    
    
    15,107World Direct
    
    
    1,240
    
    
    
    1,240Total wireline
    
    
    16,347
    
    
    
    16,347
 F-29




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
      F-30




---



##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (12) PROPERTY, PLANT AND EQUIPMENT
  Land,buildings
    
    
    Communications
    
    
    
    
    
    
    Advances/& leasehold
    
    
    network and
    
    
    Finance
    
    
    constructionimprovments
    
    
    other equipment
    
    
    leases
    
    
    in progress
    
    
    TotalCostBalance at January 1, 2005
    
    
    752,643
    
    
    
    9,530,062
    
    
    
    8,961
    
    
    
    134,045
    
    
    
    10,425,711Additions
    
    
    22,563
    
    
    
    408,432
    
    
    
    
    
    
    
    123,850
    
    
    
    554,845Disposals
    
    
    (4,078
    )
    
    
    (438,461
    )
    
    
    (305
    )
    
    
    148
    
    
    
    (442,696
    )Transfers
    
    
    17,954
    
    
    
    108,381
    
    
    
    
    
    
    
    (129,075
    )
    
    
    (2,740
    )Translation adjustments
    
    
    716
    
    
    
    15,903
    
    
    
    97
    
    
    
    1,806
    
    
    
    18,522Changes in reporting entities
    
    
    14,767
    
    
    
    357,049
    
    
    
    
    
    
    
    36,591
    
    
    
    408,407Balance at December 31, 2005
    
    
    804,565
    
    
    
    9,981,366
    
    
    
    8,753
    
    
    
    167,365
    
    
    
    10,962,049Additions
    
    
    15,987
    
    
    
    369,893
    
    
    
    14
    
    
    
    179,007
    
    
    
    564,901Disposals
    
    
    (30,418
    )
    
    
    (429,614
    )
    
    
    (6,715
    )
    
    
    (410
    )
    
    
    (467,157
    )Transfers
    
    
    13,660
    
    
    
    167,819
    
    
    
    
    
    
    
    (190,386
    )
    
    
    (8,907
    )Translation adjustments
    
    
    109
    
    
    
    2,056
    
    
    
    112
    
    
    
    139
    
    
    
    2,416Changes in reporting entities
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    (23
    )Balance at December 31, 2006
    
    
    803,903
    
    
    
    10,091,497
    
    
    
    2,164
    
    
    
    155,715
    
    
    
    11,053,279Accumulated depreciationBalance at January 1, 2005
    
    
    (311,387
    )
    
    
    (6,361,201
    )
    
    
    (6,415
    )
    
    
    
    
    
    
    (6,679,003
    )Additions
    
    
    (43,684
    )
    
    
    (883,814
    )
    
    
    (1,408
    )
    
    
    
    
    
    
    (928,906
    )Impairments
    
    
    
    
    
    
    (1,071
    )
    
    
    
    
    
    
    
    
    
    
    (1,071
    )Disposals
    
    
    2,150
    
    
    
    411,816
    
    
    
    295
    
    
    
    
    
    
    
    414,261Transfers
    
    
    (17
    )
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Translation adjustments
    
    
    (208
    )
    
    
    (10,055
    )
    
    
    (85
    )
    
    
    
    
    
    
    (10,348
    )Changes in reporting entities
    
    
    (2,246
    )
    
    
    (171,698
    )
    
    
    
    
    
    
    
    
    
    
    (173,944
    )Balance at December 31, 2005
    
    
    (355,392
    )
    
    
    (7,016,014
    )
    
    
    (7,613
    )
    
    
    
    
    
    
    (7,379,019
    )Additions
    
    
    (46,298
    )
    
    
    (824,181
    )
    
    
    (741
    )
    
    
    
    
    
    
    (871,220
    )Impairments
    
    
    (5,932
    )
    
    
    (3,492
    )
    
    
    
    
    
    
    
    
    
    
    (9,424
    )Disposals
    
    
    18,952
    
    
    
    398,294
    
    
    
    6,409
    
    
    
    
    
    
    
    423,655Transfers
    
    
    6
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Translation adjustments
    
    
    (3
    )
    
    
    (1,217
    )
    
    
    (104
    )
    
    
    
    
    
    
    (1,324
    )Changes in reporting entities
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Balance at December 31, 2006
    
    
    (388,667
    )
    
    
    (7,446,606
    )
    
    
    (2,049
    )
    
    
    
    
    
    
    (7,837,322
    )Carrying amount atDecember 31, 2006
    
    
    415,236
    
    
    
    2,644,891
    
    
    
    115
    
    
    
    155,715
    
    
    
    3,215,957December 31, 2005
    
    
    449,173
    
    
    
    2,965,352
    
    
    
    1,140
    
    
    
    167,365
    
    
    
    3,583,030
    F-31




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
      (13) NON-CURRENT ASSETS HELD FOR SALE
   F-32




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (14) PREPAID EXPENSES
 At December 31,
    
    2006
    
    
    2005Employees
    
    
    13,993
    
    
    
    13,182Rent
    
    
    12,741
    
    
    
    12,684Deferred marketing expenses
    
    
    75,075
    
    
    
    72,347Other
    
    
    35,252
    
    
    
    23,488Prepaid expenses
    
    
    137,061
    
    
    
    121,701
 (15) SHORT-TERM BORROWINGS
  At December 31,
    
    2006
    
    
    2005Current portion of long-term debt (note (19))
    
    
    142,725
    
    
    
    296,840Short-term debt
    
    
    242,560
    
    
    
    357,736Asset backed security debt (ABS)
    
    
    150,541
    
    
    
    31,606Lines of credit
    
    
    16,839
    
    
    
    8,484Current portion of lease obligations
    
    
    9,428
    
    
    
    9,394Short-term borrowings
    
    
    562,093
    
    
    
    704,060
       F-33




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (16) PROVISIONS AND ACCRUED LIABILITIES
  AssetNon
    
    
    
    
    
    
    Customer
    
    
    Customer
    
    
    retirementincome tax
    
    
    Employees
    
    
    allowances
    
    
    retention
    
    
    obligation
    
    
    Other
    
    
    TotalBalance at January 1, 2006
    
    
    5,623
    
    
    
    63,643
    
    
    
    48,226
    
    
    
    35,486
    
    
    
    85,705
    
    
    
    23,843
    
    
    
    262,526Additions
    
    
    1,742
    
    
    
    57,821
    
    
    
    45,589
    
    
    
    4,019
    
    
    
    3,925
    
    
    
    24,828
    
    
    
    137,924Changes in estimate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,760
    )
    
    
    
    
    
    
    (17,760
    )Used
    
    
    (1,142
    )
    
    
    (39,514
    )
    
    
    (34,517
    )
    
    
    (11,932
    )
    
    
    (2,318
    )
    
    
    (11,918
    )
    
    
    (101,341
    )Released
    
    
    (89
    )
    
    
    (11,514
    )
    
    
    (3,213
    )
    
    
    
    
    
    
    (263
    )
    
    
    (1,655
    )
    
    
    (16,734
    )Accretion expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,380
    
    
    
    
    
    
    
    3,380Short term portion of employee benefit obligation
    
    
    
    
    
    
    6,926
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,926Translation adjustments
    
    
    3
    
    
    
    40
    
    
    
    
    
    
    
    5
    
    
    
    36
    
    
    
    87
    
    
    
    171Changes in reporting entities
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (237
    )
    
    
    (330
    )Balance at December 31, 2006
    
    
    6,137
    
    
    
    77,309
    
    
    
    56,085
    
    
    
    27,578
    
    
    
    72,705
    
    
    
    34,948
    
    
    
    274,762Thereof long-termDecember 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,705
    
    
    
    
    
    
    
    72,705December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,705
    
    
    
    
    
    
    
    85,705
   Non-income tax
  Employees
    F-34




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Customer allowances and customer retention
  Asset retirement obligation
        Other accruals
  F-35




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (17) DEFERRED INCOME
 At December 31,
    
    2006
    
    
    2005Unearned income
    
    
    175,898
    
    
    
    192,398Unamortized balance on sale of tax benefits (see note (20))
    
    
    30,237
    
    
    
    37,349206,135
    
    
    
    229,747Less non-current portion
    
    
    (23,125
    )
    
    
    (30,237
    )Deferred income, net of non-current portion
    
    
    183,010
    
    
    
    199,510
  (18) OTHER CURRENT LIABILITIES
 At December 31,
    
    2006
    
    
    2005Employees
    
    
    25,794
    
    
    
    23,826Stock option plans (see note (22))
    
    
    13,774
    
    
    
    17,845Fiscal authorities
    
    
    67,548
    
    
    
    73,355Social security
    
    
    8,230
    
    
    
    8,177Other
    
    
    52,491
    
    
    
    83,653Other current liabilities
    
    
    167,837
    
    
    
    206,856
    F-36




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (19) LONG-TERM DEBT
  At December 31,
    
    Maturity
    
    2006
    
    
    2005Face value of bonds under EMTN Programme
    
    2010-2017
    
    
    1,750,000
    
    
    
    1,750,000Fair value adjustment (hedge accounting)
    
    2010-2013
    
    
    (14,133
    )
    
    
    (5,311
    )Discount of EMTN bonds
    
    2010-2017
    
    
    (14,430
    )
    
    
    (16,654
    )Bank debt
    
    2007-2011
    
    
    1,039,530
    
    
    
    790,312Bank debt guaranteed by the Federal
Republic of Austria
    
    2007-2011
    
    
    89,024
    
    
    
    297,232Other
    
    2007
    
    
    42,869
    
    
    
    38,9642,892,860
    
    
    
    2,854,543Less current portion of long-term debt (note (15))
    
    
    
    
    (142,725
    )
    
    
    (296,840
    )Long-term debt, net of current portion
    
    
    
    
    2,750,135
    
    
    
    2,557,703
   2006
    
    
    2005Bonds
    
    
    4.32
    %
    
    
    4.32
    %Bank debt
    
    
    4.17
    %
    
    
    4.07
    %
  2007
    
    
    142,7252008
    
    
    325,9972009
    
    
    479,4152010
    
    
    486,9392011
    
    
    213,444Thereafter
    
    
    1,244,340
  Bonds under the EMTN Programme
  F-37




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Bank debt
        Bank debt guaranteed by the Federal Republic of Austria
   F-38




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (20) LEASES
   OtherCross border
    
    
    Finance
    
    
    Operatingleases
    
    
    leases
    
    
    leases2007
    
    
    9,385
    
    
    
    43
    
    
    
    41,8232008
    
    
    6,932
    
    
    
    25
    
    
    
    35,6652009
    
    
    27,865
    
    
    
    14
    
    
    
    34,3392010
    
    
    10,153
    
    
    
    
    
    
    
    33,7752011
    
    
    10,135
    
    
    
    
    
    
    
    33,518after 2011
    
    
    15,699
    
    
    
    
    
    
    
    33,018Total minimum lease payments
    
    
    80,169
    
    
    
    82
    
    
    
    212,138Less amount representing interest
    
    
    (13,456
    )
    
    
    (2
    )
    
    
    Present value of lease payments
    
    
    66,713
    
    
    
    80Less current portion
    
    
    (9,385
    )
    
    
    (43
    )Non-current lease obligations
    
    
    57,328
    
    
    
    37
   Operatingleases2007
    
    
    9,8992008
    
    
    8,1062009
    
    
    6,0652010
    
    
    4,1052011
    
    
    2,875after 2011
    
    
    5,823Total minimum lease payments
    
    
    36,873
 Cross border leases
  F-39




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
        F-40




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  At December 31,
    
    2006
    
    
    2005Deposits long-term
    
    
    60,185
    
    
    
    69,620Deposits short-term
    
    
    6,528
    
    
    
    7,826Total assets in connection with cross border leases
    
    
    66,713
    
    
    
    77,446Cross border lease obligations
    
    
    66,713
    
    
    
    77,446Of which current
    
    
    9,385
    
    
    
    8,908
 (21) EMPLOYEE BENEFIT OBLIGATIONS
  At December 31,
    
    2006
    
    
    2005Contractual termination benefits
    
    
    5,031
    
    
    
    10,456Service awards
    
    
    48,258
    
    
    
    46,864Severance
    
    
    49,435
    
    
    
    44,351Pensions
    
    
    8,043
    
    
    
    6,462Other
    
    
    805
    
    
    
    1,413Employee benefit obligation
    
    
    111,572
    
    
    
    109,546
  Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Management Board and Senior Management
    
    
    2,380
    
    
    
    3,723
    
    
    
    2,330Other employees
    
    
    42,441
    
    
    
    19,373
    
    
    
    31,233Total
    
    
    44,821
    
    
    
    23,096
    
    
    
    33,563
  Contractual termination benefits
  F-41




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 Actuarial assumptions
  At December 31,
    
    2006
    
    
    2005
    
    
    2004Actuarial assumptions:Discount rate
    
    
    4.5
    %
    
    
    4.0
    %
    
    
    5.0
    %Rate of compensation increase  civil servants
    
    
    5.0
    %
    
    
    5.0
    %
    
    
    5.0
    %Rate of compensation increase  other employees
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %Rate of increase of pensions
    
    
    1.6
    %
    
    
    0.8
    %
    
    
    1.8
    %Employee turnover rate
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %
 Service awards
   2006
    
    
    2005Accrual at the beginning of the year
    
    
    49,385
    
    
    
    44,418Change in reporting entity
    
    
    
    
    
    
    48Service cost
    
    
    2,138
    
    
    
    1,973Interest cost
    
    
    2,033
    
    
    
    2,278Recognized actuarial losses (gains)
    
    
    (338
    )
    
    
    2,861Benefits paid
    
    
    (2,459
    )
    
    
    (2,193
    )Accrual at the end of the year
    
    
    50,759
    
    
    
    49,385Less short-term portion (see note (16))
    
    
    (2,501
    )
    
    
    (2,521
    )Accrual at the end of the year, long-term
    
    
    48,258
    
    
    
    46,864
 F-42




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   2007
    
    
    2,5012008
    
    
    2,5382009
    
    
    2,9742010
    
    
    3,3702011
    
    
    3,9292012-2016
    
    
    29,854
 Severance
    2006
    
    
    2005
    
    
    2004Service cost
    
    
    5,215
    
    
    
    4,914
    
    
    
    2,853Interest cost
    
    
    2,513
    
    
    
    2,140
    
    
    
    1,467Amortization of actuarial (gains) losses
    
    
    411
    
    
    
    (176
    )
    
    
    (254
    )Net periodic benefit cost
    
    
    8,139
    
    
    
    6,878
    
    
    
    4,066
 F-43




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 2006
    
    
    2005Defined benefit obligation at the beginning of the year
    
    
    58,930
    
    
    
    40,810Change in reporting entities
    
    
    (31
    )
    
    
    306Service cost
    
    
    5,215
    
    
    
    4,914Interest cost
    
    
    2,513
    
    
    
    2,140Benefits paid
    
    
    (3,118
    )
    
    
    (2,934
    )Actuarial losses (gains)
    
    
    (3,829
    )
    
    
    13,694Defined benefit obligation at the end of the year
    
    
    59,680
    
    
    
    58,930Unrecognized actuarial loss
    
    
    (8,046
    )
    
    
    (12,286
    )Accrued liability at the end of the year
    
    
    51,634
    
    
    
    46,644Voluntary severance obligation
    
    
    262
    
    
    
    4,902Total accrued severance liabilities at the end of the year
    
    
    51,896
    
    
    
    51,546Less short-term portion (see note (16))
    
    
    (2,461
    )
    
    
    (7,195
    )Accrued severance liability at the end of the year, long-term
    
    
    49,435
    
    
    
    44,351
   2007
    
    
    2,4612008
    
    
    1,9572009
    
    
    2,7362010
    
    
    2,6662011
    
    
    3,6222012-2016
    
    
    16,150
  Pensions
 Defined contribution pension plans
  F-44




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   Defined benefit pension plan
    2006
    
    
    2005
    
    
    2004Interest cost
    
    
    261
    
    
    
    334
    
    
    
    363Amortization of actuarial
gain
    
    
    (14
    )
    
    
    (15
    )
    
    
    Net periodic pension benefit cost
    
    
    247
    
    
    
    319
    
    
    
    363
  2006
    
    
    2005Defined benefit obligation at the beginning of the year
    
    
    6,397
    
    
    
    6,650Interest cost
    
    
    261
    
    
    
    334Benefits paid
    
    
    (847
    )
    
    
    (691
    )Past service cost
    
    
    2,329
    
    
    
    Actuarial net gain
    
    
    (100
    )
    
    
    (104
    )Defined benefit obligation at the end of the year
    
    
    8,040
    
    
    
    6,397Unrecognized net gain
    
    
    822
    
    
    
    736Accrued pension liability at the end of the year
    
    
    8,862
    
    
    
    7,133Less short-term portion (see note (16))
    
    
    (819
    )
    
    
    (671
    )Accrued pension liability at the end of the year, long-term
    
    
    8,043
    
    
    
    6,462
  F-45




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  2007
    
    
    8192008
    
    
    7832009
    
    
    7462010
    
    
    7082011
    
    
    6692012-2016
    
    
    2,809
 (22) STOCK-BASED COMPENSATION
   Stock Option Plan 2000 (2000 plan)
   2004Outstanding as of January 1
    
    
    3,268,850Forfeited
    
    
    (38,132
    )Exercised
    
    
    (3,230,718
    )Outstanding as of December 31
    
    
    
  F-46




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 Stock Option Plan 2004 (2004 plan)
     F-47




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Stock option plans2006
    
    2005
    
    2004Expected average dividend per share
    
    Euro 0.76  0.88
    
    Euro 0.60  0.66
    
    Euro 0.13  0.39Expected volatility
    
    23.0%
    
    22.5%
    
    25%Risk-free interest rate range
    
    3.690%  4.134%
    
    2.390%  3.450%
    
    2.053%  4.280%Fair value per option  first tranche
    
    Euro 8.59
    
    Euro 7.27
    
    Euro 2.73Fair value per option  second tranche
    
    Euro 6.71
    
    Euro 5.65
    
    Fair value per option  third tranche
    
    Euro 2.59
    
    
    
    
  Third tranche 2006
    
    
    Second tranche 2005
    
    
    First tranche 2004First exercise date
    
    March 8, 2007
    
    March 16, 2006
    
    April 20, 2005Expected expiry date
    
    March 31, 2010
    
    May 29, 2009
    
    May 30, 2008
   Number of Options
    
    2006
    
    
    2005
    
    
    2004Outstanding as of January 1
    
    
    3,482,480
    
    
    
    2,363,925
    
    
    
    Granted
    
    
    3,908,468
    
    
    
    2,874,100
    
    
    
    2,392,925Forfeited
    
    
    (411,625
    )
    
    
    (92,195
    )
    
    
    (29,000
    )Exercised
    
    
    (2,554,630
    )
    
    
    (1,663,350
    )
    
    
    Outstanding as of December 31
    
    
    4,424,693
    
    
    
    3,482,480
    
    
    
    2,363,925of which exercisable as of December 31
    
    
    854,345
    
    
    
    662,680
    
    
    
    
 Weighted-average exercise price
    
    2006
    
    
    2005
    
    
    2004Outstanding as of January 1
    
    
    13.59
    
    
    
    11.92
    
    
    
    Granted
    
    
    18.91
    
    
    
    13.98
    
    
    
    11.92Forfeited
    
    
    18.02
    
    
    
    13.13
    
    
    
    11.92Exercised
    
    
    13.55
    
    
    
    11.92
    
    
    
    Outstanding as of December 31
    
    
    17.90
    
    
    
    13.59
    
    
    
    11.92of which exercisable as of December 31
    
    
    13.66
    
    
    
    11.92
    
    
    
    
 F-48




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  At December 31,
    
    2006
    
    
    2005
    
    
    2004Outstanding OptionsWeighted average exercise price
    
    
    17.90
    
    
    
    13.59
    
    
    
    11.92Weighted average remaining contractual term (in years)
    
    
    3.1
    
    
    
    3.2
    
    
    
    3.4Total intrinsic value (in 000 EUR)
    
    
    10,637
    
    
    
    18,847
    
    
    
    4,799
 At December 31,
    
    2006
    
    
    2005Exercisable OptionsWeighted average exercise price
    
    
    13.66
    
    
    
    11.92Weighted average remaining contractual term (in years)
    
    
    2.3
    
    
    
    2.4Total intrinsic value (in 000 EUR)
    
    
    5,675
    
    
    
    4,692
      Employee Participation Program
    F-49




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 American call option
  (23) INCOME TAXES
  Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Domestic
    
    
    362,787
    
    
    
    344,086
    
    
    
    286,683Foreign
    
    
    295,114
    
    
    
    169,118
    
    
    
    69,223Total
    
    
    657,901
    
    
    
    513,204
    
    
    
    355,906
  2006
    
    
    2005
    
    
    2004CurrentDomestic
    
    
    53,168
    
    
    
    18,523
    
    
    
    22,266Foreign
    
    
    34,523
    
    
    
    23,308
    
    
    
    14,80087,691
    
    
    
    41,831
    
    
    
    37,066DeferredDomestic
    
    
    28,754
    
    
    
    54,166
    
    
    
    97,497Foreign
    
    
    (20,384
    )
    
    
    8,274
    
    
    
    9058,370
    
    
    
    62,440
    
    
    
    98,402Total
    
    
    96,061
    
    
    
    104,271
    
    
    
    135,468
   2006
    
    
    2005
    
    
    2004Continuing operations
    
    
    96,061
    
    
    
    104,271
    
    
    
    135,468Unrealized gains on securities (charged to equity)
    
    
    (3
    )
    
    
    197
    
    
    
    (779
    )Unrealized gain on hedging activities (charged to equity)
    
    
    
    
    
    
    1,058
    
    
    
    2,623Unrealized gain on translation adjustments (charged to equity)
    
    
    (6
    )
    
    
    308
    
    
    
    Total
    
    
    96,052
    
    
    
    105,834
    
    
    
    137,312
 F-50




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  2006
    
    
    2005
    
    
    2004Income tax expense at statutory rate
    
    
    164,475
    
    
    
    128,301
    
    
    
    121,008Foreign tax rate differential
    
    
    (23,698
    )
    
    
    (18,897
    )
    
    
    (10,018
    )Non-deductible expenses
    
    
    2,808
    
    
    
    3,524
    
    
    
    2,879Tax incentives
    
    
    (2,515
    )
    
    
    (1,923
    )
    
    
    (3,450
    )Tax-free income from investments
    
    
    (190
    )
    
    
    (134
    )
    
    
    (185
    )Change in tax rate
    
    
    (18,684
    )
    
    
    47
    
    
    
    41,884Impairment charges
    
    
    
    
    
    
    4,079
    
    
    
    Taxes previous years
    
    
    (344
    )
    
    
    3,048
    
    
    
    (579
    )Deferred tax assets recognized or
(subsequently) not recognized
    
    
    (16,405
    )
    
    
    (14,125
    )
    
    
    (14,863
    )Release of accrual for tax uncertainties
    
    
    (8,690
    )
    
    
    
    
    
    
    Other
    
    
    (696
    )
    
    
    351
    
    
    
    (1,208
    )Income tax expense
    
    
    96,061
    
    
    
    104,271
    
    
    
    135,468Effective income tax rate
    
    
    14,6
    %
    
    
    20.3
    %
    
    
    38.1
    %
        F-51




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
    2006
    
    
    2005Deferred tax assetsGoodwill
    
    
    48,449
    
    
    
    60,645Intangible assets
    
    
    438
    
    
    
    1,246Deferred deduction for write-downs of investments in subsidiaries
    
    
    14,728
    
    
    
    26,142Operating loss carry-forwards
    
    
    19,642
    
    
    
    16,810Accounts receivable
    
    
    4,030
    
    
    
    7,088Deferred credits and other liabilities
    
    
    6,932
    
    
    
    4,197Other current assets and prepaid expenses
    
    
    1,001
    
    
    
    774Provisions long-term
    
    
    16,889
    
    
    
    20,306Employee benefit obligations
    
    
    7,704
    
    
    
    7,188Property, plant and equipment
    
    
    20,811
    
    
    
    10,037Other
    
    
    1,770
    
    
    
    4,560Total deferred tax assets
    
    
    142,394
    
    
    
    158,993Deferred tax liabilitiesGoodwill
    
    
    (9,688
    )
    
    
    (2,076
    )Property, plant and equipment
    
    
    (8,706
    )
    
    
    (13,589
    )Other intangible assets
    
    
    (108,704
    )
    
    
    (122,718
    )Accrued liabilities
    
    
    (1,118
    )
    
    
    (375
    )Other
    
    
    (5,053
    )
    
    
    (2,764
    )Total deferred tax liabilities
    
    
    (133,269
    )
    
    
    (141,522
    )Net deferred tax asset
    
    
    9,125
    
    
    
    17,471Thereof deferred tax assets
    
    
    53,373
    
    
    
    68,325Thereof deferred tax liabilities
    
    
    (44,248
    )
    
    
    (50,854
    )
   F-52




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
    Years
    
    Amount2007
    
    
    2008
    
    
    152009
    
    
    6892010
    
    
    402011
    
    
    13,4482012
    
    
    1,196Total
    
    
    15,388
   (24) FINANCIAL INSTRUMENTS
    F-53




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 Credit risk
   Market risk
   Assets subject to
interest rate risk at December 31, 2006Maturities, year ended December 31,2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    

2012
andthere
after
    
    
    TOTAL
    
    
    Fair ValueASSETS:Cash and cash equivalentsFixed rate
    
    
    125,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,147
    
    
    
    125,147Average interest rate (%)
    
    
    3.72
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.72
    %
    
    
    Marketable securitiesSecurities available-for-sale
    
    
    23,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,135
    
    
    
    23,135
 F-54




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 Liabilities and related
derivative instruments subject to interest rate risk at December 31, 2006Maturities, year ended December 31,2012 and2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    thereafter
    
    
    TOTAL
    
    
    Fair ValueLIABILITIES:Bank OverdraftsFixed Rate
    
    
    16,839
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,839
    
    
    
    16,839Average interest rate (%)
    
    
    3.42
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.42
    %Short-term borrowingsFixed Rate
    
    
    242,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242,560
    
    
    
    242,560Average interest rate (%)
    
    
    3.69
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.69
    %Asset backed security loan (ABS)
    
    
    150,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,541
    
    
    
    150,541BondsFixed rate *)
    
    
    41,590
    
    
    
    (1,280
    )
    
    
    (1,280
    )
    
    
    482,215
    
    
    
    (1,280
    )
    
    
    1,244,340
    
    
    
    1,764,306
    
    
    
    1,832,099Average interest rate (%)
    
    
    4.32
    %
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    4.70
    %
    
    
    4.34
    %LoansFixed rate
    
    
    7,458
    
    
    
    186,042
    
    
    
    236,939
    
    
    
    
    
    
    
    210,000
    
    
    
    
    
    
    
    640,439
    
    
    
    572,646Average interest rate (%)
    
    
    7.00
    %
    
    
    5.33
    %
    
    
    4.75
    %
    
    
    
    
    
    
    2.40
    %
    
    
    
    
    
    
    4.17
    %Variable rate
    
    
    93,677
    
    
    
    141,234
    
    
    
    243,756
    
    
    
    4,724
    
    
    
    4,724
    
    
    
    
    
    
    
    488,115
    
    
    
    488,115Average interest rate (%)
    
    
    3.63
    %
    
    
    5.00
    %
    
    
    4.07
    %
    
    
    4.26
    %
    
    
    4.26
    %
    
    
    
    
    
    
    4.26
    %INTEREST RATE SWAP
AGREEMENTSFixed to variable swaps in EURFixed to variable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    300,000
    
    
    
    800,000
    
    
    
    14,133Average pay rate (%)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.19
    %
    
    
    
    
    
    
    3.78
    %
    
    
    3.41
    %Average receive rate (%)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.38
    %
    
    
    
    
    
    
    5.00
    %
    
    
    3.98
    %
 
 *)
    
    The negative amounts shown in the line bonds fixed rate relate to the amortization of discounts
from the issuance of the bonds.  Information with respect to cash flow hedges
  Interest rate swap agreements
   F-55




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   2006
    
    
    2005Fixed to variable swaps in EUR (fair value hedge)Notional amount in EUR
    
    
    800,000
    
    
    
    800,000Average receive rate
    
    
    3.98
    %
    
    
    3.98
    %Average pay rate
    
    
    3.41
    %
    
    
    2.62
    %Average maturity in years
    
    
    4.44
    
    
    
    5.38
  Foreign exchange agreements
  2006
    
    
    2005Forward
exchange contracts  USDNotional amount in EUR
    
    
    5,984
    
    
    
    2,794Notional amount in USD
    
    
    7,640
    
    
    
    3,300Forward exchange rate (weighted)
    
    
    1.27
    
    
    
    1.18Exchange rate as of the balance sheet date
    
    
    1.31
    
    
    
    1.18Longest term of the contracts
    
    January 2007
    
    
    February 2006
   2006
    
    
    2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial instrumentsCash and cash equivalents
    
    
    125,147
    
    
    
    125,147
    
    
    
    116,756
    
    
    
    116,756Accounts
receivable  trade
    
    
    712,434
    
    
    
    712,434
    
    
    
    714,281
    
    
    
    714,281Balances due from related parties
    
    
    3,291
    
    
    
    3,291
    
    
    
    23
    
    
    
    23Accounts
payable  trade
    
    
    (508,357
    )
    
    
    (508,357
    )
    
    
    (544,233
    )
    
    
    (544,233
    )Payables to related parties
    
    
    (11,830
    )
    
    
    (11,830
    )
    
    
    (11,254
    )
    
    
    (11,254
    )Securities held-to-maturity
    
    
    
    
    
    
    
    
    
    
    6,091
    
    
    
    6,091Securities available-for-sale
    
    
    23,135
    
    
    
    23,135
    
    
    
    16,448
    
    
    
    16,448Long-term debt
    
    
    (2,750,135
    )
    
    
    (2.836,638
    )
    
    
    (2,557,703
    )
    
    
    (2,786,345
    )Derivative financial instrumentsInterest rate swap agreements
(fair value hedge)
    
    
    (14,133
    )
    
    
    (14,133
    )
    
    
    (5,311
    )
    
    
    (5,311
    )Foreign currency forward contracts
    
    
    (190
    )
    
    
    (190
    )
    
    
    
    
    
    
    
 F-56




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (25) SHAREHOLDERS EQUITY
 Share Capital
     2006
    
    
    2005
    
    
    2004Shares (zero par value) authorized
    
    
    560,000,000
    
    
    
    560,000,000
    
    
    
    510,000,000Shares (zero par value) issued
    
    
    500,000,000
    
    
    
    500,000,000
    
    
    
    500,000,000Shares (zero par value) in treasury
    
    
    (38,307,473
    )
    
    
    (17,497,106
    )
    
    
    (6,255,694
    )Shares (zero par value) outstanding
    
    
    461,692,527
    
    
    
    482,502,894
    
    
    
    493,774,306
 Dividend Payment
  F-57




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Treasury shares
      F-58




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 Earnings per share
  2006
    
    
    2005
    
    
    2004Net income attributable to shareholders of Telekom
Austria AG
    
    
    561,816
    
    
    
    408,931
    
    
    
    219,835Weighted average number of common shares outstanding
    
    
    472,668,763
    
    
    
    489,050,517
    
    
    
    496,495,378Dilutive effect of Stock Option Plan 2004
    
    
    
    
    
    
    
    
    
    
    29,449Dilutive effect of Stock Option Plan 2000
    
    
    
    
    
    
    
    
    
    
    101,793Weighted average number of dilutive shares outstanding
    
    
    472,668,763
    
    
    
    489,050,517
    
    
    
    496,626,620Basic earnings per share
    
    Euro 1.19
    
    Euro 0.84
    
    Euro 0.44Diluted earnings per share
    
    Euro 1.19
    
    Euro 0.84
    
    Euro 0.44
   Shares held by members of the Management Board
  Number of sharesJanuary 1,
    
    
    December2006
    
    
    31, 2006Heinz Sundt
    
    
    13,011
    
    
    
    Boris Nemsic
    
    
    13,110
    
    
    
    13,110Stefano Colombo
    
    
    13,012
    
    
    
    13,012Rudolf Fischer
    
    
    13,007
    
    
    
    13,007
  F-59




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 Accounting for derivative and hedging activities
  Revaluation reserves and currency translation adjustment
  Unrealized
    
    
    Unrealizedgain (loss)
    
    
    gain (loss) on
    
    
    Foreignon
    
    
    hedging
    
    
    currencysecurities
    
    
    activities
    
    
    translation
    
    
    TotalBalance at January 1, 2004
    
    
    1,365
    
    
    
    (7,147
    )
    
    
    (10,679
    )
    
    
    (16,461
    )Change of tax rate
    
    
    (25
    )
    
    
    (406
    )
    
    
    
    
    
    
    (431
    )Changes, net of income tax
    
    
    1,096
    
    
    
    4,032
    
    
    
    (3,696
    )
    
    
    1,432Realized, net of income tax
    
    
    (2,655
    )
    
    
    268
    
    
    
    
    
    
    
    (2,387
    )Balance at December 31, 2004
    
    
    (219
    )
    
    
    (3,253
    )
    
    
    (14,375
    )
    
    
    (17,847
    )Changes, net of income tax
    
    
    602
    
    
    
    
    
    
    
    14,386
    
    
    
    14,988Realized, net of income tax
    
    
    (8
    )
    
    
    3,253
    
    
    
    
    
    
    
    3,245Balance at December 31, 2005
    
    
    375
    
    
    
    
    
    
    
    11
    
    
    
    386Changes, net of income tax
    
    
    15
    
    
    
    
    
    
    
    800
    
    
    
    815Realized, net of income tax
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Balance at December 31, 2006
    
    
    375
    
    
    
    
    
    
    
    811
    
    
    
    1,186
 (26) REVENUES
 Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Revenues from services
    
    
    4,436,849
    
    
    
    4,081,131
    
    
    
    3,797,491Revenues from sales of merchandise
    
    
    322,711
    
    
    
    284,116
    
    
    
    245,377Operating revenues
    
    
    4,759,560
    
    
    
    4,365,247
    
    
    
    4,042,868
 F-60




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (27) OTHER OPERATING INCOME
 Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Rental revenue
    
    
    10,104
    
    
    
    9,936
    
    
    
    10,503Own work capitalized
    
    
    28,813
    
    
    
    29,857
    
    
    
    26,592Foreign exchange gains
    
    
    1,004
    
    
    
    
    
    
    
    2,397Other
    
    
    19,251
    
    
    
    15,019
    
    
    
    11,004Other operating income
    
    
    59,172
    
    
    
    54,812
    
    
    
    50,496
  Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Foreign exchange gains
    
    
    4,463
    
    
    
    783
    
    
    
    10,482Foreign exchange (losses)
    
    
    (3,459
    )
    
    
    (1,282
    )
    
    
    (8,085
    )Net foreign exchange gains (losses)
    
    
    1,004
    
    
    
    (499
    )
    
    
    2,397
 (28) OTHER OPERATING EXPENSES
 Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Interconnection
    
    
    535,791
    
    
    
    489,585
    
    
    
    452,171Repairs
    
    
    186,522
    
    
    
    176,144
    
    
    
    177,277Services received
    
    
    264,135
    
    
    
    238,478
    
    
    
    206,446Advertising and marketing
    
    
    271,559
    
    
    
    229,580
    
    
    
    198,138Other support services
    
    
    109,132
    
    
    
    110,076
    
    
    
    109,721Rental expenses
    
    
    88,762
    
    
    
    83,534
    
    
    
    79,206Commission expenses
    
    
    67,413
    
    
    
    56,409
    
    
    
    41,301Bad debt expenses
    
    
    34,323
    
    
    
    43,393
    
    
    
    23,597Legal and other consulting
    
    
    37,283
    
    
    
    38,862
    
    
    
    40,353Travel expenses
    
    
    25,633
    
    
    
    22,777
    
    
    
    22,302Energy
    
    
    25,496
    
    
    
    23,599
    
    
    
    21,824Training expenses
    
    
    13,245
    
    
    
    12,928
    
    
    
    11,657Other taxes
    
    
    8,853
    
    
    
    6,185
    
    
    
    8,023Net loss from retirement of fixed assets
    
    
    1,430
    
    
    
    7,839
    
    
    
    28,795Foreign exchange losses
    
    
    
    
    
    
    499
    
    
    
    Other
    
    
    88,835
    
    
    
    73,021
    
    
    
    67,527Total
    
    
    1,758,412
    
    
    
    1,612,909
    
    
    
    1,488,338
 F-61




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (29) COMMITMENTS AND CONTINGENCIES
  Years
    
    2006
    
    
    2005Up to 1 year (short-term)
    
    
    252,855
    
    
    
    503,8681 to 3 years
    
    
    34,757
    
    
    
    543,7084 to 5 years
    
    
    9,550
    
    
    
    3,635After 5 years
    
    
    24,695
    
    
    
    Total
    
    
    321,857
    
    
    
    1,051,211
     F-62




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (30) CASH FLOW STATEMENT
  Year ended December 31,
    
    2006
    
    
    2005
    
    
    2004Cash paid forInterest
    
    
    150,366
    
    
    
    145,709
    
    
    
    161,057Income taxes
    
    
    95,960
    
    
    
    57,349
    
    
    
    23,330Cash received forInterest
    
    
    4,650
    
    
    
    14,148
    
    
    
    8,080Income taxes
    
    
    157
    
    
    
    
    
    
    
    
  (31) SEGMENT REPORTING
        F-63




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (All amounts in EUR 000s)
 OtherWireline
    
    
    Wireless
    
    
    activities
    
    
    Eliminations
    
    
    ConsolidatedYear ended December 31, 2006External revenues
    
    
    1,948,928
    
    
    
    2,810,662
    
    
    
    (30
    )
    
    
    
    
    
    
    4,759,560Intersegmental revenues
    
    
    170,590
    
    
    
    91,924
    
    
    
    
    
    
    
    (262,514
    )
    
    
    Total revenues
    
    
    2,119,518
    
    
    
    2,902,586
    
    
    
    (30
    )
    
    
    (262,514
    )
    
    
    4,759,560Other operating income
    
    
    48,034
    
    
    
    14,868
    
    
    
    
    
    
    
    (3,730
    )
    
    
    59,172Segment expenses
    
    
    (1,438,152
    )
    
    
    (1,742,051
    )
    
    
    (456
    )
    
    
    268,747
    
    
    
    (2,911,912
    )Adjusted EBITDA (excl. Impairment charges)
    
    
    729,400
    
    
    
    1,175,403
    
    
    
    (486
    )
    
    
    2,503
    
    
    
    1,906,820Impairment charges
    
    
    (7,938
    )
    
    
    (2,542
    )
    
    
    
    
    
    
    
    
    
    
    (10,480
    )Adjusted EBITDA (incl. Impairment charges)
    
    
    721,462
    
    
    
    1,172,861
    
    
    
    (486
    )
    
    
    2,503
    
    
    
    1,896,340Depreciation and amortization
    
    
    (628,635
    )
    
    
    (495,717
    )
    
    
    
    
    
    
    421
    
    
    
    (1,123,931
    )Operating income
    
    
    92,827
    
    
    
    677,144
    
    
    
    (486
    )
    
    
    2,924
    
    
    
    772,409Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,050Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (133,498
    )Equity in earnings of affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,080
    )Tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96,061
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,840Segment assets
    
    
    4,446,606
    
    
    
    5,003,399
    
    
    
    2,874,172
    
    
    
    (4,764,488
    )
    
    
    7,559,689Segment liabilities
    
    
    (2,704,528
    )
    
    
    (2,336,162
    )
    
    
    (2,870,029
    )
    
    
    3,174,546
    
    
    
    (4,736,173
    )Capital expenditures
    
    
    283,937
    
    
    
    712,789
    
    
    
    
    
    
    
    
    
    
    
    996,726Other non-cash expenses
    
    
    25,432
    
    
    
    37,786
    
    
    
    (14
    )
    
    
    
    
    
    
    63,204
 OtherWireline
    
    
    Wireless
    
    
    activities
    
    
    Eliminations
    
    
    ConsolidatedYear ended December 31, 2005External revenues
    
    
    1,965,366
    
    
    
    2,399,834
    
    
    
    47
    
    
    
    
    
    
    
    4,365,247Intersegmental revenues
    
    
    158,518
    
    
    
    85,003
    
    
    
    
    
    
    
    (243,521
    )
    
    
    Total revenues
    
    
    2,123,884
    
    
    
    2,484,837
    
    
    
    47
    
    
    
    (243,521
    )
    
    
    4,365,247Other operating income
    
    
    50,699
    
    
    
    10,514
    
    
    
    
    
    
    
    (6,401
    )
    
    
    54,812Segment expenses
    
    
    (1,385,206
    )
    
    
    (1,527,620
    )
    
    
    (148
    )
    
    
    251,421
    
    
    
    (2,661,553
    )Adjusted EBITDA (excl. Impairment charges)
    
    
    789,377
    
    
    
    967,731
    
    
    
    (101
    )
    
    
    1,499
    
    
    
    1,758,506Impairment charges
    
    
    (16,317
    )
    
    
    (1,071
    )
    
    
    
    
    
    
    
    
    
    
    (17,388
    )Adjusted EBITDA (incl. Impairment charges)
    
    
    773,060
    
    
    
    966,660
    
    
    
    (101
    )
    
    
    1,499
    
    
    
    1,741,118Depreciation and amortization
    
    
    (705,010
    )
    
    
    (416,850
    )
    
    
    
    
    
    
    420
    
    
    
    (1,121,440
    )Operating Income
    
    
    68,050
    
    
    
    549,810
    
    
    
    (101
    )
    
    
    1,919
    
    
    
    619,678Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,663Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (144,917
    )Equity in earnings of affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    570Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,210Tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,271
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    408,933Segment assets
    
    
    4,751,075
    
    
    
    4,841,827
    
    
    
    2,713,676
    
    
    
    (4,609,850
    )
    
    
    7,696,728Segment liabilities
    
    
    (2,694,599
    )
    
    
    (2,426,508
    )
    
    
    (2,700,869
    )
    
    
    3,044,014
    
    
    
    (4,777,962
    )Capital expenditures
    
    
    314,145
    
    
    
    313,494
    
    
    
    
    
    
    
    
    
    
    
    627,639Other non-cash expenses
    
    
    36,826
    
    
    
    30,831
    
    
    
    7
    
    
    
    
    
    
    
    67,664
 F-64




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 OtherWireline
    
    
    Wireless
    
    
    activities
    
    
    Eliminations
    
    
    ConsolidatedYear ended December 31, 2004External revenues
    
    
    2,004,109
    
    
    
    2,038,731
    
    
    
    28
    
    
    
    
    
    
    
    4,042,868Intersegmental revenues
    
    
    166,361
    
    
    
    82,661
    
    
    
    
    
    
    
    (249,022
    )
    
    
    Total revenues
    
    
    2,170,470
    
    
    
    2,121,392
    
    
    
    28
    
    
    
    (249,022
    )
    
    
    4,042,868Other operating income
    
    
    43,719
    
    
    
    11,734
    
    
    
    
    
    
    
    (4,957
    )
    
    
    50,496Segment expenses
    
    
    (1,395,233
    )
    
    
    (1,355,590
    )
    
    
    (67
    )
    
    
    243,075
    
    
    
    (2,507,815
    )Adjusted EBITDA (excl. Impairment charges)
    
    
    818,956
    
    
    
    777,536
    
    
    
    (39
    )
    
    
    (10,904
    )
    
    
    1,585,549Impairment charges
    
    
    (1,334
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,334
    )Adjusted EBITDA (incl. Impairment charges)
    
    
    817,622
    
    
    
    777,536
    
    
    
    (39
    )
    
    
    (10,904
    )
    
    
    1,584,215Depreciation and amortization
    
    
    (757,176
    )
    
    
    (357,993
    )
    
    
    
    
    
    
    421
    
    
    
    (1,114,748
    )Operating Income
    
    
    60,446
    
    
    
    419,543
    
    
    
    (39
    )
    
    
    (10,483
    )
    
    
    469,467Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,497Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142,109
    )Equity in earnings of affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,499Tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135,468
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220,438Segment assets
    
    
    4,710,046
    
    
    
    3,050,803
    
    
    
    1,250,757
    
    
    
    (2,330,465
    )
    
    
    6,681,141Segment liabilities
    
    
    (2,678,892
    )
    
    
    (1,440,405
    )
    
    
    (1,250,406
    )
    
    
    1,487,002
    
    
    
    (3,882,701
    )Capital expenditures
    
    
    280,390
    
    
    
    267,779
    
    
    
    
    
    
    
    
    
    
    
    548,169Other non-cash expenses
    
    
    32,417
    
    
    
    14,038
    
    
    
    8
    
    
    
    (9
    )
    
    
    46,454
    F-65




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 ReconciliationAustria
    
    
    Bulgaria
    
    
    Croatia
    
    
    other countries
    
    
    & Eliminations
    
    
    ConsolidatedYear ended December 31, 2006External revenues
    
    
    3,243,155
    
    
    
    570,473
    
    
    
    390,258
    
    
    
    555,674
    
    
    
    
    
    
    
    4,759,560Segment assets
    
    
    6,673,404
    
    
    
    1,828,582
    
    
    
    475,553
    
    
    
    314,735
    
    
    
    (1,732,585
    )
    
    
    7,559,689Long lived assets
    
    
    3,594,950
    
    
    
    1,089,435
    
    
    
    283,053
    
    
    
    103,613
    
    
    
    
    
    
    
    5,071,051Capital expenditures
    
    
    803,234
    
    
    
    100,046
    
    
    
    64,595
    
    
    
    28,851
    
    
    
    
    
    
    
    996,726Year ended December 31, 2005External revenues
    
    
    3,254,530
    
    
    
    259,216
    
    
    
    367,048
    
    
    
    484,453
    
    
    
    
    
    
    
    4,365,247Segment assets
    
    
    6,975,187
    
    
    
    1,828,554
    
    
    
    498,059
    
    
    
    310,824
    
    
    
    (1,915,896
    )
    
    
    7,696,728Long lived assets
    
    
    3,713,357
    
    
    
    1,135,247
    
    
    
    296,358
    
    
    
    102,088
    
    
    
    
    
    
    
    5,247,050Capital expenditures
    
    
    488,066
    
    
    
    52,977
    
    
    
    71,152
    
    
    
    15,444
    
    
    
    
    
    
    
    627,639Year ended December 31, 2004External revenues
    
    
    3,284,832
    
    
    
    2,050
    
    
    
    329,613
    
    
    
    426,373
    
    
    
    
    
    
    
    4,042,868Segment assets
    
    
    6,388,418
    
    
    
    
    
    
    
    385,146
    
    
    
    174,843
    
    
    
    (267,266
    )
    
    
    6,681,141Long lived assets
    
    
    4,188,827
    
    
    
    
    
    
    
    290,420
    
    
    
    110,211
    
    
    
    
    
    
    
    4,589,458Capital expenditures
    
    
    440,935
    
    
    
    
    
    
    
    89,148
    
    
    
    18,086
    
    
    
    
    
    
    
    548,169
 (32) REMUNERATION PAID TO THE MANAGEMENT AND SUPERVISORY BOARD
     2006
    
    
    2005
    
    
    2004Year ended December 31,Short-term employee benefits
    
    
    14,065
    
    
    
    11,827
    
    
    
    9,101Long-term employee benefits
    
    
    2
    
    
    
    2
    
    
    
    Post-employment benefits
    
    
    715
    
    
    
    610
    
    
    
    614Termination benefits
    
    
    1,665
    
    
    
    2,856
    
    
    
    336Share-based payments
    
    
    4,033
    
    
    
    8,350
    
    
    
    6,304Total
    
    
    20,480
    
    
    
    23,645
    
    
    
    16,355
 F-66




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (33) EMPLOYEES
  (34) SUBSEQUENT EVENTS
      F-67




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (35) AFFILIATED COMPANIES
 Share in capitalas of Dec. 31, 2006Name and Corporate Seat
    
    %Fully consolidated subsidiaries:Telekom Finanzmanagement GmbH, Vienna
    
    
    100.00Telekom Projektentwicklungs GmbH, Vienna
    
    
    100.00Telekom Austria Personalmanagement GmbH, Vienna
    
    
    100.00Telekom Austria Fixnet AG, Vienna
    
    
    100.00Telekom Austria Finance BV, Amsterdam
    
    
    100.00mobilkom austria AG, Vienna
    
    
    100.00mobilkom austria group services GmbH, Vienna
    
    
    100.00mobilkom Beteiligungsgesellschaft mbH, Vienna
    
    
    100.00mobilkom Bulgarien Beteiligungsverwaltungs GmbH, Vienna
    
    
    100.00mobilkom Bulgarien Geschäftsentwicklungs GmbH, Vienna
    
    
    100.00mobilkom CEE Geschäftsentwicklungs GmbH, Vienna
    
    
    100.00mobilkom CEE Beteiligungsverwaltung GmbH, Vienna
    
    
    100.00mobilkom liechtenstein AG, Vaduz
    
    
    100.00Jet2Web Hungary Kft, Budapest
    
    
    100.00Jet2Web Slowakia s.r.o., Bratislava
    
    
    100.00TA Mrea d.o.o., Ljubljana
    
    
    100.00Czech On Line a.s., Prague
    
    
    100.00World-Direct eBusiness Solutions GmbH, Vienna
    
    
    100.00Österreichische Fernmeldetechnische Entwicklungs- und Fördergesellschaft
m.b.H., Vienna
    
    
    100.00A1 Bank AG, Vienna
    
    
    100.003G Mobile Telecommunications GmbH, Vienna
    
    
    100.00paybox central eastern europe AG, Munich
    
    
    100.00Vipnet d.o.o., Zagreb
    
    
    100.00Vipnet usluge d.o.o., Zagreb
    
    
    100.00Si.mobil telekomunikacijske storitve d.d., Ljubljana
    
    
    100.00TopNet d.o.o, Belgrade
    
    
    100.00Alabin 48 OOD, Sofia
    
    
    100.00Mobiltel EAD, Sofia
    
    
    100.00GPS Bulgaria AD, Sofia
    
    
    90.00Teleport Bulgaria AD, Sofia
    
    
    100.00Homer Receivables Purchasing Company Limited, Dublin (Special Purpose Entity)Affiliated companies consolidated using the equity method:paybox austria GmbH, Vienna
    
    
    83.33Omnimedia Werbegesellschaft mbH, Vienna
    
    
    26.00Output Service GmbH, Vienna
    
    
    25.10
  F-68




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 (36) RECONCILIATION TO U.S. GAAP
  For the years ended December 31,Notes
    
    2006
    
    
    2005
    
    
    2004Net income under IFRS
    
    
    
    
    561,840
    
    
    
    408,933
    
    
    
    220,438AdjustmentsAmerican call option
    
    a
    
    
    
    
    
    
    
    
    
    
    (6,108
    )Provisions for pensions and similar obligations
    
    b
    
    
    (749
    )
    
    
    (525
    )
    
    
    (404
    )Termination benefits
    
    c
    
    
    13,027
    
    
    
    
    
    
    
    Asset retirement obligation
    
    d
    
    
    (1,176
    )
    
    
    3,320
    
    
    
    Minority interests
    
    e
    
    
    (24
    )
    
    
    (2
    )
    
    
    (631
    )Intangible assets
    
    f
    
    
    522
    
    
    
    7,303
    
    
    
    Change in tax rate
    
    g
    
    
    
    
    
    
    427
    
    
    
    (433
    )Deferred tax credit
    
    h
    
    
    (8,690
    )
    
    
    
    
    
    
    Other
    
    k
    
    
    (85
    )
    
    
    218
    
    
    
    687Tax effect of U.S. GAAP adjustments
    
    i
    
    
    (3,116
    )
    
    
    (2,528
    )
    
    
    (7,606
    )Differences in accounting for income taxes
    
    j
    
    
    59,223
    
    
    
    
    
    
    
    21,320Net income under U.S. GAAP
    
    
    
    
    620,772
    
    
    
    417,146
    
    
    
    227,263Basic and diluted earnings per share
under U.S. GAAP
    
    
    
    
    1.31
    
    
    
    0.85
    
    
    
    0.46
 At December
    
    
    At DecemberNotes
    
    31,2006
    
    
    31,2005Shareholders equity under IFRS
    
    
    
    
    2,823,516
    
    
    
    2,918,766Adjustments:Provisions for pensions and similar obligations
    
    b
    
    
    (7,224
    )
    
    
    12,671Termination benefits
    
    c
    
    
    13,027
    
    
    
    Asset retirement obligation
    
    d
    
    
    2,144
    
    
    
    3,320Minority interests
    
    e
    
    
    (41
    )
    
    
    (17
    )Intangible assets
    
    f
    
    
    (5,478
    )
    
    
    (6,000
    )Deferred tax credit
    
    h
    
    
    (8,690
    )
    
    
    Other
    
    k
    
    
    476
    
    
    
    554Tax effect of U.S. GAAP adjustments
    
    i
    
    
    1,054
    
    
    
    (613
    )Differences in accounting for income taxes
    
    j
    
    
    
    
    
    
    (59,223
    )Shareholders equity under U.S. GAAP
    
    
    
    
    2,818,784
    
    
    
    2,869,458
 F-69




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 a) American call option
    b) Provisions for pensions and similar obligations
    Severance liability
    
    
    Pension liabilityDecember 31, 2006Liability in accordance with IFRS
    
    
    51,634
    
    
    
    8,862Unrecognized net loss (gain) under IFRS
    
    
    8,046
    
    
    
    (822
    )Defined (Projected) benefit obligation
(liability recorded) in accordance with
U.S. GAAP
    
    
    59,680
    
    
    
    8,040December 31, 2005Liability in accordance with IFRS
    
    
    46,644
    
    
    
    7,133Unrecognized net gain (loss) under IFRS
    
    
    12,286
    
    
    
    (736
    )Defined (Projected) benefit obligation
    
    
    58,930
    
    
    
    6,397Unrecognized net gain (loss) under U.S. GAAP
    
    
    (26,408
    )
    
    
    2,186Liability in accordance with U.S. GAAP
    
    
    32,522
    
    
    
    8,583
  F-70




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   Before
    
    
    
    
    
    
    Afterapplication of
    
    
    
    
    
    
    application ofSFAS 158
    
    
    Adjustments
    
    
    SFAS 158Liability for pension benefits
    
    
    (10,207
    )
    
    
    2,167
    
    
    
    (8,040
    )Liabilities for severance benefit
    
    
    (38,375
    )
    
    
    (21,305
    )
    
    
    (59,680
    )Accumulated other comprehensive income, net of tax
    
    
    (8,359
    )
    
    
    14,353
    
    
    
    5,994Net deferred tax asset non-current
    
    
    45,099
    
    
    
    4,785
    
    
    
    49,884
  c) Voluntary termination incentive program to civil servants and other employees
   d) Asset retirement obligation
   F-71




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
       F-72




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 IFRS
    
    
    U.S. GAAPAsset retirement obligations as of January 1, 2005
    
    
    65,535
    
    
    
    38,261Foreign exchange differences
    
    
    167
    
    
    
    167Addition from acquisition of Mobiltel
    
    
    2,502
    
    
    
    2,502Change in estimate
    
    
    12,846
    
    
    
    2,558Liability incurred in the current period
    
    
    2,808
    
    
    
    2,808Accretion expense
    
    
    3,187
    
    
    
    3,087Settlements
    
    
    (1,340
    )
    
    
    (1,274
    )Asset retirement obligations as of December 31, 2005
    
    
    85,705
    
    
    
    48,109Foreign exchange differences
    
    
    36
    
    
    
    35Change in estimate
    
    
    (17,760
    )
    
    
    1,696Liability incurred in the current period
    
    
    3,925
    
    
    
    3,925Accretion expense
    
    
    3,380
    
    
    
    3,292Releases
    
    
    (263
    )
    
    
    (249
    )Settlements
    
    
    (2,318
    )
    
    
    (2,237
    )Asset retirement obligations as of December 31, 2006
    
    
    72,705
    
    
    
    54,571
  Year ended December 31
    
    2006
    
    
    2005
    
    
    2004Accretion expense
    
    
    88
    
    
    
    100
    
    
    
    Gain from change in estimate
    
    
    (2,900
    )
    
    
    (2,252
    )
    
    
    Depreciations
    
    
    1,442
    
    
    
    1,202
    
    
    
    Net carrying value of assets retired/disposed of
    
    
    213
    
    
    
    4,336
    
    
    
    Other
    
    
    (19
    )
    
    
    (66
    )
    
    
    Total
    
    
    (1,176
    )
    
    
    3,320
    
    
    
    
    e) Minority interests
  F-73




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  f) Intangible assets
    IFRS
    
    

U.S. GAAP
    
    
    ReconciliationDecember 31, 2006Intangible assets
    
    
    5,478
    
    
    
    
    
    
    
    5,478Deferred tax assets
    
    
    10,531
    
    
    
    11,901
    
    
    
    1,370December 31, 2005Intangible assets
    
    
    6,000
    
    
    
    
    
    
    
    6,000Deferred tax assets
    
    
    11,534
    
    
    
    13,034
    
    
    
    1,500December 31, 2004Intangible assets
    
    
    6,521
    
    
    
    
    
    
    
    6,521Assets held for sale
    
    
    6,782
    
    
    
    
    
    
    
    6,782Deferred tax assets
    
    
    12,817
    
    
    
    16,142
    
    
    
    3,325Recognized tax benefit, net of change in tax rate
    
    
    12,817
    
    
    
    2,839
    
    
    
    9,978
  F-74




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
 g) Change in tax rate
    h) Differences in accounting for income taxes  intragroup loss
   i) Tax effect of U.S. GAAP adjustments
  j) Differences in accounting for income taxes  for taxable differences on investments in
subsidiaries
    F-75




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   k) Other
  (37) ADDITIONAL DISCLOSURES
 Consolidated balance sheets
  Cross border lease
    F-76




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  At December 31,
    
    2006
    
    
    2005Marketable securities held-to-maturity, non-current
    
    
    125,901
    
    
    
    139,705Deposits under PUA
    
    
    593,096
    
    
    
    722,796Lease Obligation
    
    
    718,997
    
    
    
    862,501Thereof short-term lease obligation
    
    
    121,434
    
    
    
    113,319
  Asset Backed Securitization Program
       F-77




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
   2006
    
    
    2005
    
    
    2004Gross trade receivables sold to the QSPE
    
    
    3,038,661
    
    
    
    3,044,009
    
    
    
    2,861,686Collections made on behalf of and paid to the QSPE
    
    
    (3,036,684
    )
    
    
    (3,105,085
    )
    
    
    (2,806,644
    )Deferred purchase price withheld
    
    
    (864
    )
    
    
    1,644
    
    
    
    (9,771
    )Unearned discount (withheld) reduced
    
    
    (1,496
    )
    
    
    (111
    )
    
    
    (1,489
    )Liquidity and program fees
    
    
    (3,837
    )
    
    
    (2,335
    )
    
    
    (3,110
    )Retained interests
    
    
    
    
    
    
    9,142
    
    
    
    (9,142
    )(Increase) decrease in receivable from the QSPE
    
    
    118,884
    
    
    
    (73,599
    )
    
    
    (49,140
    )Net cash received from (paid to) QSPE
during the period
    
    
    114,664
    
    
    
    (126,335
    )
    
    
    (17,610
    )
  Deferred taxes
  At December 31,
    
    2006
    
    
    2005Deferred tax assets  current
    
    
    12,616
    
    
    
    27,803Deferred tax assets  non-current
    
    
    70,311
    
    
    
    44,945Valuation allowance on deferred tax assets  non- current
    
    
    (20,427
    )
    
    
    (39,560
    )Net deferred tax assets  non-current
    
    
    49,884
    
    
    
    5,385Deferred tax liabilities  current
    
    
    1,023
    
    
    
    377Deferred tax liabilities  non-current
    
    
    51,298
    
    
    
    42,236
  Related parties
  F-78




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  At December 31,
    
    2006
    
    
    2005Accounts receivable
    
    
    17
    
    
    
    4Accounts payable
    
    
    4,829
    
    
    
    7,884Revenues
    
    
    45,857
    
    
    
    57,116Expenses
    
    
    80,444
    
    
    
    73,465
 Retroactive accounting for final determination of purchase price allocation
   Consolidated statements of operations
   Consolidated cash flow statements
  New accounting pronouncements
 Accounting for Certain Hybrid Financial Instruments
 F-79




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##### Table of Contents



TELEKOM AUSTRIA AG
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(All amounts in EUR 000s)
  Accounting for Servicing of Financial Assets
 Fair Value Measurements
  Accounting for Uncertainty in Income Taxes  an interpretation
of FASB Statement No. 109 Accounting for Income Taxes
 cash consideration other than cash
 F-80