UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

(Mark One)

| |  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934 OR

|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the fiscal year ended 31 December 2004

                                       OR

| |  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from      to

Commission file number 0-28970

                             COLT Telecom Group plc
             (Exact name of Registrant as specified in its charter)

                                     England
                 (Jurisdiction of incorporation or organization)

         Beaufort House, 15 St. Botolph Street, London EC3A 7QN, England
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
None

Securities registered or to be registered pursuant to Section 12(g) of the Act:
     American Depositary Shares, each representing the right to receive four
     Ordinary Shares, nominal value 2.5p each;
     Ordinary Shares, nominal value 2.5p each; and
     Warrants to purchase Ordinary Shares, nominal value 2.5p each


Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
     1,511,128,701 Ordinary Shares, nominal value 2.5p each

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. |X| Yes   | | No

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


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<PAGE>


Presentation of financial information

Our Financial Statements included in this report are presented in pounds
sterling. In this report, references to "U.S. dollars," or "$" are to the
currency of the United States, references to "pounds sterling," "pounds," "L,"
"pence" or "p" are to the currency of the United Kingdom, and references to
"(euro)" are to Euros. Solely for your convenience, this report contains
conversions of certain pounds sterling amounts into U.S. dollars at specified
rates. These conversions should not be read as representations that the pounds
sterling amounts actually represent such U.S. dollar amounts or could be
converted into U.S. dollars at the rate indicated or at any other rate. Unless
otherwise indicated, the conversions of pounds sterling into U.S. dollars have
been made at $1.916 per L1.00, the noon buying rate in the City of New York for
cable transfers in pounds sterling as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate") on 31 December 2004.
See "Exchange Rates" in Item 3 of this report for additional exchange rate
information. On 18 April 2005, the Noon Buying Rate was $1.9052 per L1.00.

We prepare our Financial Statements using accounting principles generally
accepted in the United Kingdom ("U.K. GAAP"), which differ in certain respects
from accounting principles generally accepted in the United States ("U.S.
GAAP"). The principal differences between U.K. GAAP and U.S. GAAP are summarised
in "Summary of differences between U.K. Generally Accepted Accounting Principles
and U.S. Generally Accepted Accounting Principles ("GAAP")" included as Note 26
to the Financial Statements referred to above.

References in this report to "we," "our," "us," "COLT" or the "Company" refer to
COLT Telecom Group plc and, where appropriate, its subsidiaries and to its
predecessors and, where appropriate, their subsidiaries. References to other
companies and organisations in this report include their subsidiaries and
affiliates.

Forward looking statements

This report, including the documents that are incorporated by reference,
contains statements, which constitute forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and U.S. federal
securities laws. These forward-looking statements appear in a number of places
in this report and include, among other things, statements concerning:
     o    our strategies,
     o    beliefs or current expectations of our management,
     o    the business plan, its advantages and our strategy for implementing
          the business plan,
     o    anticipated growth of the communications and information services
          industry,
     o    expectations as to our future revenues, margins, expenses and capital
          requirements,
     o    anticipated dates on which we will begin providing certain services or
          reach specific milestones in the business plan, and
     o    other statements of expectations, beliefs, trends, future plans and
          strategies, anticipated developments and other matters that are not
          historical facts.

You should be aware that these forward-looking statements are subject to risks
and uncertainties, including those Risk Factors described in Item 3(D) of this
report and other financial, regulatory, environmental and industry risks and
trends, that could cause actual events or results to differ materially from
those expressed or implied by the statements. The most important factors that
could prevent us from achieving our stated goals include, but are not limited
to:
     o    the adverse effects of a highly competitive market for our products
          and services,
     o    our vulnerability to adverse general economic and industry conditions,
     o    our ability to obtain future financing on acceptable terms,
     o    our ability to sufficiently fund the business plan,
     o    changes in our key management professionals, and
     o    adverse changes in laws or regulations.

The information contained in this report and the documents that are incorporated
by reference, including information under the headings "Information on the
Company" and "Operating and Financial Review and Prospects" identify other
important factors that could cause such differences. We have no obligation to
release



                                     - 2 -
<PAGE>


publicly the result of any revision to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.




























                                     - 3 -
<PAGE>


                                     PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected financial data.

The selected financial data below is derived from our 2004 Financial Statements
as included in this report, see Item 18. The audited Financial Statements at 31
December 2002, 2003 and 2004 and for the three fiscal years then ended 31
December 2002, 2003 and 2004 have been audited by PricewaterhouseCoopers LLP,
Independent Registered Public Accounting Firm, as indicated in their report
which is included in this report. The selected financial data should be read in
conjunction with the Financial Statements and related notes, as referred to
above, as well as Item 5, Operating and Financial Review and Prospects.

Profit and Loss Account Data
Amounts in accordance with U.K. GAAP
<TABLE>
<CAPTION>
                                                                                    Year ended 31 December
                                                          2000          2001          2002          2003          2004          2004
                                                         L'000         L'000         L'000         L'000         L'000         $'000
                                                         -----         -----         -----         -----         -----         -----
<S>                                                  <C>           <C>           <C>           <C>           <C>           <C>
Turnover                                               686,977       905,687     1,027,258     1,166,318     1,214,020     2,326,062
Gross profit (loss)                                    120,073      (35,983)     (424,686)       194,959       208,323       399,147
Operating loss                                        (84,913)     (359,931)     (778,594)      (77,047)      (68,829)     (131,876)
Loss on ordinary activities before taxation          (116,860)     (360,369)     (718,282)     (124,647)     (114,431)     (219,249)
Loss for year                                        (116,860)     (360,369)     (718,282)     (124,647)     (114,431)     (219,249)
Basic and diluted loss per share                     L  (0.17)     L  (0.48)     L  (0.48)     L  (0.08)     L  (0.08)       $(0.15)
Dividends declared per share                           L  0.00       L  0.00       L  0.00       L  0.00       L  0.00         $0.00
Weighted average number of Ordinary Shares (`000)      693,385       745,550     1,507,164     1,507,771     1,510,853     1,510,853
Basic and diluted loss per ADS                       L  (0.67)     L  (1.93)     L  (1.91)     L  (0.33)     L  (0.30)       $(0.58)
Dividends declared per ADS                             L  0.00       L  0.00       L  0.00       L  0.00       L  0.00         $0.00
Weighted average number of ADSs (`000)                 173,346       186,388       376,791       376,943       377,713       377,713
</TABLE>


                                     - 4 -
<PAGE>


Amounts in accordance with U.S. GAAP
<TABLE>
<CAPTION>
                                                                                    Year ended 31 December
                                                          2000          2001          2002          2003         2004*         2004*
                                                         L'000         L'000         L'000         L'000         L'000         $'000
<S>                                                  <C>           <C>           <C>           <C>           <C>           <C>
Turnover                                               621,263       878,225     1,026,721     1,172,422     1,221,282     2,339,976
Gross profit (loss)                                     90,133      (49,538)     (320,864)       201,732       165,586       317,263
Operating loss                                       (104,532)     (362,586)     (674,098)      (86,497)     (144,952)     (277,727)
Loss on ordinary activities before taxation          (121,924)     (344,841)     (611,130)     (136,980)     (194,936)     (373,497)
Loss for year                                        (121,924)     (344,841)     (611,130)     (136,980)     (194,936)     (373,497)
Basic and diluted loss per share                     L  (0.18)     L  (0.54)     L  (0.41)     L  (0.09)      L (0.13)      $ (0.25)
Dividends declared per share                           L  0.00       L  0.00        L 0.00       L  0.00       L  0.00         $0.00
Weighted average number of Ordinary Shares (`000)      693,385       745,550     1,507,164     1,507,771     1,510,853     1,510,853
Basic and diluted loss per ADS                       L  (0.70)     L  (2.16)     L  (1.62)     L  (0.36)     L  (0.52)       $(0.99)
Dividends declared per ADS                             L  0.00       L  0.00       L  0.00       L  0.00       L  0.00         $0.00
Weighted average number of ADSs (`000)                 173,346       186,388       376,791       376,943       377,713       377,713
</TABLE>


Balance Sheet Data
Amounts in accordance with U.K. GAAP
<TABLE>
<CAPTION>
                                                                                          At 31 December
                                                                                              Restated**
                                                          2000          2001          2002          2003          2004          2004
                                                         L'000         L'000         L'000         L'000         L'000         $'000
                                                         -----         -----         -----         -----         -----         -----
<S>                                                  <C>           <C>           <C>           <C>           <C>           <C>
Total assets                                         3,352,188     3,427,792     2,588,930     2,422,843     1,960,687     3,756,676
Creditors falling due after more than one year
(including convertible debt)                         1,426,307     1,318,025     1,193,899     1,144,549       745,685     1,428,732
Shareholders' equity                                 1,501,857     1,624,359       955,010       862,698       748,094     1,433,348
</TABLE>


Amounts in accordance with U.S. GAAP
<TABLE>
<CAPTION>
                                                                                          At 31 December
                                                          2000          2001          2002          2003         2004*         2004*
                                                         L'000         L'000         L'000         L'000         L'000         $'000
                                                         -----         -----         -----         -----         -----         -----
<S>                                                  <C>           <C>           <C>           <C>           <C>           <C>
Total assets                                         3,382,231     3,475,302     2,738,745     2,560,195     2,085,226     3,995,293
Creditors falling due after more than one year
(including convertible debt)                         1,426,307     1,318,025     1,193,899     1,144,549       745,685     1,428,732
Shareholders' equity                                 1,513,668     1,652,127     1,086,058       982,713       787,267     1,508,404
</TABLE>

* The Group has changed its U.S. GAAP accounting policy in respect of
installation costs. Effective 1 January 2004 these costs are expensed as
incurred. The cumulative effect of the change on the opening retained earnings
was L72.6 million and this has been recorded as a charge to the current year
profit and loss account and as a corresponding decrease in net assets.

** Applying UITF 38 "Accounting for ESOP Trusts" has resulted in the cost of own
shares, previously reported as a fixed asset investment, being shown as a
deduction from shareholders' funds.


                                     - 5 -
<PAGE>


Exchange Rates
Solely for your convenience, this report contains conversions of certain pounds
sterling amounts into U.S. dollars at specified rates. These conversions should
not be read as representations that the pounds sterling amounts actually
represent such U.S. dollar amounts or could be converted into U.S. dollars at
the rate indicated or at any other rate. Unless otherwise indicated, the
conversions of pounds sterling into U.S. dollars have been made at $1.916 per
L1.00, the Noon Buying Rate on 31 December 2004.

The table below sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rates for pounds sterling expressed in
U.S. dollars per pound. On 18 April 2005, the Noon Buying Rate was $1.9052 per
L1.00.

Period                      High      Low     Period Average (1)     Period End
------                      ----      ---     ------------------     ----------
2000                        1.65     1.40                   1.51           1.50
2001                        1.50     1.37                   1.44           1.45
2002                        1.61     1.41                   1.51           1.61
2003                        1.78     1.55                   1.65           1.78
2004                        1.95     1.75                   1.84           1.92
2005 (to 18 April)          1.93     1.86                   1.90           1.91
(1) The average of the Noon Buying Rates on the last day of each full month
during the period.

The high and low exchange rate for each of the last 6 months was as follows:
Month                      High       Low
-----                      ----       ---
October 2004               1.84      1.78
November 2004              1.91      1.83
December 2004              1.95      1.91
January 2005               1.91      1.86
February 2005              1.92      1.86
March 2005                 1.93      1.87


B. Capitalisation and indebtedness

Not applicable.


C. Reason for the offer and use of proceeds

Not applicable.


D. Risk factors

In addition to the other information contained in this report, you should
carefully consider the following risk factors. If any of the possible events
described below occurs, our business, prospects, financial condition or results
of operations could be materially and adversely affected.

If we are unable to maintain our competitive position within our industry, our
business will suffer

The telecommunications industry is highly competitive. Competition in the
industry is based upon:

     o    price,
     o    customer service,
     o    network quality,
     o    products and services, and
     o    customer relationships.


                                     - 6 -
<PAGE>


Price is a very important competitive factor in our industry, as it may be
difficult to differentiate product offerings and because the industry has
generally moved towards shorter customer contracts, leading towards more
competition for customer renewals. These conditions make it difficult to
maintain or improve our margins and cash flow.

In order to maintain our competitiveness and differentiate our products, we must
continually adapt our products, and to provide new categories and combinations
of telecommunications services and products in response to changing customer
needs and competitive offers. This may require extensive and possibly
unanticipated new expenditures. Failure to successfully deliver products and
services required by our customers could have a material adverse effect on our
business, financial condition and operating results.

Our principal competitor in each market is the dominant national, public
telephone operator. These companies have provided local, long-distance and
international services to their customers for many years. Their historically
established networks, substantially greater resources, closer ties to
governmental authorities and longer operating histories give them a competitive
advantage over younger companies like ours. We also face competition from other
operators in each market, some of which operate internationally. We expect that
we will continue to encounter severe competition in the future and we may suffer
escalating price competition and or be unable to expand our market share as
competitive pressures increase.

As a result, we may be unable to increase our revenues and market share, and may
suffer adverse effects on our financial condition and results of operation.

Failure to Deliver on our Strategy On Time or At All Would Have An Adverse
Effect on Our Business

In October 2004, we launched a new strategic development initiative, "Future in
Focus". The strategic direction of this initiative is to accelerate revenue
growth, to deliver positive cash flow and profits, and to re-establish us as an
innovator and as one of the top three players in each of the metropolitan
markets in which we operate across Europe. To achieve this a dedicated
management team has been established to transform various aspects of our
business. Failure to achieve the transformation on a timely basis or to achieve
the transformation more slowly means that our business will perform less well.
This could have an adverse impact on our business, financial condition and
operating results.

We have adopted a growth and infrastructure-based strategy, under which we have
made significant investments on the basis of expected growth in sales and
resulting revenues. If this growth does not materialize, then the business may
be unprofitable and fail to generate satisfactory cash flows.

Our success also depends on maintaining or improving our margins. We plan to
improve our margins by shifting our revenue mix away from switched products
(which typically have low margins) to non-switched products (which typically
have higher margins). Achieving this improvement requires us to up-sell
non-switched products to existing customers for switched products.

Our margins are also dependent on maintaining controls on our costs. We have
implemented various initiatives to attempt to reduce our cost base, but these
initiatives, including outsourcing of some services to India, require
expenditures and we cannot assure you that these initiatives will be successful.

The Telecommunications Industry is Subject to Rapid Technological Changes and We
Cannot Predict the Effect of Any Changes on our Business

The telecommunications industry is subject to rapid and significant changes in
technology. As a result, the services we provide our customers may become out of
date or unprofitable. For example, the development of Voice over Internet
Protocol, or VoIP, services may negatively impact our core switching business in
that much of the traffic that presently is carried over our network would
instead be carried over the internet. In addition, the introduction of new
products or technologies may reduce the cost or increase the supply of certain
services similar to those that we provide. As a result, our competitors in the
future may include new entrants to the telecommunications industry. These
changes may also require us to make significant new expenditures to remain
competitive.


                                     - 7 -
<PAGE>


We cannot predict the effect of technological changes on our business, such as
VoIP or changes relating to emerging wireless transmission technologies.
Technological changes and the resulting competition could have a material
adverse effect on our business, financial condition and results of operations.

The telecommunications industry is a rapidly changing sector, and as a result,
we are exposed to changes in the depreciation rates we use to write down assets.
This risk ranges from the life of some of our equipment being shortened to the
extreme whereby a current technology is deemed obsolete, requiring a substantial
write-down.

A Downturn in Economic Conditions Could Adversely Affect Our Results

Any downturn in the global economy may adversely affect our business. Much of
our business depends on implementing information technology, or IT, solutions
for large corporate customers, and a downturn in economic conditions may cause
these potential customers to delay or avoid the purchase of such solutions. This
makes us more vulnerable to economic cyclicality than many other businesses,
with a corresponding negative impact on our results of operations and our
financial condition.

We Have A History Of Operating Losses And Negative Cash Flows And Cannot
Guarantee That These Will Not Continue

We have incurred operating losses and negative cash flows while installing,
developing and expanding our telecommunications network and building our
customer base. For the year ended 31 December 2004, these operating losses
totalled L68.8 million.

In addition, we had net cash inflow from operations of L147.9 million in 2003
and L140.6 million in 2004, and a net cash outflow from returns on investments
and servicing of finance, from capital expenditure and financial investment and
from acquisitions and disposals of L180.3 million in 2003 and L150.1 million in
2004.

The future success of our business requires that we become profitable and that
we generate positive cash flows in the future. If we cannot sustain
profitability or positive cash flows, we may not be able to meet our capital
requirements or make our required debt payments. If this happens, then our
Ordinary Shares will have little or no value.


Our Substantial Level of Debt May Adversely Affect Our Financial Condition

At 31 December 2004, our total indebtedness was L827.4 million ($1,585.3
million), and our capital and reserves were L748.1 million ($1,433.3 million)
and on 31 March 2005 our total indebtedness was approximately L725.5 million
($1,370.3 million) and our capital and reserves were L709.1 million ($1,339.4
million).

Our level of indebtedness could affect us in materially adverse ways, such as:
     o    limiting our ability to obtain additional financing for our capital
          expenditures, acquisitions, working capital or other general
          requirements,
     o    requiring the dedication of a substantial portion of our cash flow
          from operations to the payment of principal of, and interest on, our
          indebtedness, which means that this cash flow will not be available to
          fund capital expenditures or other corporate purposes,
     o    limiting our flexibility in planning for, or reacting to, changes in
          our business, the competitive environment and the industry,
     o    placing us at a competitive disadvantage to competitors with less
          debt, including competitors that have emerged from debt restructuring
          processes,
     o    making us more vulnerable to economic downturns, which could weaken
          our ability to compete effectively and could reduce our flexibility in
          responding to changing economic conditions, and
     o    limiting our ability to take advantage of new business opportunities.


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<PAGE>


We Are Subject To Uncertain And Changing Regulation That Could Change In A
Manner Adverse To Our Business

The telecommunications industry is highly regulated in all the countries where
we provide services. We need licenses or similar permits or to comply with
certain conditions and requirements to carry on our business and deliver
products and services in each country. We cannot ensure appropriate and fair
regulation or that we will be able to obtain, maintain or renew licenses or
permissions or conditions to provide our services, or that any license,
permissions or conditions requirements or related fees charged will be
commercially viable. We may also be the subject of burdensome regulatory
requirements imposed on us by regulators, e.g. including an obligation to pay
money into universal service funds.

In addition, we do not own all of the telecommunications transmission
infrastructure that we presently use. We extensively utilize the infrastructure
of our competitors, principally the former incumbent carriers, to carry our
traffic, and rely on interconnect agreements with these competitors to connect
our customers to our own network. We are reliant on appropriate and fair
regulation, and enforcement of this regulation, in order to be able to negotiate
interconnect agreements at reasonable prices, and to be given timely and
reasonably priced access to the our competitors' networks when needed, for
instance in order to have access to co-located facilities. In recent periods we
have made greater use of competitors' networks in selected areas, where this
reduces investments we would otherwise have to make in network. This strategy
increases our need for fair regulations that are promptly enforced.

We May Not Be Able To Obtain And Maintain Government Approvals And Rights-of-Way
To Successfully Operate Our Business

Much of our business development, expansion and operation depend on our ability
to obtain licenses / permits from central and local government authorities and
acceptable agreements for public and private rights-of-way. We cannot ensure
that we will be able to maintain our existing approvals and rights-of-way or
that we will be able to obtain the approvals and rights-of-way required to
connect new customers and enter new markets as needed. If our existing approvals
or rights-of-way were cancelled or not renewed, or if we were unable to obtain
the approvals or rights-of-way to expand in accordance with our plans, then
these events could have a material adverse effect on our business, financial
condition and operating results.

Currency Fluctuations May Adversely Affect Our Results

Our international operations expose us to fluctuations in foreign currencies,
particularly the Euro. A majority of our revenues, costs, assets and liabilities
are denominated in foreign currencies, but our financial condition and results
of operations are reported in pounds sterling. As a result, fluctuations in the
value of these foreign currencies will affect our financial and operational
results.

Some of our debt financing will also expose us to fluctuations because payments
of principal and interest will be made in Euros, but part of our future cash
flow used to service these payments will be denominated in other currencies. We
may be required to maintain financial hedging instruments to offset any exchange
rate risk with respect to some of our notes. We do not currently intend to use
other financial hedging instruments to offset exchange rate risk.

If We Do Not Effectively Continue To Provide A High Level Of Customer Service,
Our Business Prospects Could Be Harmed And Our Financial Performance Adversely
Affected

To continue to manage our business successfully against a changing market
background, we will have to enhance our operational, management, financial and
information systems and controls and to expand, train and manage our employee
base. In addition, as we increase our service offerings to our targeted markets,
we will have to cope with the additional demands on our customer support, sales,
marketing and administrative resources, whilst still reducing our cost base.


                                     - 9 -
<PAGE>


We cannot ensure that we will be able to manage our growth effectively. If we
are unable to manage our expansion or cope with unforeseen difficulties, we
could lose customers, suffer damage to our reputation and incur significant
expenses. This could have a material adverse effect on our business, financial
condition and operating results.

If We Fail To Develop And Implement New Information Technology Systems
Successfully Our Business And Operations Will Be Negatively Affected

The telecommunications business in general, and our business in particular, are
heavily dependent on information technology systems. We continue to develop and
implement new pan-European information technology systems. These systems are
required to enable us to manage effectively many aspects of our business. If the
development and integration of these systems is not completed on a timely basis
or does not meet the needs of our business, we could lose the value of our
investment in these systems. Further, if these systems fail to work properly,
this failure could lead to dissatisfied customers or to failure to properly
charge and collect revenues. These factors could negatively affect our
performance, customer service, margin management and ability to generate
management information.

Physical Loss Or Damage To One Of Our Major Sites or Our Networks Could Disrupt
Our Business

We depend on electronic equipment, which is inherently susceptible to fire,
smoke and water damage. This means that a significant incident at one of our
major sites or to our network could cause disruption to the business or our
customers' business. Fire and security systems mitigate these risks, and
business continuity / crisis management plans and insurance should reduce any
impact. However, our protection mechanisms may prove ineffective and our
insurance may not provide adequate protection in certain circumstances. This
could have an adverse impact on our business, financial condition and operating
results.

Electronic Attack From Hackers Or Computer Viruses Could Disrupt Our Business

Although our systems are protected by firewalls, there is a risk that the
business could be disrupted by hackers or viruses gaining access to our systems.
Our exposure to liabilities from our customers, particularly on internet
services where case law is developing quickly, is risk managed through contract
conditions and insurance. However, the latter is limited with regard to
disruption caused by viruses or hackers. This could have an adverse impact on
our business, financial condition and operating results.

We May Be Unable To Hire And Retain Qualified Personnel

We compete with other telecommunications operators for highly qualified sales,
marketing, administrative, operating and technical personnel. Our success
depends on our ability to attract, hire and retain enough qualified personnel,
and we cannot always ensure that we will be able to do so. In addition, a small
number of key management and operating personnel manage our business. The loss
of certain of these individuals could have a material adverse impact on our
business, financial condition and operating results.

The Operational Activities Carried Out In India May Be Disrupted And Affect
Service To Our Customers

We have established a shared service office in India. For continuous and
effective delivery of administrative and operational support processes we are
dependent on local circumstances which may be affected by risks specific to the
location. Examples of this would be new requirements as business practice and
laws develop in India or environmental matters such as extreme weather
conditions. Although control processes, business continuity/crisis management
plans and insurance may reduce any impact, there could still be an adverse
effect on our business if service is disrupted.


                                     - 10 -
<PAGE>


Failure Of Key Suppliers Could Affect Our Ability To Operate Our Business

We are reliant on a consistent and effective supply chain to meet our business
plan commitments. Any financial instability of our telecommunications equipment
or service suppliers or our information technology software suppliers could lead
to the risk of:
     o    delays to new products and features from suppliers, impacting our
          product development programs,
     o    products being discontinued, impacting supply of existing products,
     o    deteriorating support quality, affecting operational and customer
          service,
     o    consequential impact on our customers business, and
     o    higher volatility with regard to our demands on suppliers, and in
          stock levels affected by customer returned equipment.

This could have an adverse impact on our business, financial condition and
operating results.

Failure To Finance Our Capital Requirements Could Adversely Affect Our Business
Plan

We may require additional capital to finance our investment and working capital
requirements. The extent of our future capital requirements will depend on many
factors, including:

     o    our ability to sustain and grow profitable revenues,
     o    our ability to manage costs and investments effectively,
     o    acquisitions and disposals,
     o    competition,
     o    market conditions, especially pricing,
     o    changes to technology,
     o    government regulations,
     o    cost inflation, and
     o    exchange rate movements.

Additional sources of financing may include equity, hybrid debt/equity and debt
financings or other arrangements, such as vendor financing. We cannot be sure
that we will be able to obtain additional financing on acceptable terms when it
is required.

Under the terms of a relationship agreement between us and certain members of
the Fidelity Group, while the Fidelity Group owns, or has voting control of, at
least 50% of our Ordinary Shares we are restricted from issuing any Ordinary
Shares or other equity securities (including securities convertible into
Ordinary Shares), subject to certain exceptions, without the prior written
consent of Fidelity. If Fidelity's consent was necessary and we were unable to
obtain their consent, we would be unable to raise additional equity capital. At
18 April 2005, Fidelity had voting control of approximately 59% of our Ordinary
Shares.

If we are unable at any time to obtain any necessary financing, we may have to
postpone or abandon some or all of our spending plans. This may limit our
ability to make payments on our debt and may cause the prices of our Ordinary
Shares and American Depositary Shares, or ADSs, to fall.

Our Ability To Make Our Debt Payments In The Future May Necessitate Refinancing
Which May Not Be Available on Attractive Terms or At All

Our ability to meet our debt obligations will depend on the performance of our
business, as well as on competitive, regulatory, legal and technical factors,
including some factors that are beyond our control, or our ability to refinance
all or part of our debt. Our ability to refinance the debt will depend on, among
other things:

     o    our financial condition at the time,
     o    restrictions in agreements governing our debt, and
     o    other factors, including market conditions.


                                     - 11 -
<PAGE>


We cannot ensure that any such refinancing would be possible on attractive terms
or at all. If refinancing were not possible, we might have to sell our assets
under circumstances that might not yield the highest prices, or default on our
debt obligations, including our notes, which would permit the holders of our
notes to accelerate their maturity dates. Refinancing on unattractive terms
could lead to higher interest rates and hence a greater use of cash flows to
service the refinancing debt, as well as restrictive covenants associated with
such debt.
Our Debt Covenants Limit Our Financing and Other Activities

Our indentures contain, and the terms of future indebtedness may also contain,
restrictive covenants that significantly limit or prohibit our ability to, among
other things:

     o    incur indebtedness,
     o    make prepayments of certain indebtedness,
     o    pay dividends,
     o    make investments,
     o    engage in transactions with stockholders and affiliates,
     o    issue capital stock,
     o    create liens,
     o    sell assets, and
     o    engage in mergers and consolidations.

If we fail to comply with the restrictive covenants in these indentures our
obligations to repay our notes may be accelerated.

Unavailability of Cash Flows Could Affect our Ability to Service our Debt

Generally. We are a holding company for our subsidiaries and have no material
business operations, sources of income or assets other than the stock of our
subsidiaries. Because we conduct our operations through subsidiaries, our cash
flow and our ability to meet the obligations under our notes, including payment
of principal, premium, if any, and interest, depends upon the cash flow of our
subsidiaries and their dividends, fees, loans, and other payments to us. Our
subsidiaries have no contractual obligations to make any payments under the
notes or to make funds available to us so that we can make payments.

Restrictions on Distributions. Some of our subsidiaries are governed by local
laws regarding how much they may pay in dividends or in what situations they may
pay dividends. For example, these laws may prohibit dividend payments when net
assets fall below subscribed share capital, when the subsidiary lacks available
profit or when the subsidiary fails to meet certain capital and reserve
requirements. In addition, some of our financing arrangements also limit the
situations where our subsidiaries may pay us dividends or make loans or other
distributions.

Subordination to our Subsidiaries' Creditors. Our subsidiaries do not guarantee
payment of our obligations under our notes. Thus, our right to receive the
assets of any subsidiary upon its liquidation or reorganization is structurally
subordinated to the claims of the subsidiary's creditors, except where we are a
creditor of the subsidiary. If we were a creditor of a subsidiary, our right to
be paid back would be subordinated to any indebtedness of the subsidiary that
was either:
     o    secured by a security interest in that subsidiary's assets, or
     o    senior to that subsidiary's indebtedness to us.

In addition, the insolvency laws of some jurisdictions would also subordinate
the claims of a creditor who is a shareholder to claims of those who are third
parties.


                                     - 12 -
<PAGE>


The Price Of Our Securities May Be Volatile And You May Not Be Able to Resell
Your Securities At Or Above The Price You Paid For Them

The market price for our Ordinary Shares and ADSs may vary greatly from time to
time, both up and down, and you may not be able to sell your shares at or above
the price you paid for them. This may be due to a number of factors, including:
     o    the depth and liquidity of the market for our Ordinary Shares and
          ADSs,
     o    investor perceptions of our company (including our financial condition
          and results of operations) and other telecommunications companies,
     o    investor perception of the telecommunications sector, and
     o    fluctuations in foreign exchange rates.

In addition, broad market fluctuations and general economic conditions may
adversely affect the market price of our Ordinary Shares and ADSs, regardless of
our actual performance.

There Are A Substantial Number Of Shares Eligible For Future Issue Which, If
Issued, Could Adversely Affect The Market Price Of Our Securities

Future issue of substantial amounts of Ordinary Shares in the public market, or
even a perception that such issue may occur, could have an adverse effect on the
market price for the Ordinary Shares and ADSs or on our ability to raise capital
through a public offering of equity securities. At 18 April 2005, there were
approximately 1,511.1 million Ordinary Shares issued of which approximately
892.1 million were held by our affiliates and therefore are not freely tradable
without restriction under the Securities Act of 1933.

Additional Ordinary Shares will be issued from time to time upon:
     o    the conversion of our convertible notes, and
     o    the exercise of our stock options and warrants.

If You Hold Shares Through American Depositary Shares, You May Have Less Access
To Information About Our Company And Less Opportunity To Exercise Your Rights As
A Shareholder

There are risks associated with holding our shares in the form of ADSs since we
are a public company organized under the laws of England and Wales. The
depositary will appear in our records as the holder of all shares represented by
the ADSs and your rights as a holder of ADSs will be contained in the deposit
agreement. Your rights as a holder of ADSs will differ in various ways from a
shareholder's rights, and you may be affected in other ways, including:
     o    you may not be able to vote if we do not ask the depositary to ask for
          your instructions or if you do not receive the voting materials either
          in time to instruct the depositary or at all,
     o    you may not be able to participate in rights offers or dividend
          alternatives if, in the discretion of the depositary, after
          consultation with us, it is unlawful or not feasible to do so,
     o    the deposit agreement may be amended by us and the depositary, or may
          be terminated by us or the depositary, each within thirty days notice
          to you and without your consent in a manner that could prejudice your
          rights, and
     o    the deposit agreement limits our obligations and liabilities and those
          of the depositary.

We Might Have Become a Passive Foreign Investment Company In 2002

Based on an analysis of current law and of our financial position, discussed in
more detail below under "Taxation - U.S. Federal Income Tax Consequences -
Passive Foreign Investment Company," we believe that we might have become a
passive foreign investment company for U.S. federal income tax purposes in 2002.
We believe there is a low probability we could have become a passive foreign
investment company in 2003. We do not believe we could have become one during
2004, and we do not believe we will become one under our current financial
circumstances. We do not believe we became a passive foreign investment company
in any year prior to 2002. These are factual determinations made separately for
each calendar year, and we cannot guarantee that the IRS will agree with our
methodology for ascertaining passive foreign investment company status or with
our ultimate determination. In addition, because passive foreign investment
company status is in


                                     - 13 -
<PAGE>


part based on facts on and through 31 December of each year, it is not possible
to determine whether we will have become a passive foreign investment company
for a calendar year until after the close of the year, when we finalize our
financial information on and through 31 December. Also, we cannot provide any
assurance that the applicable tax law or other relevant circumstances will not
change in a manner which affects determinations of our status as a passive
foreign investment company.

If we are a passive foreign investment company for a taxable year and you hold
our Ordinary Shares, ADSs, or other of our securities convertible into Ordinary
Shares or ADSs at any time during that taxable year, then you could be subject
to an increased tax liability, possibly including an interest charge, under the
default U.S. federal income tax regime for passive foreign investment companies.
Alternatively, you might be subject to some tax liability if you are eligible to
elect one of two alternative tax regimes. The three different tax regimes for
passive foreign investment company shareholders are discussed in more detail
below under the heading "Taxation - U.S. Federal Income Tax Consequences -
Passive Foreign Investment Company." They are extremely complicated and the most
appropriate regime for you is dependent on your personal tax situation.
Accordingly, you should consult your personal tax advisor as to which of the
three tax regimes would be best for you.

It May Be Difficult For Investors To Effect Service Of Process And Enforce Legal
Process Against Our Subsidiaries or Directors And Executive Officers Outside The
United States We are incorporated under the laws of England and Wales, and most
of our subsidiaries and directors and executive officers and certain of the
experts named in this report are incorporated in or residents of the United
Kingdom or other countries outside the United States. Substantially all of our
assets and the assets of such persons are located outside the United States. As
a result, it may not be possible for investors to effect service of process
within the United States upon us or upon such persons, or to enforce against us
or against such persons in courts inside or outside the United States judgments
of courts inside the United States based upon the civil liability provisions of
United States securities laws or to enforce, in an original action brought
outside the United States, rights based on such provisions.

There Is A Limit To The Payments That Can Be Made In Case Of A Liquidation If we
go into liquidation in England the claim of a noteholder for amounts owing under
our notes may be limited to the issue price of the notes. Any cash interest
accruing under our notes for any period after we go into liquidation would not
be recoverable by noteholders in a liquidation. However, U.K. insolvency law
provides for any surplus remaining after payment of all other debts provided in
a liquidation to be available for paying interest accrued on debts in respect of
any period after the start of the liquidation.

There Are Potential Conflicts Of Interest Related To Our Controlling
Shareholders Which Could Be Resolved In A Manner Unfavorable To Us

FMR Corp., or Fidelity, and certain other related persons, or the Fidelity
Group, have voting control of approximately 59% of our issued Ordinary Shares.
As a result of the level of the Fidelity Group's ownership, it is able to
exercise control and purchase additional Ordinary Shares without making a
general offer for all of our Ordinary Shares under Rule 9 of the UK Takeover
Code.

Under the terms of a relationship agreement between us and certain members of
the Fidelity Group, while the Fidelity Group owns, or has voting control of, at
least 50% of our Ordinary Shares we are restricted from issuing any Ordinary
Shares or other equity securities (including securities convertible into
Ordinary Shares), subject to certain exceptions, without the prior written
consent of Fidelity. The concentration of stock ownership could have the effect
of delaying or preventing a change of control of our company or the removal of
existing management and may discourage attempts to do so, which could be
contrary to our interests and to the interests of our other shareholders. The
relationship agreement, which continues in effect so long as the Fidelity Group
holds at least 30% of our share capital, also provides that the Fidelity Group
will not acquire more of our Ordinary Shares if, as a result of doing so, less
than 25% of our Ordinary Shares would be in public hands.


                                     - 14 -
<PAGE>


Item 4. Information on the Company

A. History and Development of the Company

COLT Telecom Group plc, commercially known as COLT, was organized as a public
limited company under the laws of England and Wales in 1996 as a holding company
for operations already commenced in the U.K. in 1993 and Germany in 1996.

Our registered address is Beaufort House, 15 St. Botolph Street, London EC3A
7QN, England and our telephone number is +44 20 7863 5000.

We are a provider of advanced business communication solutions across Europe.
During 2004, we made net capital investments of L124.7 million in our
pan-European network, services and systems so that we can continue to offer a
fiber network with access in 32 Metropolitan Area Networks and operating across
13 countries in Europe. Our fully owned and managed 20,000 kilometer (12,420
miles) network is IP, or internet protocol, and Ethernet enabled and has a data
centre infrastructure with 11 facilities across Europe.

B. Business Overview

Network
At 31 December 2004, we had 19,814 directly connected network customers and we
indirectly serve over another 30,000. During 2004, we expanded the number of
buildings directly connected to our network from 9,785 to 10,240 and carried
25.3 billion switched minutes over our network compared with 21.9 billion in
2003. Demand for high bandwidth remained strong with private wire voice grade
equivalents growing by 37% to 36.4 million. However, despite the improved volume
of business much of the volume gain was offset by continued reduction in prices
resulting in constant currency revenues growth of 7%, excluding our subsidiary
FITEC which was disposed of in 2003.

Products and services
Throughout 2004, we continued to enhance our products and services portfolio to
ensure that customers' needs are met.

In March 2004, COLT Conferencing was launched in 11 of the 13 markets in which
we operate across Europe. COLT Conferencing allows customers to hold virtual
meetings via the phone or web integrating and real-time capabilities around the
clock.

We gained more than 200 new customers for our LANLink International and LANLink
National Ethernet services in the first year from their launch in 2003. COLT
LANLink offers a high performance connection for geographically distributed
local area networks, or LANs. Driven by this success and an identified demand
for leading high-speed disaster recovery services, in May 2004, we expanded
these two services to a 1Gbps capacity. Many companies use the simplicity of
Ethernet as a stage to migrating towards IP VPN solutions. Others use high
bandwidth Ethernet to provide secure and fast connections as part of a business
continuity and disaster recovery solution. Analysts have identified the business
continuity and disaster recovery market as a growth area. The market is expected
to be fuelled in particular by the financial sector, a traditional area of
strength for us, which is obliged to store its data securely under the new Basel
II Accord to minimize operational risk.

In June 2004, we launched COLT High Speed Service, or HSS, in the UK, Germany,
France, the Netherlands and Belgium. COLT HSS is a metropolitan optical service
that enables customers to combine many different protocols and applications on a
single, secure, cost-effective platform. It supports all types of IT
architecture consolidation projects including disaster recovery, business
continuity and server consolidation and clustering.

In support of an initiative to re-establish ourselves as a driving force for
innovation, we launched COLT SecureIT for small and medium sized organizations,
or SMEs, the first of a portfolio of services to extend our IP management
services to the LAN and desktop environment. With COLT SecureIT, SMEs benefit
from having their IP infrastructure and devices managed for them and access to
the latest functionality and security, charged


                                     - 15 -
<PAGE>


for on a fixed price per user monthly fee. For the first time, customers will
have access to a service desk providing a single point of contact for all
services offered, regardless of user location. Features include messaging,
managed security with the latest virus and anti-spam software, automated daily
back-up, mobility services and proactive monitoring around the clock.

Initially available in the UK, COLT SecureIT will form one of the components of
the new bundled communications and IP management service for SMEs, scheduled for
launch in all European markets in early 2005. The service offers a menu of
voice, data, security and desktop services as required by the customer, based on
a fixed monthly price to help the customer manage their costs more predictably.

In November 2004, we developed Ethernet networking with the launch of three new
services that support LAN to LAN connectivity across Europe more simply and cost
effectively than previously possible. In doing so, we became the first network
in Europe to offer a meshed Ethernet VPN; an ultra-high speed, feature rich IP
over-Ethernet service that extends across cities and countries.

While it has been possible to extend the speed and simplicity of Ethernet
technology into the wide area network on a point-to-point basis, we are making
Ethernet technology available in a virtual network topology, modified quickly
and easily to accommodate the addition of new operations, applications and
related sites such as data centers.

It is also our objective to provide integrated high speed Ethernet and data
centre solutions for the corporate market place across Europe. Our Data Centre
Solutions portfolio will focus on providing customers with managed hosting,
messaging, security, storage and disaster recovery services.

In April 2005, we launched COLT IP Voice, Europe's first fully managed "business
class" voice over internet protocol, or VoIP, service, priced on a fixed per
user, per month basis. COLT IP Voice combines the power and breadth of our
pan-European fiber network with the sophisticated features users would expect of
the PABX systems embedded in the network itself, using Siemens' IP technology.
The service responds to the pressures on business to drive down their
communication costs while delivering greater productivity and supporting
changing employment trends, particularly around remote working.

Sales and Marketing
Our principal method of selling services to directly connected customers is
through our internal sales force. Our directly connected customers consist of
end users and carriers. End users are businesses, government organisations, ISPs
and institutions who have high-volume telecommunications requirements. Carriers
are both national and international telecommunications service providers. In
general, we enter into non-exclusive contracts with our end user customers that
typically last from a few months to one year for switched services and one to
three years for non-switched services. Interconnection agreements with our
carrier customers typically either provide for an initial term of one year,
terminable on three months notice after the expiry of the initial period, or are
ongoing, terminable on three months notice by either party.

Many of our directly connected end user customers are among the largest
financial, media, corporate and government consumers of telecommunications
services. Many have multiple sites and space in multi-tenant buildings. These
customers generally require dedicated sales and customer service representatives
who understand their demanding requirements. We market our services to these
customers on the basis of price, quality, reliability, product diversity and
service. We typically offer our services to end users at prices below those
offered by the dominant PTOs. In addition, our networks provide reliability
which we believe is generally superior to the reliability provided by the
dominant PTOs.

In addition to end users, we also target national and international carriers.
Since carriers have unique needs and buying patterns, marketing to carriers is
conducted by account representatives from our internal sales force. We focus on
serving carriers in our markets with a view to establishing a European preferred
vendor relationship. We believe that we can effectively compete to provide
products and services to carriers in the markets in which we operate on the
basis of price, quality, reliability, state-of-the-art-technology, route
diversity, ease of ordering and customer service. We offer carrier to carrier
and carrier to end user non-switched access services and switched access
termination and origination services at prices typically below those of the
dominant PTOs. We believe that as dominant PTOs expand into other markets,
carriers in those markets who


                                     - 16 -
<PAGE>


provide service in the dominant PTOs' home markets are likely to prefer to use
competitive telecommunications providers such as us for local access.

To complement our direct sales force, we use non-exclusive sales agents and
dealers to market our switched services, especially COLT Connect. These sales
agents and dealers primarily target small and medium sized businesses outside
each network's core infrastructure.

Standards
In February 2004, we achieved the internationally recognized BS7799 (ISO17799)
standard for Information Security Management and received accreditation from the
British Standards Institute, or BSI, for our Powergate and Prince Court Data
Solution Centers, or DSCs, based in the UK. In August 2004, that accreditation
was extended to include all of our DSCs across Europe and our Network
Management, Administration and Support. This demonstrates that the information
management system relating to end to end services is of a recognized and
measurable standard. We achieved this accreditation with zero non-compliance to
the standard. By achieving these standards, we became the first
telecommunications company to achieve across Europe the internationally
recognized BS7799 (ISO17799) and ISO9001:2000 standards for managing information
security and service assistance.

Our billing and metering system has also received the British Standards
Institute recommended approval under the Total Metering and Billing systems, or
TMBS, initiative.

Customers
We are a customer-centric organization serving over 50,000 customers. In the
course of 2004 we continued to gain new customers while winning renewal business
from existing customers.

Our success is geared towards meeting the requirements of our current and future
customers and whether that is providing simple connectivity or complex data
solutions. By listening to the market and understanding our customers, we
provide services they value.

We have built a strong customer base over the years. Notable new wins and
significant extensions to existing contracts during 2004 include such well known
names as Rentokil Initial, Deutsche bank, BNP Paribas, Dell Computer
Corporation, SONY, ACL Europe, lastminute.com, Genesys, LIFFE and Commerzbank.

We have a strong wholesale customer base serving other telecoms operators and
service providers across Europe. In 2004, the number of wholesale customers grew
by more than 20 percent from just under 1,000 to 1,200 by the end of 2004.

Shared Services
Early in 2004, we stated that we would set up an operation in India to help
increase profitable revenue growth as well as control operating costs and
capital expenditure. That operation was officially opened in September 2004 in
Gurgaon, outside New Delhi, and by the end of 2004 had 201 employees. COLT India
is a key part of our strategy aimed at reducing costs and providing new services
that would be uneconomic to provide from Europe.

A broad range of work will be done in India across many different business areas
and functions, including, a unit to handle fault calls related to our internal
desktop and system problems, a Security Operations Centre which monitors
customer networks for intrusion violations and takes remedial action to protect
network boundaries, a Data Cleansing unit that is cleaning our systems of
redundant or duplicated information and correcting inaccurate records, some
billing operations, processing invoices for payment in the country of origin,
design and updates to our websites, some network management tasks such as
monitoring utilization of the network and recommending upgrades or optimization
projects to ensure optimum use of assets, and designing bespoke network
configurations in support of Sales and Change Management - coordinating and
scheduling changes within the network.

Through 2005, the aim is to expand operations in India to support the business
in Europe.


                                     - 17 -
<PAGE>


Breakdown of Revenues by Segment
We operate in a single business segment, telecommunications, and in geographical
areas as shown below.

Country activities and local businesses are managed by local management teams.
In 2004, these local management teams were coordinated across the Group through
a regional and functional organizational structure. During 2004, we considered
our reportable segments to be North, Central and South, defined as follows:

Region               Countries comprising the region
North Region         Belgium, Denmark, Ireland, The Netherlands, Sweden and the
                     United Kingdom
Central Region       Austria, Germany and Switzerland
South Region         France, Italy, Portugal and Spain

These reported segments are expected to change during 2005, as a result of the
reorganization which was announced in late 2004.

Turnover from the single business segment is attributed within geographical
areas and is classified as switched, Non-switched and Other. Turnover by
destination is not materially different from turnover by origin. Switched
turnover comprises services including the transmission of voice, data or video
through a switching centre. Non-switched turnover includes managed and
non-managed network and bandwidth services.

Turnover has also been classified by customer type with wholesale turnover
comprising services to other telecommunication carriers, resellers and internet
service providers, or ISPs. Corporate turnover comprises services to
corporations and governments.

Year ended 31 December 2004

<TABLE>
<CAPTION>
                                   North        Central          South     Corporate and                 Total
                                  Region         Region         Region      eliminations
Turnover                           L'000          L'000          L'000             L'000          L'000             $'000
                                   -----          -----          -----             -----          -----             -----
<S>                              <C>            <C>            <C>              <C>           <C>               <C>
Carrier                          102,677        179,242         67,307          (85,135)        264,091           505,998
Non-carrier                      134,377        244,040        104,595                 -        483,012           925,451
                               -------------------------------------------------------------------------------------------
Total switched                   237,054        423,282        171,902          (85,135)        747,103         1,431,449
Non-switched                     181,177        184,116        142,547          (43,999)        463,841           888,719
Other                                457          1,647            972                 -          3,076             5,894
Inter region turnover           (45,250)       (54,868)       (29,016)           129,134              -                 -
                               -------------------------------------------------------------------------------------------
Total                            373,438        554,177        286,405                 -      1,214,020         2,326,062
                               -------------------------------------------------------------------------------------------
</TABLE>

Year ended 31 December 2003

<TABLE>
<CAPTION>
                                   North        Central          South     Corporate and                 Total
                                  Region         Region         Region      eliminations
Turnover                           L'000          L'000          L'000             L'000          L'000             $'000
                                   -----          -----          -----             -----          -----             -----
<S>                              <C>            <C>            <C>              <C>           <C>               <C>
Carrier                           96,473        146,500         69,134          (73,194)        238,913          457,757
Non-carrier                      138,431        214,092        111,202                 -        463,725          888,497
                               ------------------------------------------------------------------------------------------
Total switched                   234,904        360,592        180,336          (73,194)        702,638        1,346,254
Non-switched                     182,526        173,935        144,978          (39,035)        462,404          885,966
Other                                 82            742            584             (132)          1,276            2,445
Inter region turnover           (44,910)       (40,866)       (26,585)           112,361              -                -
                               ------------------------------------------------------------------------------------------
Total                            372,602        494,403        299,313                 -      1,166,318        2,234,665
                               ------------------------------------------------------------------------------------------
</TABLE>


                                     - 18 -
<PAGE>


Year ended 31 December 2002

<TABLE>
<CAPTION>
                                   North        Central          South     Corporate and                 Total
                                  Region         Region         Region      eliminations
Turnover                           L'000          L'000          L'000             L'000          L'000             $'000
                                   -----          -----          -----             -----          -----             -----
<S>                              <C>            <C>            <C>              <C>           <C>               <C>
Carrier                           86,198        127,761          60,567         (63,971)        210,555           403,423
Non-carrier                      126,827        181,697         104,304                -        412,828           790,978
                               -------------------------------------------------------------------------------------------
Total switched                   213,025        309,458         164,871         (63,971)        623,383         1,194,401
Non-switched                     155,963        151,317         123,427         (28,654)        402,053           770,334
Other                                 65          1,330             485             (58)          1,822             3,490
Inter region turnover           (37,543)       (32,300)        (22,840)           92,683              -                 -
                               -------------------------------------------------------------------------------------------
Total                            331,510        429,805         265,943                -      1,027,258         1,968,225
                               -------------------------------------------------------------------------------------------
</TABLE>

Segmental analysis by customer type
Year ended 31 December 2004
<TABLE>
<CAPTION>
                                            Corporate                Wholesale                          Total
                                                L'000                    L'000                 L'000                  $'000
                                                -----                    -----                 -----                  -----
<S>                                           <C>                      <C>                 <C>                    <C>
Carrier                                             -                  264,091               264,091                505,998
Non-carrier                                   336,064                  146,948               483,012                925,451
                                ---------------------- ------------------------ --------------------- ----------------------
Total switched                                336,064                  411,039               747,103              1,431,449
Non-switched                                  359,314                  104,527               463,841                888,719
Other                                           2,963                      113                 3,076                  5,894
                                ---------------------- ------------------------ --------------------- ----------------------
Total                                         698,341                  515,679             1,214,020              2,326,062
                                ---------------------- ------------------------ --------------------- ----------------------
</TABLE>

Year ended 31 December 2003
<TABLE>
<CAPTION>
                                            Corporate                Wholesale                          Total
                                                L'000                    L'000                 L'000                  $'000
                                                -----                    -----                 -----                  -----
<S>                                           <C>                      <C>                 <C>                    <C>
Carrier                                             -                  238,913               238,913                457,757
Non-carrier                                   336,980                  126,745               463,725                888,497
                                ---------------------- ------------------------ --------------------- ----------------------
Total switched                                336,980                  365,658               702,638              1,346,254
Non-switched                                  354,794                  107,610               462,404                885,966
Other                                             909                      367                 1,276                  2,445
                                ---------------------- ------------------------ --------------------- ----------------------
Total                                         692,683                  473,635             1,166,318              2,234,665
                                ---------------------- ------------------------ --------------------- ----------------------
</TABLE>

Year ended 31 December 2002
<TABLE>
<CAPTION>
                                            Corporate                Wholesale                          Total
                                                L'000                    L'000                 L'000                  $'000
                                                -----                    -----                 -----                  -----
<S>                                           <C>                      <C>                 <C>                    <C>
Carrier                                             -                  210,555               210,555                403,423
Non-carrier                                   294,757                  118,071               412,828                790,978
                                ---------------------- ------------------------ --------------------- ----------------------
Total switched                                294,757                  328,626               623,383              1,194,401
Non-switched                                  288,962                  113,091               402,053                770,334
Other                                           1,040                      782                 1,822                  3,490
                                ---------------------- ------------------------ --------------------- ----------------------
Total                                         584,759                  442,499             1,027,258              1,968,225
                                ---------------------- ------------------------ --------------------- ----------------------
</TABLE>

Competition
In every country, we compete primarily with the dominant Public
Telecommunications Operators, or PTOs. We also face competition from a number of
pan-European operators, including MCI, Cable & Wireless, BT, Level 3


                                     - 19 -
<PAGE>


and others and face competition for customers' switched traffic from a number of
smaller service providers. We also compete with the mobile operators for our
voice traffic throughout Europe, such competitors include Vodaphone, Orange,
T-mobile and O2. Competition in addition to the pan-European operators in each
of the countries we operate is as follows.

France - France Telecom (PTO), Cegetel, LDCom/Neuf Telecom and Completel.

Germany - Deutsche Telekom (PTO), Arcor, BT, MCI and Level 3 who have built-out
nation-wide backbone networks, and MCI, along with some city carriers (which are
often owned or supported by local governments), who have built local
infrastructure in selected locations.

The United Kingdom - BT (PTO), Cable & Wireless and Energis.

Austria - Telekom Austria (PTO), Priority Telecom, a local infrastructure
competitor, and various subsidiaries of international telecom operators like
MCI, Tele2, eTel and UTA, an Austrian telecom company that merged with the local
Tele2 subsidiary in Q4 2004.

Belgium - Belgacom (PTO) and local infrastructure competitors Versatel and
Telenet.

Denmark - TDC (PTO) and Tele2.

Ireland - Eircom (PTO).

Italy - Telecom Italia (PTO) and major national new entrants such as Wind,
Tiscali, Eutelia, Fastweb and Albacom.

The Netherlands - KPN (PTO) and some local infrastructure competitors such as
Versatel and Priority Telecom. Portugal - PT (PTO), other competition is
relatively limited but do face competition from entrants, mainly from ONI.

Spain - Telefonica (PTO) and with major national players such as Auna, JazzTel
and Uni2.

Sweden - Telia (PTO) and Tele2.

Switzerland - Swisscom (PTO), TDC-Sunrise, MCI WorldCom and SOLPA each of which
has a strong domestic market position.

Regulatory Environment

Impact of Regulatory Developments
The telecommunications sector is a market characterized by the presence of
various types of regulation. Regulatory developments in any country can
therefore impact costs for the Company, revenues, margins, the viability of the
Company's products, and the competitive marketplace in any country, which in
turn could materially affect the Company's business in an adverse manner.

Licenses and Permissions
We believe we have obtained all national and local government authorities,
permits or licences or comply with all conditions as are required in order to be
able to conduct our business as currently contemplated, in each of the
jurisdictions in which we operate.

European Union Regulatory Framework
Framework Currently in Place
On 25 July 2003, the European Union or E.U. regulatory framework for electronic
communications (a concept encompassing telecommunications, cable TV and
broadcast transmission services) came into force. This new framework represents
a complete overhaul of the previous regulatory regime and reduces the previous
legal measures and directives from 28 to 8. It aims to create a regime to
reflect the current state of competition and


                                     - 20 -
<PAGE>


take into account developing markets and technological change. A key feature of
the new regulatory framework package is that it contains a drive towards common
market definitions and common regulatory instruments to assess and address the
issue of the dominance of certain operators on communications markets within the
E.U., and is based on concepts that are identical to those employed in general
competition law. The main measures include the Authorisation Directive; the
Access and Interconnection Directive; the Universal Service Directive; and an
over-arching Framework Directive. The Framework Directive identifies the
"candidate" markets that the European Commission believes may require specific
regulatory attention and introduces the concept of "Significant Market Power",
or SMP. It is complemented by a separate Recommendation listing the markets that
are considered "relevant", i.e. which the European Commission considers to be
candidates for ex-ante sector-specific regulation, on the grounds that there may
be structural competition problems ("Recommendation on Relevant Product and
Service Markets within the electronic communications sector susceptible to ex
ante regulation in accordance with the Framework Directive" ("Recommendation"))
and by Guidelines aimed at assisting National Regulatory Authorities, or NRAs,
in the Member States in designating SMP operators ("Guidelines on market
analysis and the assessment of significant market power under the Community
regulatory framework for electronic communications networks and services"
(Guidelines")). Both instruments are soft law instruments that are not legally
binding. In the future, this package will be supplemented by non-binding
guidance (soft law) to NRAs on the remedies to impose on SMP operators.

Under the new regulatory framework, NRAs no longer grant individual licences.
Instead, general authorisations allow any organisation to build networks and
offer services, subject only to general conditions that are applicable to all
operators.

Moreover, NRAs in each Member State are responsible for reviewing the
competitiveness of the markets identified by the Commission, taking account of
the Guidelines and the Recommendation. If they find that there is a SMP operator
in a market and that competition law is not likely to be sufficient to address
any problems that result from that SMP, they will be required to impose
appropriate and proportionate obligations on the entities identified as having
SMP.

In line with the principle of subsidiarity, the implementation of E.U.
directives and policy remains different in every E.U. Member State, but the
intent and spirit of liberalisation has now been broadly adopted and the new
framework has introduced additional features aimed at enhancing harmonisation.
These elements are on the one hand the setting up of the European Regulators
Group (ERG) which is an advisory body bringing together all the NRAs and aiming
to consult with the Commission on best practices in implementing the new
regulatory framework; and on the other hand the so-called Article 7 Consultation
and Transparency mechanism (referring to the procedure set in place by Art. 7 of
the Framework Directive) whereby NRAs are required to notify NRAs in other
Member States and the European Commission of draft measures relating to market
definition, SMP designation and remedies if such draft measures would affect
trade between Member States. NRAs and the Commission have the opportunity to
comment within one month. The Commission has the power to issue a veto where
such measures seek to define markets other than those defined in the
Recommendation, or in relation the designation of operators with SMP, where and
when the Commission considers that the measures would affect trade between
Member States or if the Commission has serious doubts as to its compatibility
with Community law and in particular the policy objectives listed in Article 8
of the Framework Directive.

The telecommunications regulatory regimes in each of the countries in which we
are currently operating therefore have increasingly common features. However,
although E.U. Member States were given until 25 July 2003 to implement the new
framework directives into their national law and to regulate the
telecommunications sector in their countries accordingly, many Member States did
not meet this deadline. Details of the progress towards implementation in the
major countries in which we carry on business are given below.

Iceland, Liechtenstein and Norway are bound by the E.U. directives as a
consequence of their membership of the European Economic Area. Switzerland is
not required to follow the E.U. directives but has implemented a broadly similar
national legal and regulatory framework for telecommunications.

We are currently not subject to regulatory constraints on the retail prices we
charge to our end-user customers, although the dominant PTO may be subject to
retail price controls under each national regulatory regime, which results in a
price ceiling on the market. As regards the wholesale prices we charge to other
operators, we are subject in some countries to a system of delayed reciprocity
as regards calls terminated on our network,


                                     - 21 -
<PAGE>


whereby the regulators have recognized that our cost-base is not the same as
that of the dominant PTO which benefits from economies of scope and scale, but
has requested that the alternative operators that do not charge reciprocal
termination fees to the fees charged by the PTO adopt a gliding path leading
over in general three to five years to such reciprocity. This should not
considerably affect us as we have adopted a reciprocal charge system in all COLT
countries to date. We are at present not subject to regulatory constraints on
the other wholesale prices we charge to other operators, but this may be subject
to change, in particular as regards incoming calls on our network and leased
line terminating segments (potentially including Ethernet and other non-switched
data services). For these activities, we might in the future become subject to
regulation which could require obligations to publish terms and conditions, and
requirements of non-discrimination and cost-based pricing. It is however
difficult to anticipate if this could result in any material adverse change to
our revenues or margins, as the implementation process is not finalised in most
Member States but it could do so.

Major Developments
The EU legislative process is shared between three institutions, namely the
Council, the European Parliament and the European Commission. In November 2004,
a new set of Commissioners was appointed (due to the end of the five-year term
held by their predecessors) and Mrs Viviane Reding received the Information
Society portfolio, which encompasses telecommunications regulation.

From a regulatory perspective, the European Regulators Group (ERG) (which
comprises the national regulatory authorities (NRA's) of all the member states)
have issued a common statement on VoIP which states that a "one-size-fits-all"
approach is not suitable at the present time for VoIP but proposes principles
for national regulators to apply when regulating VoIP services and two specific
statements to clarify the Group's position on numbering and access to emergency
services. Although these statements propose a pragmatic and encouraging approach
as regards the regulatory treatment of these services, it is non binding upon
national regulators, leaving them the possibility to adopt other measures at a
national level.


It must be noted that the regulatory framework adopted in 2003 is up for review
in 2006, and that the specific issue of the scope of the Universal Service
Directive is already scheduled for review in 2005. It is not expected that the
latter will induce substantial changes to the existing framework.


COLT Countries

On the section "Key Regulatory Issues" for each country, note this sets out only
the key regulatory issues in each country which could materially impact on
business in these countries as best as can be determined at the date hereof. It
is not an exhaustive list of all regulatory matters in that country.

Austria
National Regulatory Authority
The Telecommunications Act of 2003 and the Communications Authority Act
establish the legal basis for the existing regulatory bodies in the
telecommunications (Telekom-Control-Kommission) and the broadcasting media
sector (Communications Authority). The Rundfunk und Telekom Regulierungs-GmbH
("RTR") acts as administrative office for these authorities. The
"Telekom-Control-Kommission" and "Rundfunk und Telekom Regulierungs-GmbH" are
together the "national regulatory authority", the differences are based on their
competencies.

In addition, the Ministry of Traffic, Innovation and Technology (which includes
also the Telecommunications Offices and the Office for Radio Installations and
Telecommunications Facilities) is an authority that is empowered to take all
measures requiring the exercise of administrative power in the area of
telecommunications with regard to Austrian telecommunications law.

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
In Austria, a new Telecommunications Act 2003, or TKG 2003, came into force on
20 August 2003 and transposes the new regulatory framework into national law.

One of the first and most important steps towards the implementation of the new
regulatory framework was the implementation of the "market delineation
ordinance" by the Rundfunk und Telekom Regulierungs-GmbH


                                     - 22 -
<PAGE>


issued on October 17, 2003: under the 2002 EU Directives, the former
sector-specific concept of market dominance, now called "significant market
power" has been aligned with the concept of market dominance as used in European
Union and Austrian competition law. At present, the Austrian regulator has
completed the market analyses of all eighteen markets identified in the EU
Recommendation on Relevant Markets, except for the market on wholesale bitstream
access, for which the regulator still needs to assess the geographical
dimension. The outcome of this discussion could have an impact on our business.
So far, the European Commission has only issued a veto regarding the regulator's
assessment of the market for transit services in the fixed public telephone
network.

The Austrian incumbent has been designated as having SMP in all markets except
the market for wholesale trunk segments of leased lines and the market for
publicly available international telephone services provided at a fixed location
for residential customers.

(ii) Other Relevant Regulations in Force:
Due to the increase of consumer complaints against value added service numbers
the national regulator has issued an ordinance to create the framework for
offering value added services under special consideration of consumer protection
aspects called the "Communications parameters, prices and value added services
ordinance" (12 May 2004). This ordinance covers all aspects of numbering and
advertising and offering of value added services.

The other legislative measures in place in Austria that are relevant to
electronic communications providers include: the Mobile Number Portability
Ordinance, the Ordinance on Itemized Billing, and the Ordinance on Lawful
interception: this ordinance was issued on the 1st of December 2001 and details
the (technical) circumstances for legal interception.

Key Regulatory Issues
The Austrian regulator has designated COLT as having SMP in market 9, i.e. call
termination on individual public telephone networks provided at a fixed
location, but with lighter obligations than those imposed on the incumbent
operator. This designation derives from the very narrow definition of that
market, which implies that every fixed operator has a 100% market share on its
own termination, and that all the fixed operators are therefore designated as
having SMP. The imposed remedy is to offer termination rates in line with
benchmark prices according to the regional termination charges offered by the
incumbent. Differing charges are possible if we deliver evidence for other costs
than the benchmark. In practice at present this means de facto no change for the
current market situation.

Licences/Permissions
The former licence regime has been replaced by a system of authorisations for
providing telecommunications services requiring notification of the NRA.
Licences and notifications of services under the former regulatory framework
remain in force, so that COLT Telecom Austria GmbH is entitled to operate a
public fixed telecommunications network, to offer leased lines and to provide
internet and data services.

Other Major Regulatory Developments
Aside from the current finalisation of the market analyses procedure, no major
developments are foreseen at the moment.

Belgium
National Regulatory Authority
The Belgian National Regulatory Authority for telecommunications is the Belgisch
Instituut voor postdiensten en telecommunicatie / Institut Belge des services
postaux et des telecommunications (Belgian Institute for Postal services and
Telecommunications ("BIPT/IBPT")). The Institute has a general advisory
competence with respect to the policy that the federal government wishes to
pursue in the postal and telecommunications sectors. The Institute has general
regulatory and monitoring tasks on those markets and is responsible for the
preparation of Belgian legislation regarding the two sectors that fall within
its competence.


                                     - 23 -
<PAGE>


Applicable Regulations
(i) Status of the Implementation of the EU Framework:
Belgium has not yet transposed the EU directives. At this stage, the proposal
for the new telecommunications law was approved by the government in July 2004.
The Council of State has provided comments and the adapted text has been
presented to the federal Parliament for discussion. Approval of the new law is
expected by July 2005.

In the meantime, data collection for the analyses of the relevant markets has
already commenced.

(ii) Other Relevant Regulations in Force:
The other legislative measures in place in Belgium that are relevant to
electronic communications providers include a Royal Decree on lawful
interception.

Key Regulatory Issues
The Belgian incumbent, Belgacom, has asked the activation of the Universal
Service Fund in 2002. This request entails that all telecommunications operators
active on the Belgian market contribute to this fund, a contribution which for
COLT could amount to (euro) 400,000 per year. The decision has been delayed and
the activation will be carried out under the new telecommunications law.

Licences/Permissions
COLT Telecom NV/SA has been granted a public telecommunications network licence
in Belgium covering the main areas of economic importance and a nationwide voice
telephony licence. Once the transposition of the EU regulatory framework is
completed, a regime by simple notification will enter into force, in line with
the general authorisation system put in place by EU legislation. In the
meantime, COLT Telecom NV/SA's infrastructure and voice telephony licences
remain valid.

Denmark
National Regulatory Authority
The National IT and Telecom Agency (NITA - IT og Telestyrelsen) is the
independent agency responsible for information technology and electronic
communications regulation and administration of the relevant legislation.

The National Regulatory Authority for telecommunications in Denmark was first
established in 1991 under the name of National Telecom Agency in response to the
liberalization process and the creation of Tele Danmark (TDC). On April 1, 2002
NITA in its present form was created by joining the National Telecom Agency
together with the Central Information Bureau of the public administration
(Statens Information) and extending the scope of its activities to cover
electronic communications and information technology.

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
The European telecommunications regulatory package was implemented by Act No 450
on 10 June 2003 which came into force on 25 July 2003. The national consultation
on market analysis findings has been completed for most of the eighteen relevant
markets designated by the EU Recommendation on Relevant Markets. However, the
outcome of these consultations has not yet been notified to the European
Commission at this stage.

 (ii) Other Relevant Regulations in Force:
The other legislative measures in place in Denmark that are relevant to
electronic communications providers include the Act on Competitive Conditions
and Consumer Interests in the Electronic Communications Market, which provides
for consumer protection measures, the Act on Radio Frequencies and the
Competition Act.

Key Regulatory Issues
The Danish regulator has proposed to designate COLT as having SMP in market 9,
i.e. call termination on individual public telephone networks provided at a
fixed location, but expected to be with lighter obligations than those imposed
on the incumbent operator. This designation derives from the very narrow
definition of that market, which implies that every fixed operator has a 100%
market share on its own termination, and that all the fixed operators are
therefore designated as having SMP. Remedies are not covered in the current
consultation on remedies to date. The effects of the usually applied remedy -
the charging of `fair and reasonable'


                                     - 24 -
<PAGE>


termination charges - is expected to be limited for COLT Denmark as termination
charge reciprocity is practiced in Denmark.

Licences/Permissions
In Denmark, COLT Telecom A/S is authorised to run its network and provide
services under the general authorisations' regime put in place by Act No 450 of
10 June 2003, in line with the general authorisation system put in place by EU
legislation.

Finland
National Regulatory Authority
The Finnish Communications Regulatory Authority (FICORA) is the general
administrative authority for electronic communications and information society
services. Its mission is to promote development of the information society in
Finland. It is administered by the Ministry of Transport and Communications.

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
The European telecommunications regulatory package was implemented by
Communications Market Act 393/2003 of May 23, 2003 and came into force on 25
July 2003. The market analysis has been completed for most of the eighteen
relevant markets designated by the EU Recommendation on Relevant Markets.
However, in the process of notification of these markets to the European
Commission, the European commission has vetoed the analysis of markets 4 and 6
and new analyses by FICORA are pending.

(ii) Other Relevant Regulations in Force:
     o    Communications Market Act 393/2003 of May 23, 2003
     o    Act 516/2004 of June 16, 2004 on Data Protection in Electronic
          Communications
     o    Act 625/2001 of June 29, 2001 on Communications Administration
     o    Act 480/1992 of May 27, 1992 on Competition Restrictions
     o    Act 711/1988 of July 29, 1988 on the Finnish Competition Authority
     o    The Market Court Act 1527/2001 of December 28, 2001
     o    Administrative Judicial Procedure Act (586/1996)

Licences/Permissions
COLT Telecom Finland Oy provides telecommunications services to local
organisations but is managed by our Swedish business unit COLT Telecom AB.
Accountable revenues for Finland are below the reporting threshold and therefore
COLT Finland Oy is neither authorised as telecommunications network or service
provider.

France
National Regulatory Authority
The French National Regulatory Authority, Autorite de Reglementation des
Telecommunications (or ART) was created by the Telecom Act of July 1996. ART's
decision making body is the 5 member college, irrevocably designated by the
President of the Republic and the Prime Minister (3 members) and by the
President of the two Chambers of the Parliament (1 member each).

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
France has implemented the new E.U. Directives. Legislation was adopted in
December 2003 and in January 2004 relating to universal service, retail tariff
controls and the status of France Telecom, and in June 2004, regarding the right
for public entities (municipalities, regional authorities, etc.) to become
full-service telecommunications operators. On 9 July 2004, the act transposing
the core of the new EU level regulatory framework was published.

The new legislation does institute a market definition, market analysis and SMP
designation system, which will result in the imposition of regulatory
obligations on operators found to have SMP, and in the withdrawal of regulatory
obligations where no SMP is found. ART has initiated the public consultation
exercise which is necessary to conduct these analyses. The new regime will
result, as of 2005, in a tightening of certain interconnection and wholesale
broadband access obligations, especially on the incumbent France Telecom and


                                     - 25 -
<PAGE>


on mobile operators (who are major suppliers to us), and in a weakening of
retail price control on France Telecom. Direct regulation of COLT is a
possibility under the new regime, but this is not expected to result in major
changes compared to the existing situation.

(ii) Other Relevant Regulations in Force:
The other legislative measures in place in France that are relevant to
electronic communications providers include the Law on Confidence in Digital
Economy 2004; the Law on Electronic Communications and on Broadcast Services
2004; the Law on the Liberty of Communication (Consolidated) "Leotard Law" 1986;
and the Law on the Protection of Individuals from Data Processing of Personal
Data 2004.

Key Regulatory Issues
Wholesale broadband access services by France Telecom are cost-oriented for
providing residential broadband services, but commercially priced for providing
business broadband services. This is detrimental to us and we are lobbying for
cost-orientation of such services during the market analysis process. A positive
decision on such a principle is expected from ART in 2005. Its effective
implementation by France Telecom could however take a significant time.

Unlike most European cities, Paris has had its fibre telecom networks built in
the city's sewers. However the price for such right of way is extremely high,
which is detrimental to the profitability of alternative networks, including us.
The Telecom Act of 2004 has introduced the principle of a ceiling of the fees
for the right of way in the sewers. However the secondary legislation setting
this ceiling has not been passed yet.

Local authorities are now being authorised to invest in networks, which could
represent a threat to us if such networks were developed in areas where we have
developed a local loop fibre network. Presently this is the case in one
departement only, the Yvelines (the area around Versailles, 20 km west of
Paris). 40 km out of a total of 800 km of the fibre local loop network of COLT
in France are concerned.

Licences/Permissions
In accordance with the new EU directives, the new French legislation has
abolished individual licensing (a partial abolishment already occurred on 25
July 2003, by means of a joint letter of the Minister and the National
Regulatory Authority). Whilst awaiting the full transposition of the EU
Directives into French law, COLT Telecommunications France SAS remains entitled
to operate a public telecommunications network in all French regions of economic
importance and to provide voice telephony services on a nation-wide basis under
a combined L.33-1 (network operator) and L.34-1 (telephony service provider)
licenses. Upon the entry into force of the new regime, COLT Telecommunications
France SAS's license will be converted into one or several registrations with
the regulator.

Germany
National Regulatory Authority
The German National Regulatory Authority for telecommunications is the
Regulatory Authority for Telecommunications and Posts, or RegTP, which took up
its work on 1 January 1998, and is tasked with promoting the development of the
postal and telecommunications markets through liberalisation and deregulation.
RegTP has various powers under the new German Telecommunications Act, including
the authority to control network access and interconnection, and to approve or
review the tariffs and tariff-related general business terms and conditions of
providers with significant market power. It also has the authority to assign and
supervise frequencies and to impose universal service obligations. In the
future, RegTP will also be responsible for energy and gas regulation.

RegTP has started the market reviews to assess the markets recommended by the EU
Commission. It has to examine whether one or more undertakings must be
designated as operators with significant market power and if therefore
obligations have to be imposed, amended, maintained or withdrawn. Although
direct regulation of our business in Germany is possible under the new regime it
is not expected to result in major changes compared to the current situation.


                                     - 26 -
<PAGE>


Applicable Regulations
(i) Status of the Implementation of the EU Framework:
In 1998, the German telecommunications market was finally liberalised. On 26
June 2004, the new German Telecommunications Act ("TKG") came into force. The
main objectives of the TKG are to promote competition in the telecommunications
sector through regulatory measures, to guarantee appropriate and adequate
telecommunications services throughout Germany and to provide for the regulation
of frequencies. The TKG aims to achieve these objectives principally by
allocating frequencies, securing universal service and subjecting, in particular
telecommunications markets, providers with "significant market power" to a
special regulatory framework. There are several discrepancies between the new
German Telecoms Act TKG compared with the EU Directives, the consequences of
which on the German market will not be clear until regulations relating to the
new regulatory framework have been enacted and interpreted by RegTP and the
courts.

In February 2005, the German Government published the first secondary
legislation draft bill required to effectively implement the new TKG, covering
provisions on customer protection and numbering. Furthermore, based on the TKG,
the German Ministry of Economics and Labour published several draft ordinances
relating to numbering, interception and emergency calls. It is intended that
most of the draft bill and the ordinances will become effective in 2005.

(ii) Other Relevant Regulations in Force:
Section 43(a) and (b), section 96(1) para. 9 a) to 9 f) in conjunction with
subsection (2) sentence 1 and section 97(6) and (7) of the German
Telecommunications Act of 25 July 1996 remain applicable in the version valid
until the entry into force of the new TKG until such time as the ordinance
according to section 66(4) of this Act has been issued. These provision contain
regulations against the abuse of 0190-/0900 value added service numbers. The
Ordinance concerning the Technical and Organisational Implementation of Measures
for the Interception of Telecommunications 2002 is still valid until it will be
replaced by a new ordinance. On 8 July 2004 the new Act against Unfair Trade
came into force.

Key Regulatory Issues
As regards the interconnections charges (charges for the traffic between
telecommunications networks) these charges were previously billed on a
reciprocal basis, i.e., at the termination rate approved by the German
telecommunications regulator for Deutsche Telekom. On 12 November 2004, RegTP
stipulated a mark-up of EUR 0.0017/minute on termination charges that Deutsche
Telekom and other carriers have to pay for calls that terminate on our network.
This mark-up is applicable from 25 November 2004 to 31 May 2006.

Deutsche Telekom and the German mobile network operators have concluded
agreements on the reduction of national termination rates: as regards the
termination the the networks of T-Mobile and Vodafone from EUR 0.1432 to EUR
0.132 as of 15 December 2004, and a further reduction from EUR 0.132 to EUR 0.11
as of 15 December 2005. As regards O2 and E-Plus Deutsche Telekom agreed a
reduction from EUR 0.179 to EUR 0.149 cent as of 15 December 2004, and a further
reduction from EUR 0.149 to EUR 0.124 as of 15 December 2005. COLT Telecom GmbH
is re-negotiating its interconnection charges with all German mobile network
operators as well. However, the outcome of these negotiations cannot be
predicted.

As of 18 November 2004, Deutsche Telekom applied for new digital leased line
tariffs. With its decision of 27 January 2005, RegTP approved this applications
for new tariffs and also accepted a new pricing scheme for digital leased lines.
This approval is valid from 1 April 2005 to 1 November 2006. Deutsche Telekom
has taken legal actions against that RegTP decision (proceeding for injunctive
relief). Thus the precise effects of the new pricing scheme will not be clear
until the Administrative Court - Cologne has made a decision in this proceeding
for injunctive relief.

Licences/Permissions
COLT Telecom GmbH in Germany still holds licenses class 3 (operation of
transmission lines for telecommunications services for the public) and class 4
(voice telephony on the basis of self-operated telecommunications networks) that
were needed for its business under the regime of the old Telecommunication Act
TKG. Since 25 June 2003 the previous license requirement was replaced by a
notice requirement.


                                     - 27 -
<PAGE>


Ireland
National Regulatory Authority
The Irish National Regulatory Authority for telecommunications is the Commission
for Communications Regulation (ComReg), which was established by the
Communications Regulation Act 2002. It became operational on December 1, 2002
with the Communications Regulation Act 2002 (Establishment Day) Order 2002.

ComReg is the statutory body responsible for the regulation of electronic
communications (telecommunications, radio communications and broadcasting
transmission). In broadcasting, ComReg is the regulator for infrastructure
(including cable) but not for content.

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
Ireland has implemented the European telecommunications regulatory package
through the Communications Regulation Act 2002 and by various other secondary
instruments. The regulator is in the process of carrying out market reviews to
assess the scope of regulation required on players with significant market
power. Data Collection, national consultation and approval from the Commission
is completed for seventeen out of the eighteen markets designated in the EU
Recommendation on Relevant Markets.

(ii) Other Relevant Regulations in Force:
The other legislative measures in place in Ireland that are relevant to
electronic communications providers include the Wireless Telegraphy Act and the
Interception of Postal Packets and Telecommunications Messages (Regulation) Act.

Key Regulatory Issues
The Irish regulator has designated COLT as having SMP in market 9, i.e. call
termination on individual public telephone networks provided at a fixed
location, but with lighter obligations than those imposed on the incumbent
operator. This designation derives from the very narrow definition of that
market, which implies that every fixed operator has a 100% market share on its
own termination, and that all the fixed operators are therefore designated as
having SMP. As part of this ComReg requires COLT to make public, in detail the
termination rates applicable to all other operators in the Irish market.

Licences/Permissions
In Ireland, COLT Telecom Ireland Ltd is authorised to run its network and
provide services pursuant to general conditions of entitlement issued by the
Commission for Communications Regulation on 29 August 2003, in line with the
general authorisation system put in place by EU legislation.

Italy
National Regulatory Authority
The Italian National Regulatory Authority AGCOM was created by Law No. 249 of 31
July 1997 and is composed by nine members (appointed by the Italian Parliament)
including a Chairman (to be appointed upon the proposal of the Prime Minister in
consultation with the Minister of Communications). Legislative Decree No. 259 of
1 August 2003 (the so-called "Electronic Communications Code" which enacted the
new EU Telecoms Regulatory Framework in Italy, with the only exclusion of
Directive 2002/58/ECE on Privacy and Electronic Communications -"Code") provides
for an allocation of powers and competences between the Ministry of
Communications ("Ministry") and the NRA. The Ministry is mainly in charge of the
granting and administration of the general authorisations while the NRA is
mainly dedicated to the adoption of sector specific regulations.

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
Italy has implemented the new EU Directives through the adoption of the Code,
which came into force on 16 September 2003. The Code institutes a market
definition, market analysis and SMP designation system. Under such system, the
NRA is required to conduct a market analysis in accordance with the
Recommendation on relevant markets and Guidelines on market analysis issued by
the European Commission.

The NRA has initiated the public consultation exercise which is necessary to
conduct these analyses. The NRA should complete such procedure in 2005. The new
regime could result in a confirmation of interconnection and


                                     - 28 -
<PAGE>


wholesale broadband access obligations upon Telecom Italia S.p.A. ("TI") in the
fixed telephony markets and in the extension of regulatory obligations upon
mobile operators Wind Telecomunicazioni S.p.A. ("Wind") and H3G S.p.A. ("H3G").
Direct regulation for us is a possibility under the new regime, but this is not
expected to result in major changes compared to the existing situation.

NRA resolutions on access and interconnection obligations adopted under the
previous regulatory framework will be valid until completion of the above market
analysis procedure. Accordingly, all NRA resolutions containing obligations on
TI in relation, inter alia, to interconnection, local loop unbundling, carrier
preselction, and number portability are still in force. Such regulations are
relevant for us in so far as they result, inter alia, in non discrimination, and
cost orientation obligations which TI must comply with in the negotiation of
wholesale agreements with other electronic communications operators such as
COLT.

(ii) Other Relevant Regulations in Force:
The other legislative measures in place in Italy that are relevant to electronic
communications providers include the Legislative Decree No. 196 of 20 June 2003
instituting the "Code of Personal Data Protection", which entered into force on
1 January 2004 ("Privacy Act"). The Privacy Act contains, inter alia, provisions
on (i) traffic data retention and (ii) unsolicited communications.

Key Regulatory Issues
The NRA recently launched a market analysis on voice call termination on
individual mobile networks. Under such consultation, the NRA identified one
relevant market in relation to every mobile network covering calls originated
from both mobile and fixed networks and regardless of the technology used by the
mobile operator (whether GSM or UMTS). The NRA, therefore, identified Telecom
Italia Mobile ("TIM"), Vodafone Omnitel ("VO"), Wind and H3G as having dominant
position in the identified markets and proposed to impose upon such operators
non discrimination, transparency, and cost orientation obligations. The latter
is particularly important since it could result in a decrease of mobile
termination rates applied by Wind and H3G which are current free to set their
termination rates on a commercial basis.

In addition, the Italian Competition Authority recently started an investigation
against TIM, VO and Wind in relation to abuse of dominant position in the market
of access to mobile network infrastructures and termination on mobile networks.
The investigation also refers to the possible agreements restrictive of
competition into the above-mentioned access market as well as in the markets of
retail mobile communications services and commercial offer to business
customers.

Licences/Permissions
In Italy COLT Telecom SpA holds two individual licences respectively for (i) the
installation and provision of public telecommunications networks (Milan, Turin
and Rome) and (ii) the provision of voice telephony services (throughout the
Italian territory), both obtained in 1998. COLT Telecom SpA also holds a general
authorisation for the provision of internet and data transmission services
obtained in 2000. Such licences and authorisation, although granted under the
previous regulatory framework, will be valid until their natural expiration date
and subject to the provision contained in the Code. The latter abolished
individual licenses as the regulatory permits required under the previous
regulatory framework. It only requires a general authorisation for the provision
of all electronic communications services. Such authorisations are deemed as
granted by the Ministry immediately upon filing of the relevant applications.
This principle does not apply to frequencies and numbering resources which are
still subject to individual rights of use.

The Netherlands
National Regulatory Authority
The regulator OPTA ("De Onafhankelijke Post en Telecommunicatie Autoriteit" or
"Independent Post and Telecommunications Authority") was established on 1 August
1997. The tasks and responsibilities of OPTA are laid out in the so-called OPTA
wet ("OPTA law"). OPTA is a independent agency and as such operates at a
distance of the Ministry of Economic Affairs. DGTP ("The Directorate General
Telecommunications and Post") is politically responsible for a number of OPTA's
tasks but does not have direct authority over the decisions by the OPTA's
College (effectively the "Board"). The College consists of three independent
experts from varying fields of expertise who are appointed by the Crown on
recommendation by the Minister of Economic Affairs.


                                     - 29 -
<PAGE>


Applicable Regulations
(i) Status of the Implementation of the EU Framework:
Full telecommunications liberalisation was introduced in The Netherlands in
1997. The current Telecommunications Act, which implements the European
regulatory package, was introduced on 19 May 2004. The market analyses which
will be used by the Regulator to assess the scope of regulation required on
players with SMP are currently being carried out.

(ii) Other Relevant Regulations in Force:
The other legislative measures in place in the Netherlands that are relevant to
electronic communications providers include the Data protection Laws and general
Competition law.

Key Regulatory Issues
Although taxation of empty ducts is currently not included in the telecoms law,
it is debated to include a possibility to levy a tax on ducts that are not in
use. The current proposals for a revised chapter 5 of the Telecom Law, which
deals with Rights of Ways, do include this possibility albeit with a tax free
period of 4 years for new ducts and until 2018 for existing ducts.

Presently the regulator is performing the market analysis process, leading to
designations of operators benefiting from Significant Market Power, and
subsequential remedies. The final outcome of this will have an impact on the
regulatory environment in which we operate, but is difficult to predict at such
an early stage.

Licences/Permissions
In accordance with the new EU directives, the new Dutch legislation has
abolished registrations as a prerequisite to being allowed to offer
telecommunications services and building and operating a telecommunications
network. COLT Telecom B.V. has notified the regulator OPTA of its activities.
COLT Telecom B.V. is entitled to build and operate a fixed telecommunications
network and provide telecommunication services. Licenses for radio Spectra are
dealt with by the Agentschap Telecom. COLT Telecom B.V. has no licence to
provide wireless services.

Norway
National Regulatory Authority
The Norwegian telecommunications regulator is the NPT, an autonomous
administrative agency under the Ministry of Transport and Communications, with
monitoring and regulatory responsibilities for the telecommunications markets in
Norway

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
On 25 July 2003, the EU Framework was implemented through the Electronic
Communications Act No 83 (of July 4, 2003). Although the NPT has completed the
national market consultations (except for market 17) none of the market analysis
have been finalised yet.

(ii) Other Relevant Regulations in Force:
The other legislative measures in place in Norway that are relevant to
electronic communications providers include the Competition Act No 12 of March
5, 2004 and the Public Administration Act of February 10, 1967.

Licences/Permissions
In Norway COLT Telecom Norway A/S is registered as a provider of
telecommunications services.

Portugal
National Regulatory Authority
The Portuguese National Regulatory Authority is Communications Institute
(Instituto das Comunicacoes de Portugal - Autoridade Nacional de Comunicacoes
(ICP-ANACOM)). ICP-ANACOM was initially established in 1989. Its current status
(from January 6, 2002), as a public corporation with administrative and
financial autonomy and its own assets, was approved by Decree-Law no. 309/2001.
It is responsible for electronic communications, postal and broadcasting
regulation, but not the regulation of content. ICP-ANACOM is also the national
authority responsible for electronic commerce matters.


                                     - 30 -
<PAGE>


Applicable Regulations
(i) Status of the Implementation of the EU Framework:
The European telecommunications package has been implemented in Portugal by Law
no. 5/2004, of 10 February 2004 (Electronic Communications Law). Under this law,
the Portuguese telecoms regulator is required to carry out market reviews to
assess which are the relevant telecom markets and the players with significant
market power in such markets. In the meantime the market analyses for most of
the market identified in the EU Recommendation on Relevant Markets have been
completed.

(ii) Other Relevant Regulations in Force:
The other legislative measures in place in Portugal that are relevant to
electronic communications providers include Law 41/2004 of Aug. 18, 2004; Law
6/2003 of March 6, 2003 and Decree Law 31/2003 of Feb. 17, 2003.

Key Regulatory Issues
The Portuguese regulator has designated COLT as having SMP (Significant Market
Power) in market 9, i.e. call termination on individual public telephone
networks provided at a fixed location, but with lighter obligations then those
imposed on the incumbent operator. This designation derives from the very narrow
definition of that market, which implies that every fixed operator has a 100%
market share on its own termination, and that all the fixed operators are
therefore designated as having SMP. This designation entails that COLT must meet
all reasonable requests for access to, and use of, specific network elements and
associated facilities. Moreover, there is a measure of price control whereby a
maximum difference of 20% between the incumbent's and competitors' termination
prices is allowed.

Licences/Permissions
In Portugal, COLTEL Servicos de Telecomunicacoes, Unipessoal, LDA has obtained
two authorisations, one to provide a fixed telephone service and another to
establish and provide a public telecommunications network. COLTEL Servicos de
Telecomunicacoes, Unipessoal, LDA is also registered with Autoridade Nacional de
Comunicacoes, or ANACOM, to provide a wide number of telecommunications services
that do not require authorisation procedure (e.g., number translations, internet
access, international ATM).

Spain
National Regulatory Authority
The competences to regulate the telecoms sector in Spain are split between
various public bodies, namely:
(i) Telecommunications Market Commission (the "CMT"): is an independent Agency
and its competencies are (a) arbitrating conflicts between operators, (b) number
assignment for the provision of services, (c) safeguarding competition, avoiding
discrimination, and assigning numbers, (d) overseeing some aspects of the
universal service obligations, (e) resolving interconnection conflicts between
operators, (f) adopting all measures to promote competition, in particular
regarding network interconnection/access, price policy, and any issues involving
the restriction of competition, (g) controlling mergers, changes of control and
agreements between operators, (h) defining relevant markets for ex ante
regulation purpose (i) advising and informing the Government and the Minister of
Science and Technology on issues affecting the telecommunications market, (j)
requesting the intervention of the Minister of Science and Technology (Radio
communications State Agency) for inspection of telecommunications equipment in
order to grant compliance with radio-electric emission limits, (k) imposing
fines, (l) overseeing the register of operators, and (m) any other competence
granted by the Government or the Minister of Science and Technology.

The CMT's responsibilities are currently being discussed under a new Regulation
developing the new Telecom Act. A political decision forcing the
Telecommunications Market Commission to move from Madrid to Barcelona has caused
several strikes, has generated dissatisfaction in the staff and also could delay
the market analysis process.

(ii) The Ministry of Industry (MI): is charged with defining telecommunications
and "information society" policy, supervising technical specifications,
regulating on consumer protection matters (IN, notification of telephony,
contracts with consumers, consumer arbitration, etc). Investigation and Imposing
fines on infringements that are under its competencies.


                                     - 31 -
<PAGE>


(iii) Radio Spectrum Agency: is integrated in the above mentioned MI:
attribution of frequencies and management of radio spectrum. Investigation and
Imposing fines on infringements that are under its competencies.

(iv) The Ministry of Economy: is charged with settling SMP retail tariffs
(approves bonds, discounts and every special offer of the incumbent).

(v) The Government.

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
The European regulatory package was partially implemented by the new
Telecommunications Act 32/2003, (Ley General de Telecomunicaciones), published
on 3 November 2004 and came into force on 4 November 2004. Four regulations need
to be enacted for the full implementation of the 32/2003 Telecommunications Act,
and so far only Regulation 2296/2004 on market analysis and access, published in
the Official Gazette on 30 December 2004 has been adopted.

The regulator has not yet carried out any market reviews, aside from informal
pre-consultations.

(ii) Other Relevant Regulations in Force: Market analysis and access Regulation.

Key Regulatory Issues
Until full implementation and market analysis are completed, the "old"
regulatory framework is transitorily in force.

On November 2003, the NRA approved an important decrease of Telefonica's price
cap applied to retail voice telephony prices and fully liberalised retail ADSL
prices. It is even expected that the price caps applying to retail voice
telephony could be abrogated by the Ministry in the future, therefore allowing
the incumbent to sets its tariffs freely.

In Spain, fixed telecoms operators are very much concerned about the financial
burden that they must bear as a combination of a series of different central and
local taxes. Recently, this financial burden of the sector has significantly
increased by a new tax (rights of way) issued by the Minister of Infrastructures
(Roads DG). This tax is being challenged before the Courts and, if it is upheld,
will apply to us.

Licences/Permissions
The new Telecom Act 32/2003 implements the notification system stated by the
Authorisation Directive 2002/20/CE. There are only two types of authorisations:
authorisation to provide electronic communications networks and authorisation to
provide electronic communication services. The new regulation does not
distinguish between national and regional authorisations. COLT Telecom Espana SA
holds both kind of authorisations.

Sweden
National Regulatory Authority
Electronic communications policy is executed by the National Post and Telecom
Agency (Post och Telestyrelsen - PTS), which was established as a
telecommunications authority in 1992 with responsibility for postal services
added in 1994. Currently PTS is the main administrative body responsible for
regulation of the electronic communications sector (telecommunications, radio
and IT) and the postal sector.

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
On 5 June 2003 the new EU Framework was implemented through the Government Bill
for the transposition act (Electronic Communications Act (2003:389)), which came
into force on 25 July 2003. Data collection for the market analyses has been
completed for all markets. European Commission and other NRAs were notified


                                     - 32 -
<PAGE>


under Art 7 Framework Directive of PTS's market assessment for most of the
markets defined under the Recommendation on Relevant Markets. Commission
approval is still pending at this stage.

(ii) Other Relevant Regulations in Force:
The other legislative measures in place in Sweden that are relevant to
electronic communications providers include the Competition Act (1993:20) of
Jan. 14, 1993 (with amendments up to July 4, 2004), the Marketing Act (1995:450)
of Apr. 27, 1997 (with amendments up to April 1, 2004), the Personal Data Act
(1998:204) of Apr. 29, 1998 (with amendments up to Jan. 1, 2004) and the
Terminal Equipment Act (2000:121) of March 30, 2000.

Key Regulatory Issues
The Swedish regulator has designated COLT as having SMP (Significant Market
Power) in market 9, i.e. call termination on individual public telephone
networks provided at a fixed location, but with lighter obligations than those
imposed on the incumbent operator. This designation derives from the very narrow
definition of that market, which implies that every fixed operator has a 100%
market share on its own termination, and that all the fixed operators are
therefore designated as having SMP. While the proposed SMP obligations for the
Swedish incumbent TeliaSonera involve cost orientation and LRIC based
termination charges, all alternative operators would be subject to the
obligation of `fair and reasonable' termination charges. Such `fair and
reasonable' prices are to be set at the same level as prices of the incumbent
(TeliaSonera) subject to the cost orientation and LRIC cost accounting
obligations. In practice, this would result in reciprocal call termination.

Licences/Permissions
COLT Telecom AB is registered as a telecommunications network and service
provider in Sweden.

Switzerland
National Regulatory Authority
The National Regulatory Authority in Switzerland is the Federal Office of
Communications (OFCOM) and the Federal Communication Commission (ComCom), which
consists of seven members and a president. The director of OFCOM, the members of
ComCom and the president are appointed by the Federal Council. The designation
of an operator as holding Significant Market Power (SMP) on a specific market
falls under the competence of the Competition Commission, as well as issues
related to price squeeze and price agreements (antitrust law).

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
As Switzerland is not a member of the EU the implementation of the EU framework
and its directives do not directly apply. The Swiss regulatory system is
characterized by an ex-post approach to regulation, whereby the regulator only
intervenes after an abuse has been committed, and not through ex-ante measures
as is the case under the EU regulatory package. This also implies that the
market analyses of the eighteen markets identified under the Recommendation on
Relevant markets will not be conducted in Switzerland.

Nevertheless Switzerland has liberalised its telecommunications market on 1
January 1998 and has broadly followed the EU liberalisation policies.

(ii) Other Relevant Regulations in Force:
The Swiss Telecommunication Law does currently not require the unbundling of the
local loops, but the Decree on Telecommunications Services (as amended from 7
March 2003) requires full unbundling of the local loop together with bitstream
and shared access. This Decree came into force on 1 April 2003. However, in
practice, this Decree is not applicable at present following a decision of the
Federal Court on an appeal by the incumbent Swisscom whereby the Court decided
not to apply the Decree pending the revision of the Telecommunications Law.

This revision is currently ongoing: the revised law was approved by the national
parliament and must now be approved by the Upper House. It is expected that it
will not become effective in 2006 and the current revision contains: full
unbundling, bitstream access (limited for 2 years), leased lines, third party
billing and access to the cable ducts. Ex-ante regulation is however excluded.


                                     - 33 -
<PAGE>


Changes in the Decree on Address Elements for Telecommunication, or AEFV, came
into force on 1 February 2005 with new requirements concerning the barring of
access to Value Added Services or to international numbers with diallers. A new
revision of the Decree on Telecommunication Services became also effective on 1
February 2005 with the requirement for all foreign Telecommunication Service
Providers to have a postal address in Switzerland.

Key Regulatory Issues
The Federal Communication Commission (ComCom) decided in November 2003 that the
regulated Interconnection prices of the Swiss incumbent, Swisscom, for the years
2000 to 2003 were about 25 - 35 % too high. Swisscom has appealed against this
decision to the Federal Court. The Court has decided about some shortcomings in
the procedure of the Communication Commission (ComCom) but has in principle
approved the substantial decisions of ComCom. COLT has cancelled its
interconnection contract with Swisscom at 30 June 2005 and has sent the
application for interconnection regarding prices and contractual conditions. The
NRA OFCOM has informed COLT that this proceeding will be postponed until the
ongoing pilot proceeding of Swisscom delivers a legally binding decision.

Swiss fixed to mobile termination rates (FTM) are the highest in Europe.

Licences/Permissions
Colt Telecom AG, 8048 Zurich has obtained a concession covering the
establishment and operation of our networks and we have the licence as a
telecommunication service provider for fixed network, which allows the provision
of telecommunication services. The concession grants similar rights and imposes
similar obligations as those that existed in other European countries under the
former individual licensing system.

The United Kingdom
National Regulatory Authority
The UK National Regulatory Authority for telecoms is Ofcom which was created by
the Communications Act 2003. Ofcom is responsible for regulating not only the
telecoms sector but also all the other media industries - TV and radio (spectrum
and content).

Applicable Regulations
(i) Status of the Implementation of the EU Framework:
In the United Kingdom, the European regulatory package has been implemented by
the Communications Act 2003 and by various instruments implemented under that
Act. Ofcom has carried out a series of market reviews to assess the scope of
regulation required on telecoms operators with significant market power ("SMP").
This has resulted in some changes to regulated products in the market e.g. on
new products made available, some existing products becoming de-regulated
(particularly at the retail level) and revised pricing on existing products. We
have been deemed to have SMP in just one of the markets analysed (along with the
majority of our competitors). This is on the market for fixed geographic call
termination. As a result we are required to supply call termination on our
network to other telecoms providers and to provide this service on fair and
reasonable terms. In other markets it is mainly the UK incumbent, BT, that has
been regulated. To date, all the markets in the UK have been reviewed apart from
one. All the reviews will next be re-analysed in approximately two years time
although it is at Ofcom's discretion when this will happen.

(ii) Other Relevant Regulations in Force:
In the UK the main provisions applying to electronic communications are
contained in the Communications Act 2003. The Act covers functions of Ofcom,
networks, services and the radio spectrum, advance notification to Ofcom,
administrative charges, general conditions (customer interests, numbering,
must-carry obligations), universal service conditions, access-related
conditions, privileged supplier conditions (communications providers enjoying
special or exclusive rights in any non-communications services), significant
market power (SMP) conditions, electronic communications code, premium rate
services, spectrum use, disputes and appeals, and competition in communications
markets.

The other legislative measures in place in the UK that are relevant to
electronic communications providers include: the Wireless Telegraphy Acts (1949
and 1998) which cover Radio licensing; the Office of Communications Act which
covers the creation of Ofcom; the Competition Act 1998 which covers
anti-competitive agreements, exemptions, notifications and abuses of dominant
position; the Enterprise Act 2002


                                     - 34 -
<PAGE>


which covers Office of Fair Trading, Competition Appeal Tribunal, Merger
control, Market investigations and Cartel offences; the Anti-terrorism Crime and
Security Act 2001 and the Regulation of Investigatory Powers Act 2000 which deal
with data retention and access to data. Certain areas have their own very
specific regulations such as premium rates services which are governed by their
own Code of Practice which is implemented and policed by a separate regulatory
body (which falls under the auspices of Ofcom) called ICSTIS (The Independent
Committee for the Supervision of Standards of Telephone Information Services).

Key Regulatory Issues
Deregulation of markets: Ofcom's key aim as part of the current UK Telecoms
Strategic Review (see "Other Major Regulatory Developments" below) is to try and
lift regulation of products. This should, in theory, occur if the market place
becomes competitive and should be triggered by achieving "equivalent" access by
telecoms operators to certain aspects of BT's network. De-regulation could take
place at a geographic level (e.g. certain markets such as Central London may be
considered competitive at an earlier stage to other parts of the UK) or on a
product basis (e.g. certain products becoming competitive earlier). Deregulation
may result in us competing in a different economic environment than at present.

Designation of Significant Market Power status: There is an ongoing risk that
any operator, including us could be assessed in any market review as having SMP.
This might result in an additional regulatory burden being imposed which might
again alter the way we could provide services in that market in the UK.

Licences/Permissions
COLT Telecommunications is entitled to run its network and provide the full
range of services pursuant to the General Conditions of Entitlement issued by
Ofcom (the Director General of Telecommunications) on 25 July 2003. These
General Conditions replaced the old regime of individual licences and now every
provider of communications networks in the UK is authorised to supply services
subject to these conditions. COLT Telecommunications is classified as a Provider
of Publicly Available Telephone Services (PATS) and therefore must comply with
the widest range of these conditions which includes, inter alia, general access
and interconnection obligations, emergency call numbers, codes of practice and
number portability in order to provide services.

Other Major Regulatory Developments
The UK regulatory environment is undergoing different reviews currently, namely:
     o    Telecoms Strategic Review: In 2004, Ofcom began conducting a strategic
          review of telecoms regulation. This may involve fundamental change to
          the way regulation in the UK is carried out including suggesting
          radical structural changes to the UK incumbent, BT. An initial
          decision is expected in June 2005 but until then the implications are
          difficult to evaluate.
     o    21CN: BT is planning to roll-out a new IP based network over which
          upgraded services will be provisioned. The roll-out is scheduled for
          end 2005 and may impact us on a competitive level and as a purchaser
          of BT services. The implications of this change can only be clearly
          assessed on details of the upgrade being released.

C. Organizational structure

We are the holding company for the subsidiaries shown in exhibit 8.1. Each
subsidiary is a private company registered and operating in its country of
incorporation.

D. Property, Plant and Equipment

We lease node sites, office, internet space and sales administrative offices
within the cities in which we operate networks. All of the property that we
occupy is on a leasehold basis, without major encumbrances. It is all either in
use or in preparation for use in our operations, or it has been identified as
being surplus to requirements and the building is being actively marketed either
on a part or full basis either by surrender, sub-letting or assignment of the
lease, as appropriate. In 2002, we developed a 3 year plan to reduce the
property that we occupy to approximately 250,000 square meters. We had by 31
December 2004, achieved reductions of approximately 68,000 square meters. We
believe that our properties, taken as a whole, are in good operating condition
and are suitable and adequate for our business operations.


                                     - 35 -
<PAGE>


In 2004, we established an offshore operation in India in a leased office of
2,946 square meters. In December 2004, the Board resolved to acquire an
additional 4,991 square meters of office space to facilitate further expansion
in India in 2005.

At 31 December 2004, we leased an aggregate of approximately 285,000 square
meters, including the following principal locations (n.b. the figures stated in
"size" relate to the original areas in 2002 as a benchmark; "status" provides an
update to that benchmark).

<TABLE>
<CAPTION>
Location                                               Size                   Use                         Status
--------                                               ----                   ---                         ------

<S>                                                    <C>                    <C>                         <C>
Richard-Neutra-Gasse 10, Vienna, Austria               7,000 square meters    Internet Solution Centre    Occupied and part disposed

Kartner Ring 12, Vienna, Austria                       2,374 square meters    Office, Node and Storage    Occupied and part disposed

Paepsemlaan 16-16a, Paepsem Business Park,             1,413 square meters    Node and Office             Occupied
Anderlecht, Belgium

Nooderlaan 121, Antwerp, Belgium                       1,727 square meters    Office Node and Storage     Occupied

1930 Zaventem, Brussels, Belgium                       6,850 square meters    Internet Solution Centre    Occupied and part marketed

Rue De Planeur, 10 Brussels, Belgium                   3,665 square meters    Offices, Storage            Occupied and part disposed

1430 Chaussee De Haecht, Brussels, Belgium             1,100 square meters    Office Node and Storage     Occupied
Borgmester Christiansens Gade 55, Copenhagen,          4,963 square meters    Office, Node and Storage    Occupied
Denmark

St. Stephens Street Central Gate, New Town Road,       1,645 square meters    Office, Node and Storage    Occupied
Birmingham, England

Chase Road, Park Royal, London, England                8,412 square meters    Internet Solution Centre    Occupied

Beaufort House,15 St. Botolph Street, London,          7,480 square meters    Offices                     Occupied
England

Princes Court, Wapping Lane, London, England           5,000 square meters    Internet Solution Centre    Occupied

Unit F, 20/22 Wharf Road, London, England              3,470 square meters    Offices and Storage         Occupied

4 Norton Folgate, London, England                      3,390 square meters    Office, Node and Storage    Occupied and part disposed

79 Cavendish Street, London, England                   3,344 square meters    Offices                     Part disposed and part
                                                                                                          marketed

15 Marylebone Road, London, England                    2,902 square meters    Office, Node and Storage    Occupied and part disposed
</TABLE>


                                     - 36 -
<PAGE>


<TABLE>
<CAPTION>
Location                                               Size                   Use                         Status
--------                                               ----                   ---                         ------

<S>                                                    <C>                    <C>                         <C>
City Forum, City Road, London, England                 2,330 square meters    Node                        Occupied

Sovereign House, 1 King John Court, London, England    1,898 square meters    Office, Node and Storage    Occupied

Poplar Business Park, Poplar High Street, Aspen        485 square meters      Node and storage            Occupied
Way, Tower Hamlets, London, England

Samuel House, St. Albans Street Haymarket, London,     185 square meters      Node                        Occupied
England

Rue Des Teinturiers, 9 Lyon 3eme, Lyon, France         2,523 square meters    Office, Node and Storage    Occupied

93 Avenue du Prado, Marseille, France                  870 square meters      Office, Node and Storage    Occupied

152 Avenue du Prado, Marseille, France                 330 square meters      Offices                     Occupied

23-27 RuePierre Valette, Malakoff, Paris, France       11,340 square meters   Office, Node and Storage    Occupied

Cap Horn, Les Ulis, Cortebeouf, Paris, France          9,130 square meters    Internet Solution Centre    Occupied and part disposed

Rue Wattignes, 60/62, Paris, France                    4,121 square meters    Internet Solution Centre    Occupied, part marketed
                                                                                                          and part disposed

63 Boulevard Bessieres, Paris, France                  2,941 square meters    Internet Solution Centre    Occupied

25 rue de Chazelles, Paris, France                     2,317 square meters    Office, Node and Storage    Occupied

La Defense 5, Le Lafayette 2, Place Des Vosges,        272 square meters      Offices                     Occupied
Paris, France

Wiebestrasse 49 Werk 3 Berlin, Germany                 7,948 square meters    Internet Solution Centre    Occupied

46-49 Wieberstrasse, Berlin, Germany                   2,693 square meters    Office, Node and Storage    Occupied

Uhlandstrasse 181 - 183, Berlin, Germany               1,800 square meters    Office, Node and Storage    Occupied, part marketed
                                                                                                          and part disposed

Magnusstasse 13-15, Cologne, Germany                   1,612 square meters    Office, Node and Storage    Occupied, part marketed
                                                                                                          and part disposed

90 UerdingerStrausse, Dusseldorf, Germany              3,060 square meters    Office, Node and Storage    Occupied and part disposed
</TABLE>


                                     - 37 -
<PAGE>


<TABLE>
<CAPTION>
Location                                               Size                   Use                         Status
--------                                               ----                   ---                         ------

<S>                                                    <C>                    <C>                         <C>
4 Heriotstrasse, Frankfurt, Germany                    21,275 square meters   Offices                     Occupied, part marketed
                                                                                                          and part disposed

Langer Kornweg 34, Kelsterbach, Frankfurt, Germany     12,494 square meters   Internet Solution Centre    Part marketed and part
                                                                                                          disposed

Bleichstrasse 52, Frankfurt Germany                    6,973 square meters    Offices                     Fully disposed with effect
                                                                                                          from July 2005

16-22 Gervinusstrasse, Frankfurt, Germany              6,328 square meters    Office, Node and Storage    Occupied, part disposed
                                                                                                          and part marketed

Walter Klob Strasse 13, Frankfurt, Germany             3,687 square meters    Office, Node and Storage    Fully disposed

Eschersheimer Landstrasse 10, Frankfurt, Germany       3,638 square meters    Office, Node and Storage    Occupied, part disposed
                                                                                                          and part marketed

306 Hanuaer Landerstrasse, Frankfurt, Germany          2,620 square meters    Internet Solution Centre    Occupied

Schmidstrasse 12, Frankfurt, Germany                   2,320 square meters    Offices                     Occupied

Sportalle 72, 22335 Hamburg, Germany                   5,603 square meters    Internet Solution Centre    Re-occupied, part marketed
                                                                                                          and part disposed

Drebahn 1, Deutschlandhaus, Hamburg, Germany           2,048 square meters    Office, Node and Storage    Occupied

Wendenstrasse 255, Hamburg, Germany                    1,800 square meters    Office, Node and Storage    Occupied

ABC Strasse, 19, Hamburg, Germany                      1,239 square meters    Offices                     Fully disposed

Calenberger Neustadt, Sheet 1389, Hanover, Germany     1,760 square meters    Office, Node and Storage    Occupied, part disposed
                                                                                                          and part marketed

Von-der-Tann-Strasse 11, Munich, Germany               5,125 square meters    Office, Node and Storage    Occupied and part marketed

26 Munchner Strasse, Uterfohring, Munich, Germany      2,830 square meters    Office, Node and Storage    Occupied

Kronenstrasse 25, Stuttgart, Germany                   1,750 square meters    Office, Node and Storage    Occupied

Unitech Business Park Tower B, Gurgaon, India          2,946 square meters    Office                      Occupied

Foxes Property, Long Mile Road, Walkinstone,           6,316 square meters    Internet Solution Centre    Fully disposed
Dublin, Ireland
</TABLE>


                                     - 38 -
<PAGE>


<TABLE>
<CAPTION>
Location                                               Size                   Use                         Status
--------                                               ----                   ---                         ------

<S>                                                    <C>                    <C>                         <C>
East Wall Road, Docklands, Dublin, Ireland             1,533 square meters    Office, Node and Storage    Occupied

Seagrave House, 19-20 Earlsfort Terrace, Dublin,       459 square meters      Offices                     Fully marketed
Ireland

Via Lancetti, Milan, Italy                             6,735 square meters    Office, Node and Storage    Occupied

Viale Jennet 56, Milan, Italy                          3,162 square meters    Office, Node and Storage    Occupied

127-129 Via Simone Martini, Rome, Italy                4,900 square meters    Office, Node and Storage    Occupied

Environment Park, Via Livorono 60, Turin, Italy        3,386 square meters    Office, Node and Storage    Occupied

Bouwery 71-73, Amstelveen, Amsterdam, The              9,148 square meters    Internet Solution Centre    Fully disposed with effect
Netherlands                                                                                               from December 2005

12-14 van de Madeweg, Amsterdam, The Netherlands       7,000 square meters    Office, Node and Storage    Occupied

Luchtvaartstraat, Amsterdam, The Netherlands           2,275 square meters    Internet Solution Centre    Occupied

Groothandelsgebouw, Rotterdam, The Netherlands         2,653 square meters    Office, Node and Storage    Occupied, part disposed

Estrada Da Outorela, Carnaxide, Oeiras, Lisbon,        2,174 square meters    Office, Node and Storage    Occupied
Portugal

Calle Acero 5-9, Y Motores 83-89, Barcelona, Spain     8,850 square meters    Internet Solution Centre    Part occupied and part
                                                                                                          marketed

Gran Via De Les Corts Catalanes, 8-10 Hospitalet De    1,697 square meters    Office, Node and Storage    Occupied
Llobregat, Barcelona, Spain

Poligono Industrial Monoteras, Madrid, Spain           5,000 square meters    Internet Solution Centre    Occupied

Telemaco 5, Madrid, Spain                              4,250 square meters    Office, Node and Storage    Occupied

Karlsrogartan 2, Solna, Stockholm, Sweden              10,726 square meters   Internet Solution Centre    Part marketed and part
                                                                                                          disposed

Oxen Mindre 33, Luntmakargatan 18, Stockholm, Sweden   1,906 square meters    Office, Node and Storage    Occupied and part disposed

Rue De Montbrillant 36, Geneva, Switzerland            1,481 square meters    Office, Node and Storage    Occupied

Umbau Bardnerstrasse 820, Zurich, Switzerland          7,250 square meters    Internet Solution Centre    Occupied
</TABLE>


                                     - 39 -
<PAGE>


<TABLE>
<CAPTION>
Location                                               Size                   Use                         Status
--------                                               ----                   ---                         ------

<S>                                                    <C>                    <C>                         <C>
Murtschenstrasse, 27 Baslerpark, Baslerstrasse 25,     3,566 square meters    Office, Node and Storage    Occupied
Zurich, Switzerland
</TABLE>

  Fully marketed = the whole property is actively being marketed
  Part marketed = only a portion of the property is actively being marketed
  Fully disposed = the whole property is sub-let / surrendered / assigned
  Part disposed = only a portion of the marketed space has been sub-let /
  surrendered / assigned

Item 5. Operating and Financial Review and Prospects

A. Operating results

The following discussion and analysis should be read in conjunction with our
Financial Statements and notes thereto included in this report at Item 18. Our
Financial Statements have been prepared in accordance with U.K. GAAP, which
differs in certain respects from U.S. GAAP. See Note 26 to our Financial
Statements for a summary of the principal differences between U.K. GAAP and U.S.
GAAP as they relate to us. Unless otherwise noted, all amounts are presented in
pounds sterling.

The results for the three years ended 31 December 2004 include the impact of
exceptional transactions and provisions. We believe that it is useful for
investors to also be provided with an analysis of the underlying financial and
operating results of the Company before the impact of these material
non-operational amounts. Therefore in the following information and analysis,
reference is made to both U.K. GAAP and non U.K. GAAP measurements. Pursuant to
the requirements of Item 10(e) of Regulation S-K under the Securities Act, we
have provided a reconciliation of non-GAAP financial measurements to the most
directly comparable GAAP financial measurement. The table below lists these
measurements and starting with U.K. GAAP identifies the reconciling items to
arrive at the non U.K. GAAP measurement.

<TABLE>
<CAPTION>
                                                                               2002           2003           2004
                                                                                L'm            L'm            L'm
                                                                                ---            ---            ---
<S>                                                                         <C>            <C>            <C>
Turnover                                                                    1,027.2        1,166.3        1,214.0
                                                                     ---------------------------------------------
Cost of sales                                                               1,451.9          971.4        1,005.7
Exceptional items                                                           (526.3)              -              -
                                                                     ---------------------------------------------
Cost of sales before exceptional items                                        925.6          971.4        1,005.7
                                                                     ---------------------------------------------
Interconnection and network costs                                             731.9          766.9          813.7
Exceptional items                                                            (18.3)              -              -
                                                                     ---------------------------------------------
Interconnection and network costs before exceptional items                    713.6          766.9          813.7
                                                                     ---------------------------------------------
Network depreciation                                                          720.0          204.4          192.0
Exceptional items                                                           (508.0)              -              -
                                                                     ---------------------------------------------
Network depreciation before exceptional items                                 212.0          204.4          192.0
                                                                     ---------------------------------------------
Gross profit (loss)                                                         (424.7)          195.0          208.3
Exceptional interconnect and network costs                                     18.3              -              -
Exceptional network depreciation                                              508.0              -              -
                                                                     ---------------------------------------------
Gross profit before exceptional items                                         101.6          195.0          208.3
                                                                     ---------------------------------------------
Operating expenses                                                            353.9          272.0          277.1
Exceptional items                                                            (61.9)            2.5              -
                                                                     ---------------------------------------------
Operating expenses before exceptional items                                   292.0          274.5          277.1
                                                                     ---------------------------------------------
</TABLE>


                                     - 40 -
<PAGE>


<TABLE>
<S>                                                                         <C>            <C>            <C>
Selling, general and administration costs                                     261.0          233.5          246.6
Exceptional items                                                            (18.9)            2.5              -
                                                                     ---------------------------------------------
Selling, general and administration costs before exceptional items            242.1          236.0          246.6
                                                                     ---------------------------------------------
Other depreciation and amortisation                                            92.9           38.5           30.5
Exceptional items                                                            (43.0)              -              -
                                                                     ---------------------------------------------
Other depreciation and amortisation before exceptional items                   49.9           38.5           30.5
                                                                     ---------------------------------------------
Loss for period                                                             (718.3)        (124.7)        (114.4)
Exceptional interconnect and network cost of sales                             18.3              -              -
Exceptional network depreciation                                              508.0              -              -
Exceptional selling general and administration costs                           19.0          (2.5)              -
Exceptional other depreciation and amortisation                                43.0              -              -
Exceptional other (income) expense                                          (106.1)          (7.5)          (0.2)
                                                                     ---------------------------------------------
Loss for period before exceptional items                                    (236.1)        (134.7)        (114.6)
                                                                     ---------------------------------------------
</TABLE>

EBITDA (earnings before interest, tax, depreciation, amortisation, foreign
exchange and exceptional items) is viewed by management as an operating cash
flow measure. Refer to the table below for a reconciliation from EBITDA to net
cash flow from operating activities:

<TABLE>
<CAPTION>
                                                                                          Year ended 31 December
                                                                           2002           2003             2004            2004
                                                                          L'000          L'000            L'000           $'000
                                                                          -----          -----            -----           -----
                                                                   ------------- --------------  ---------------  --------------
<S>                                                                     <C>            <C>              <C>             <C>
Net cash inflow from operating activities                               139,279        147,866          140,638         269,463
Adjust for:
  Exchange differences                                                    (540)          (387)              162             310

  Decrease in debtors                                                  (56,881)       (20,681)         (20,871)        (39,988)
  (Increase) Decrease in creditors                                     (24,948)          9,463           16,843          32,271
                                                                   ------------- --------------  ---------------  --------------
Total working capital adjustments                                      (81,829)       (11,218)          (4,028)         (7,717)


(Increase) Decrease in provisions for liabilities and charges          (22,616)         27,187           16,887          32,355

Add back:
  Exceptional interconnect and network charges                           18,320              -                -               -
  Exceptional selling and administrative charges                         18,934              -                -               -

                                                                   ------------- --------------  ---------------  --------------
EBITDA                                                                   71,548        163,448          153,659         294,411
                                                                   ============= ==============  ===============  ==============
</TABLE>


                                     - 41 -
<PAGE>


Turnover increased from L1,166.3 million in 2003 to L1,214.0 million in 2004, an
increase of 4%. This was an increase of 7% on a constant currency basis and
excluding the turnover contributed by Fitec which was disposed of in December
2003. Gross margin before depreciation declined slightly from 34.2% in 2003 to
33.0% in 2004 and earnings before interest, tax, depreciation, amortisation,
foreign exchange, infrastructure sales and exceptional items, or EBITDA, was
down from L163.4 million in 2003 to L153.7 million in 2004 reflecting a weaker
revenue mix and declining prices. However, the combination of reduced
depreciation and lower interest costs resulted in a 15% reduction in losses
before exceptional items from L134.7 million to L114.6 million. There was a cash
outflow of L9.5 million in 2004 compared with L30.4 million in 2003 and net
capital expenditure was L124.7 million compared with L141.0 million in 2003.

Pre-depreciation gross profit at L400.3 million was essentially flat compared
with 2003 despite the overall growth in turnover. The margin performance
reflected the tough pricing environment in which we have been operating combined
with a deterioration in the revenue mix with lower margin wholesale switched
services accounting for 34% of turnover in 2004 compared with 31% in 2003.

Selling, general and administration costs in 2004 were L246.6 million compared
with L235.9 million in 2003, excluding exceptional items. In the main, the
increase reflected the start-up costs associated with the establishment of our
new off-shoring capability in India, increased personnel costs and costs
associated with Sarbanes-Oxley compliance.

Net interest costs declined from L61.6 million in 2003 to L45.8 million in 2004
as a result of the early redemption and buyback of a number of bonds in 2003 and
2004.

2004 is the third year in succession that we have reduced our losses before
exceptional items with a further reduction of 15% to L114.6 million. We
continued to invest in growth with net capital expenditure in 2004 of L124.7
million of which approximately 76% was directly associated with winning new
customers or selling more to existing customers. The balance was invested in the
underlying infrastructure and support systems in support of the continued drive
to further improve quality and efficiency. A conservative balance sheet and a
strong cash position have always been part of our strategy and have stood us
well in the tough market conditions of the past few years. At 31 December 2004,
we had balances of cash and liquid resources of L452.7 million. During the year
we redeemed early L335.3 million of our bonds. A further L80.9 million of bonds
have been redeemed for cash since 31 December 2004. The early bond redemptions
undertaken in 2004 and since will result in net interest savings over the next
three years of approximately L31.1 million.

We are a holding company for our subsidiaries and have no material business
operations, sources of income or assets other than the stock of our
subsidiaries. Because we conduct our operations through subsidiaries, our cash
flow and our ability to meet our obligations under our notes, including payment
of principal, premium, if any, and interest, depends upon the cash flow of our
subsidiaries and their dividends, fees, loans, and other payments to us. Our
subsidiaries have no obligations to make any payments under our notes or to make
funds available to us so that we can make payments.

Some of our subsidiaries are governed by local laws regarding how much they may
pay in dividends or in what situations they may pay dividends. For example,
these laws may prohibit dividend payments when net assets fall below subscribed
share capital, when the subsidiary lacks available profit or when the subsidiary
fails to meet certain capital and reserve requirements. In addition, some of our
financing arrangements also limit the situations where our subsidiaries may pay
us dividends or make loans or other distributions.

Our subsidiaries have not guaranteed our payment obligations under our notes.
Thus, our right to receive the assets of any subsidiary upon its liquidation or
reorganization is subordinated to the claims of the subsidiary's creditors,
except where we are a creditor of the subsidiary. If we were a creditor of a
subsidiary, our right to be paid back would be subordinated to any indebtedness
of the subsidiary that was either:
     o    secured by a security interest in that subsidiary's assets, or
     o    senior to that subsidiary's indebtedness to us.


                                     - 42 -
<PAGE>


Critical Accounting Policies
Our consolidated Financial Statements are prepared in accordance with U.K. GAAP,
which require us to make estimates and assumptions. We believe that of our
significant accounting policies, which are described in Note 1 to our
consolidated Financial Statements, included in this report, the following are
important to our financial condition and results and involved a higher degree of
judgment and complexity, and are therefore considered critical. In the
consolidated Financial Statements we also provide a reconciliation of our net
loss and net equity from the reported U.K. GAAP to U.S. GAAP.

Revenue Recognition
Under U.K. GAAP, revenue for switched services, which are generally billed in
arrears, and for non-switch and other services, which are generally billed in
advance, are recognized when services are provided. Turnover from installation
and other up-front activities is recognized in the same period as related costs.
Under U.S. GAAP, in accordance with S.E.C. Staff Accounting Bulletin 104
"Revenue Recognition", customer installation revenues are recognized over the
expected customer relationship period, which is estimated based upon our
historical experience of customer retention patterns. This requires us to assess
the period management believes the customer is expected to maintain a service
contract with us, which may exceed the contract term.

Under U.S. GAAP, we have historically applied a policy of also deferring
attributable direct costs up to the level of associated installation revenue and
recognizing them over the customer relationship period. Effective 1 January
2004, we changed our accounting policy under U.S. GAAP to expensing these costs
as incurred.

We have decided to change this accounting policy to reflect the way that the
business is now being monitored and run by senior management. Additionally, we
will be adopting International Financial Reporting Standards, or IFRS, from 1
January 2005. Under IFRS, only certain attributable direct costs are allowed to
be deferred and we have elected that the best representation of its current
business is to expense such costs.

The cumulative effect of the change on the opening retained earnings of
L72.6 million has been recorded as a charge to the current year loss for
the period under U.S. GAAP. The effect of the change in accounting policy for
the current year is to increase the loss for the period under U.S. GAAP by
L68.1 million (being the net of the impact on opening retained earnings of
L72.6 million and the reduction in the amount of costs which would have
been deferred under the old policy in 2004 of L4.5 million). The
disclosure below reflects the pro forma impact on loss for the period, under
U.S. GAAP, of the change in accounting policy assuming it had been applied
retroactively in 2002, 2003 and 2004:


<TABLE>
<CAPTION>
                                                                 Year ended 31 December
                                      -----------------------------------------------------------------------------
                                                  2002               2003                 2004                2004
                                                 L'000              L'000                L'000               $'000
                                                 -----              -----                -----               -----
                                      ----------------- ------------------  -------------------  ------------------
<S>                                          <C>                <C>                  <C>                 <C>
Loss for period under U.S. GAAP              (614,302)          (132,749)            (122,384)           (234,487)
                                      ================= ==================  ===================  ==================
Basic and diluted loss per share              L (0.41)           L (0.09)             L (0.08)            $ (0.16)
                                      ================= ==================  ===================  ==================
</TABLE>



Revenue recognized is adjusted to reflect changes in management's estimates for
provisions required for possible billing or service credits.

Cost of sales
Cost of sales includes payments made to other carriers, depreciation of network
infrastructure and equipment, direct network costs and construction costs
associated with infrastructure sales.

When telephony traffic is carried by other operators, we incur interconnect
costs. Some interconnect costs are subject to regulation by local regulatory
authorities in the countries in which we operate. A determination may give rise
to amendments, most often in the form of reductions, to interconnect costs. The
changes in regulated interconnect costs may or may not be in line with the
change in market selling prices for telephony traffic, margins may therefore be
eroded where selling prices fall faster than regulated interconnect costs.


                                     - 43 -
<PAGE>


We review our interconnect costs on a regular basis and adjust the rate at which
these costs are charged in the profit and loss account in accordance with the
estimated interconnect costs for the current period. Amendments to costs
relating to prior periods are made in the current period, but only when recovery
or payment of these amounts is reasonably certain.

Receivables
We perform ongoing reviews of the bad debt risk within our receivables and make
provisions to reflect our views of the financial condition of our customers and
their ability to pay in full for amounts owing for services provided. Such
reviews, particularly in the current environment of slower economic growth in
Europe and turbulence in the telecommunications sector, are difficult and the
financial condition of certain customers may be worse than is perceived by
management, resulting in the need for additional provisions.

Tangible fixed assets
Under U.K. GAAP, tangible fixed assets are recorded at historical cost. Network
infrastructure and equipment comprises assets purchased and built, at cost,
together with capitalized labor, directly attributable to the cost of
construction. Under U.S. GAAP, the interest cost incurred during the period of
construction of the network infrastructure is capitalized as part of the cost of
the assets.

The annual depreciation charge is sensitive to the estimated service lives
allocated to each asset type. We regularly review these asset lives and change
them when it is considered necessary to reflect our current estimates of their
remaining lives in light of changes in technology, the actual condition and
expected utilization of the assets concerned.

Impairment
Under U.K. GAAP, tangible and intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that carrying amounts may
not be recoverable. Goodwill is also reviewed for impairment at the end of the
first financial year after acquisition. An impairment loss is recognized to the
extent that the carrying amount of an asset exceeds its recoverable amount,
being the higher of its value in use and net realizable value, and is computed
in accordance with our accounting policy and the requirements of FRS 11
`Impairment of Fixed Assets and Goodwill'.

Under U.S. GAAP, FAS 144 `Accounting for the impairment or disposal of
long-lived assets' requires long-lived assets to be evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of
a long-lived asset is not recoverable. On a regular basis, the undiscounted
estimated future net cash flows associated with the asset are compared to the
assets carrying amount to determine if impairment has occurred. If such assets
are deemed impaired, an impairment loss equal to the amount by which the
carrying amount exceeds the fair value of the assets is recognized. If quoted
market prices for the assets are not available, the fair value is calculated
using the present value of estimated expected future net cash flows.

Under U.S. GAAP, FAS 142 `Goodwill and other intangible assets' requires that
goodwill and intangible assets with indefinite useful lives not be amortised but
should be tested for impairment annually. The fair value of the intangible asset
is compared with its carrying amount. If the carrying amount of the intangible
asset exceeds its fair value, an impairment loss is recognized in an amount
equal to that excess. This impairment test has been included in the review
detailed above.

Considerable management judgment is necessary in the preparation of the
forecasted cash flows. While the calculation of the discounted future cash flows
projected to arise from the use of assets is based upon management's best
estimates of such cash flows and the required discount rate, these estimates do
contain an amount of uncertainty. Management's estimates may change over time
and actual results may differ from those estimates due to the economic,
technological and competitive environment in which we operate.

Resulting from such a review for the year ended 31 December 2004, we have made
no impairment provision for the year.

Deferred tax
In accordance with U.K. GAAP, from time to time we must report an item of
income, deduction, gain, or loss for financial accounting purposes in a
financial period prior to the financial period in which we must report the same


                                     - 44 -
<PAGE>


item for tax accounting purposes. When we recognize income for financial
accounting purposes before we do for tax purposes, then U.K. GAAP rules state
that we should accrue, as a liability, our estimate of the tax to be paid in the
future, using the average tax rates that are expected to apply in the periods in
which the timing differences are expected to reverse (based on the tax laws and
rates in effect at the balance sheet date). Similarly, when we recognize a
deduction or a loss for financial accounting purposes before we can for tax
purposes, we should accrue, as an asset, our estimate of the future tax benefit
we will receive where it is more likely than not that there will be suitable
taxable profits in the future from which the asset can be recovered. We do not
discount these estimated assets or liabilities. See Note 8 to our consolidated
Financial Statements included in this report for disclosure of the amount of our
deferred tax asset.

Under U.S. GAAP rules, we account for deferred tax assets and liabilities on
temporary differences between income for financial accounting and tax purposes,
and we reduce the value of deferred tax assets (that is, deferred tax benefits)
to the amount that we consider likely to be recovered on future tax returns.

Provisions
Our provisions are established based on our best estimate of the amounts
necessary to settle existing obligations or commitments as of the balance sheet
date.

In 2001, we made provision for future rents, services and re-instatement costs
associated with certain ISCs being closed or "mothballed" and excess leased
space. Management must estimate the financial impact of sustaining contractual
commitments, unutilized facilities, exiting certain activities, sublease
arrangements and disposal and contractual termination costs. The estimate for
the provision required is inherently judgmental and may change based upon actual
experience of future void periods and costs associated with dilapidation and
costs of re-instatement during the course of the void period and at the
conclusion of the lease terms. At 31 December 2004, such provisions amounted to
L44.2 million.

In February 2002, we announced an operational effectiveness review program to
reduce staff levels by approximately 500. On 27 September 2002, we announced a
pan-European organizational restructuring following the completion of the
construction of our core network infrastructure, which is expected to result in
the reduction of our workforce by 800 additional employees over the following
twelve months. At 31 December 2004, provisions in respect of the cost of these
programs amounted to L4.5 million and are expected to be utilized during
2005.

Year Ended 31 December 2004 compared to Year Ended 31 December 2003
Turnover
Turnover increased from L1,166.3 million in 2003 to L1,214.0 million in 2004, an
increase of 4%. This was an increase of 7% on a constant currency basis and
excluding the turnover contributed by Fitec which was disposed of in December
2003. The increase in turnover was driven by demand for our services from
existing and new customers and new service introductions.

Turnover from corporate customers increased by 1% to L698.3 million (2003:
L692.7 million). Turnover from corporate customers represented 58% of total
turnover (2003: 59%). Switched turnover from corporate customers was marginally
down at L336.1 million (2003: L337.0 million). Non-switched turnover from
corporate customers increased by 1% to L359.3 million (2203: L354.8 million).

Turnover from wholesale customers increased by 9% to L515.7 million (2003:
L473.6 million). Turnover from wholesale customers represented 42% of total
turnover (2003: 41%). Switched turnover from wholesale customers increased by
12% to L411.0 million (2003: L365.7 million). Non-switched turnover from
wholesale customers decreased by 3% to L104.5 million (2003: L107.6 million).

North Region
At 31 December 2004, we had 11 city-networks operational: Amsterdam, Antwerp,
Birmingham, Brussels, Copenhagen, Dublin, London, Manchester, The Hague,
Rotterdam and Stockholm, which was unchanged from the number of city-networks at
the end of 2003. Turnover was stable, increasing by only 0.2% to L373.4 million
compared to 2003.


                                     - 45 -
<PAGE>


Central Region
At 31 December 2004, there were 11 city-networks operational: Berlin, Cologne,
Dusseldorf, Frankfurt, Geneva, Hamburg, Hanover, Munich, Stuttgart, Vienna and
Zurich which was unchanged from the number of city-networks at the end of 2003.
Turnover increased by 12.1% to L554.2 million compared to 2003. Growth in
turnover reflected our expanded product range as well as our success in
extending sales to existing and new customers.

South Region
At 31 December 2004, there were 10 city-networks operational: Barcelona, Lisbon,
Lyon, Madrid, Marseilles, Milan, Paris, Rome, Turin and Valencia, which was
unchanged from the number of city-networks at the end of 2003. Turnover
decreased by 4.3% for the year to L286.4 million compared to 2003. This
reflected a decrease in switched revenue of L8.4 million and a decrease in
non-switched revenue of L2.4 million.

Cost of Sales
Cost of sales increased by 4% to L1,005.7 million (2003: L971.4 million).

Interconnection and network costs increased by 6% to L813.7 million (2003:
L766.9 million) driven mainly by the increase in switched minutes.

Network depreciation decreased by 6% to L192.0 million (2003: L204.4 million).
The decrease reflected the effect of some assets being fully depreciated,
partially offset by further investment in fixed assets to support the growth in
demand for services and new service developments.

Operating Expenses
Operating expenses before exceptional items increased by 1% to L277.2 million
(2003: L274.5 million).

Selling, general and administrative, or SG&A, expenses increased by 5% to L246.6
million (2003: L235.9 million). SG&A expenses as a proportion of turnover was
20% (2003: 20%). The increase in SG&A expenses reflected the initial costs
associated with the establishment of our presence in India, increased personnel
costs and costs associated with Sarbanes-Oxley compliance.

Other depreciation and amortisation decreased by 21% to L30.5 million (2003:
L38.5 million). The reductions reflected the effect of some assets being fully
depreciated, partially offset by increased investment in customer service and
other support systems.

Interest receivable, Interest payable and Similar Charges
Interest receivable decreased by 21% to L21.0 million (2003: L26.7 million). The
decrease was as a result of reduced average balances of cash and investments in
liquid resources following the redemption of some of our outstanding notes
during 2003 and 2004 partially offset by higher interest rates and an
improvement in currency mix.

Interest payable and similar charges decreased by 24% to L66.8 million (2003:
L88.3 million). These decreases were due primarily to the reduction in debt
levels following the redemption of some of our outstanding notes during 2003 and
2004.

Interest payable and similar charges included L30.2 million (2003: L34.4
million) of interest and accretion on convertible debt and L35.0 million (2003:
L51.7 million) of interest and expense accretion on non-convertible debt. There
was also L1.6 million of other interest and unwinding of discounts on
provisions.

Gain on Redemption of Debt
Gains arising on the early redemption of L335.3 million of debt were L0.2
million (2003: L7.6 million).

Exchange Gains
There were no net exchange gains or losses (2003: gain of L6.4 million). The
exchange gains in 2003 were due primarily to movements in the British Pound
relative to the U.S. Dollar on cash and debt balances denominated in U.S.
Dollars.


                                     - 46 -
<PAGE>


Tax on Loss on Ordinary Activities
We had no taxable profits in either 2003 or 2004.

Year Ended 31 December 2003 compared to Year Ended 31 December 2002
Turnover
Turnover increased from L1,027.2 million in 2002 to L1,166.3 million in 2003, an
increase of L139.1 million or 14%. The increase in turnover was primarily driven
by continued demand for our services from existing and new customers and new
service introductions. However, the rates of growth have been affected by weak
economic growth across Europe generally. Turnover also benefited from the
weakness of the British Pound relative to the Euro. At constant exchange rates
turnover grew by 6%.

Turnover from corporate customers increased from L584.8 million in 2002 to
L692.7 million in 2003, an increase of 18%. Turnover from corporate customers
represented 59% of total turnover in 2003 compared with 57% in 2002. Switched
turnover from corporate customers in 2003 was L337.0 million, an increase of
14%. Non-switched and other turnover from corporate customers in 2003 was L355.7
million, an increase of 23%.

Turnover from wholesale customers increased from L442.5 million in 2002 to
L473.6 million in 2003, an increase of 7% and represented 41% of total turnover
compared with 43% in 2002. Switched turnover from wholesale customers in 2003
was L365.7 million, an increase of 11%. Non-switched and other turnover from
wholesale customers in 2003 was L108.0 million, a decrease of 5%.

In 2003, 21.9 billion switched minutes were carried compared with 20.0 billion
in 2002. Average switched revenue per minute increased by 3% in 2003 over 2002.
At 31 December 2003, we had 26.6 million voice grade equivalent private wires in
service, an increase of 30% compared to 31 December 2002. Growth in non-switched
services reflected the growth in demand for local, national and international
bandwidth services, partially offset by circuit cancellations, and to a lesser
extent, the disposal of COLT eCustomer Solutions France SAS, or Fitec, towards
the end of the year. The growth in non-switched services also reflects the
growing success we are achieving in the provision of Internet Protocol Virtual
Private Network, or IPVPN, services.

North Region
At 31 December 2003, we had 11 city-networks operational: Amsterdam, Antwerp,
Birmingham, Brussels, Copenhagen, Dublin, London, Manchester, The Hague,
Rotterdam and Stockholm, which was unchanged from the number of city-networks at
the end of 2002. Turnover increased by 12.4% to L372.6 million compared to 2002.
Growth in turnover reflected our expanded geographic reach, expanded product
range as well as our success in extending sales to existing and new customers.

Central Region
At 31 December 2003, there were 11 city-networks operational: Berlin, Cologne,
Dusseldorf, Frankfurt, Geneva, Hamburg, Hanover, Munich, Stuttgart, Vienna and
Zurich which was unchanged from the number of city-networks at the end of 2002.
Turnover increased by 15.0% to L494.4 million compared to 2002. Growth in
turnover reflected our expanded geographic reach, expanded product range as well
as our success in extending sales to existing and new customers.

South Region
At 31 December 2003, there were 10 city-networks operational: Barcelona, Lisbon,
Lyon, Madrid, Marseilles, Milan, Paris, Rome, Turin and Valencia, which was
unchanged from the number of city-networks at the end of 2002. Turnover
increased by 12.6% for the year to L299.3 million compared to 2002. Growth in
turnover reflected our expanded geographic reach, expanded product range as well
as success in extending sales to existing and new customers.

Cost of Sales
Cost of sales after exceptional items decreased from L1,451.9 million in 2002 to
L971.4 million in 2003, a decrease of 33%. This decrease was principally due to
the fact that the exceptional items relating to impairment and severance that
were recognized in 2002 were not repeated in 2003. Cost of sales, before
exceptional items, increased from L925.6 million in 2002 to L971.4 million in
2003, an increase of L45.8 million or 5%.


                                     - 47 -
<PAGE>


Interconnection and network costs before exceptional items increased from L713.6
million in 2002 to L766.9 million in 2003 as a result of the overall increase in
business partially offset by ongoing cost containment measures.

Network depreciation, before exceptional items, decreased from L212.0 million in
2002 to L204.4 million in 2003. The decrease was primarily attributable to the
impairment provisions recorded in September 2002, partially offset by further
investment in fixed assets to support the growth in demand for services and new
service developments.

In 2002, an exceptional charge of L18.3 million was recognized for severance
provisions related to the staff reduction programs announced in February and
September 2002 and an impairment charge of L508.0 million was recognized to
ensure that the asset base remained aligned with the realities of the market
place. There were no exceptional charges in 2003.

Operating Expenses
Operating expenses decreased from L353.9 million in 2002 to L272.0 million in
2003, a decrease of 23%. This decrease was principally due to the fact that the
exceptional items relating to impairment and severance that were recognized in
2002 were not repeated in 2003. Operating expenses, before exceptional items,
decreased from L292.0 million in 2002 to L274.5 million in 2003.

Selling, general and administrative expenses, before exceptional items,
decreased from L242.1 million in 2002 to L235.9 million in 2003. The reduction
in 2003 reflected ongoing cost containment measures. Selling, general and
administrative expenses, before exceptional items, as a proportion of turnover
was 20% in 2003 compared with 24% in 2002.

Other depreciation and amortisation, before exceptional items, decreased from
L49.9 million in 2002 to L38.5 million in 2003. The reduction in 2003 reflected
the effect of the impairment provisions recorded in September 2002 and other
assets being fully depreciated, partially offset by increased investment in
customer service and support systems.

In 2002, an exceptional charge of L18.9 million was recognized for severance
provisions related to the staff reduction programs announced in February and
September 2002 and an impairment charge of L43.0 million was recognized to
ensure that the asset base remained aligned with the realities of the market
place. There were no exceptional charges in 2003.

In December 2003, an exceptional profit of L2.5 million was recognized on
disposal of COLT eCustomer Solutions France, or Fitec, and COLT Internet AB
(Sweden Internet).

Interest receivable, interest payable and similar charges
Interest receivable decreased from L38.1 million in 2002 to L26.7 million in
2003 due to reduced average balances of cash and investments in liquid resources
and lower rates of return during the period.

Interest payable and similar charges decreased from L96.3 million in 2002 to
L88.3 million in 2003. The decrease was due primarily to a reduction in debt
levels reflecting the purchase and redemption of some of the Company's
outstanding notes during 2002 and 2003.

Interest payable and similar charges in 2003 included: L34.4 million (2002:
L36.1 million) of interest and accretion on convertible debt; L51.7 million
(2002: L57.5 million) of interest and accretion on non-convertible debt, and
L2.2 million (2002: L2.7 million) of other interest and unwinding of discounts
on provisions.

Gain on purchase of debt
Gains arising on the purchase of debt during 2003 amounted to L7.6 million.
Gains arising on the purchase of debt in 2002 were L101.7 million.


                                     - 48 -
<PAGE>


Redemption of U.S. Dollar Senior Discount Notes
On 22 December 2003, all of the outstanding U.S. dollar 12% Senior Discount
Notes due 2006 were redeemed at the principal amount of the Notes plus accrued
interest for a cash consideration of L120.7 million. There was no redemption in
2002.

Exchange gain (loss)
In 2003, there were exchange gains of L6.4 million compared with exchange gains
of L12.4 million in 2002. These gains were due primarily to movements in the
British pound relative to the U.S. dollar on cash and debt balances denominated
in U.S. dollars. In 2002, there was an exceptional exchange gain of L4.8 million
from the unwinding of the British pounds forward contracts previously held as a
condition of the bank facility with us terminated in June 2002.

Tax on Loss on Ordinary Activities
In 2002 and 2003, we generated losses on ordinary activities of L718.3 million
and L124.6 million respectively and therefore did not incur a tax obligation.

New Accounting Standards
U.S. GAAP
In November 2004, the Financial Accounts Standards Board, or FASB, issued
Statement of Financial Accounting Standards ("SFAS") 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4", or SFAS 151, which clarifies that abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage) should be recognized as a current period expense. In addition, this
Statement requires that allocation of fixed production overhead to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years beginning after June 15, 2005. Management does
not believe that the implementation of this standard will have a material impact
on the financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS 153 "Exchanges of Non-Monetary Assets -
An Amendment to APB 29", or SFAS 153. APB 29 had stated that all exchanges of
non-monetary assets should be recorded at fair value except in a number of
situations, including where the exchange is in relation to similarly productive
assets. SFAS 153 amends APB 29 to eliminate the exception for non-monetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges for non-monetary assets that do not have commercial substance. A
non-monetary transaction has commercial substance where the future cash flows of
the business will be expected to change significantly as a result of the
exchange. The provisions of this statement will be effective for non-monetary
exchanges occurring in fiscal periods beginning after June 15, 2005. Management
does not believe that the implementation of this standard will have a material
impact on the financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS 123 (Revised) "Share Based Payments", or
SFAS 123(R), which required companies to expense the value of employee stock
option schemes and similar awards based on the grant date fair value of the
award. SFAS 123(R) eliminates the option to use APB 25's intrinsic method of
accounting for valuation of share options and similar awards as provided by SFAS
123 as originally issued. SFAS 123 (R) is effective for public companies for the
interim period beginning after June 15, 2005. Under the revised standard there
are three transition methods available, the modified prospective model, the
modified prospective model with restatement of prior interim results or the
modified prospective model. Management is currently assessing the impact of this
standard on the financial position, results of operations or cash flows.


In November 2004, the Task Force issued EITF Issue No, 03-13, "Applying the
conditions in Paragraph 42 of SFAS 144 in Determining Whether to Report
Discontinued Operations", or EITF 03-13, which provides an approach for
evaluating whether the criteria in paragraph 42 of FAS 144 have been met for
classifying as a discontinued operations a component of an entity that either
has been disposed of or is classified as held for sale. EITF 03-13 is effective
for fiscal periods beginning after December 15, 2004. Management does not
believe that the implementation will have a material impact on the financial
position, results of operations or cash flows.

In October 2004, the EITF issued EITF 04-10 "Determining whether to Aggregate
Operating Segments that do not meet the Quantitative Thresholds", or EITF 04-10.
EITF 04-10 states that operating segments, as defined by


                                     - 49 -
<PAGE>


SFAS 131, "Disclosure about Segments of an Enterprise and Related Information",
or SFAS 131, that do not meet the quantitative thresholds within SFAS 131, can
be aggregated only if aggregation is consistent with the objective and basic
principles of SFAS 131, that the segments have similar economic characteristics,
and the segments share a majority of the aggregation criteria listed in SFAS
131. EITF 04-10 will be effective when a new FASB Statement of Position being
discussed on a related issue that will provide guidance in determining whether
two or more operating segments have similar economic characteristics becomes
effective, although early adoption is permitted. Management has assessed the
impact of EITF 04-10 and believes the impact is not material.

U.K. GAAP
The following Financial Reporting Standards have recently been issued by the
ASB. These accounting standards all mirror International Financial Reporting
Standards and will be adopted by the Group as part of the transition to IFRS:
FRS 21 (IAS 10) "Events after the balance sheet date"; FRS 22 (IAS 33) "Earnings
per share"; FRS 23 (IAS 21) "The effects of changes in foreign exchange rates";
FRS 24 (IAS 29) "Financial reporting in hyperinflationary economies"; FRS 25
(IAS 32) "Financial instruments: presentation and disclosure"; and FRS 26 (IAS
39) "Financial instruments: measurement".

IFRS
COLT will be required to report under IFRS for quarterly reporting from the
quarter ending 31 March 2005 and in the 2005 Annual Report. The Group has
undertaken a project to manage the transition from existing U.K. GAAP to IFRS.

Transactions with affiliates
In December 1996, FMR Corp., COLT Inc., Fidelity Investors Limited Partnership,
FIL Bank and Trust Company Limited (now FIL Trust Company Limited) and Fidelity
International Limited ("Fidelity") entered into a Relationship Agreement with
the Company. Under the agreement, Fidelity, and where appropriate their
affiliates, agree that more than half of the Directors of the Company will be
non-Fidelity related Directors, that Fidelity will not compete with the Group
without the consent of the non-Fidelity related Directors, that any agreements
between Fidelity and the Group will be on an arms-length basis and subject to
the consent of the non-Fidelity related Directors, and that Fidelity will not
acquire ordinary shares of the Company if less than 25% of the shares will be in
public hands as a result. The Fidelity related Directors under the agreement are
Barry Bateman, Jean-Yves Charlier, Timothy Hilton and John Remondi. The
agreement will continue in force while Fidelity or their affiliates hold at
least 30% of the issued ordinary shares of the Company.

We have entered into separate 10 year agreements with Fidelity Capital
Associates Inc., or FCA, (a wholly owned subsidiary of FMR Corp.) under which
each of us will provide to the other certain consultancy services. The
consultancy services we have agreed to provide to FCA include, regulatory and
economic advice, assistance in applying for licenses and advice on FCA network
construction (outside Europe). We are entitled to fees for services rendered at
prevailing market rates for such services which will only be provided if not
detrimental to the business or operations of the Company, as determined by our
independent directors. FCA's consultancy services to us include on an as and
when needed basis, assistance in establishing and maintaining the Company's
relationships with banks and other financial institutions, providing tax
planning advice and financial and strategic planning. FCA is entitled to fees at
the then prevailing market rates for such services. Both of the above agreements
are terminable for material breach. No services were provided by us or to us in
2004.

The U.K. pension scheme is administered by Fidelity Pensions Management, a
subsidiary of Fidelity Investments Management Limited, a wholly owned subsidiary
of Fidelity International Limited. The fees for the above services for the year
ended 31 December 2004 were L0.1 million (2003: L0.1 million).

Pursuant to a contract with us, certain FMR Corp. and FIL employees provide
consulting and other services to us at agreed rates. The fees for these services
for the year ended 31 December 2004 were approximately L1.9 million (2003: L1.9
million) for FMR employees and L1.1 million (2003: L1.1 million) for FIL
employees. At 31 December 2004, there were creditor balances outstanding to FMR
and FIC of L1.6 million (2003: L0.8 million) and L0.4 million (2003: L0.7
million) respectively.


                                     - 50 -
<PAGE>


An amount of L2.9 million was billed by us during 2004 to FIL for voice, data
and eBusiness services (2003: L3.2 million). At 31 December 2004 there were
balances outstanding from FIL of L0.6 million (2003: L0.7 million).

An amount of L2.9 million was billed to us during 2004 by Teranua, a 100% owned
subsidiary of FMR Corp., for consultancy services (2003: L0.9 million). No
balances were due to Teranua at 31 December 2004 (2003: Lnil).

B. Liquidity and capital resources

There was a free cash outflow of L9.5 million (2003: outflow of L30.4 million).
Free cash flow is net cash inflow from operating activities less net cash
outflow from returns on investments and servicing of finance and from capital
expenditure and financial investment. The improvement in free cash flow for the
twelve months was driven by reduced capital expenditure, reduced interest
payments and lower payments against provisions. We do not expect to achieve
sustainable positive free cash flow until some time during 2005.

Net cash outflow from financing was L334.7 million (2003: L142.8 million) and
net cash inflow from management of liquid resources was L343.3 million (2003:
L187.8 million).

We had balances of cash and investments in liquid resources at 31 December 2004
of L452.7 million compared with L802.4 million at 31 December 2003. On 19
October 2004 all of the outstanding DM600 million 2% Senior Convertible Notes
due August 2005 and the (euro)368 million 2% Senior Convertible Notes due
December 2006 were redeemed. The redemptions were at the accreted principal
amount of the Notes and were funded out of cash and liquid resources. The
aggregate amount payable was L335.3 million.

On 21 January 2005 all of the outstanding L50 million 10.125% Senior Notes due
2007 and the DM150 million 8.875% Senior Notes due 2007 were redeemed. The
redemptions were at the principal amount of the Notes and were funded out of our
cash and liquid resources. The aggregate amount payable was L80.9 million.

It is the company's opinion that is has sufficient working capital for its
present requirements.

Treasury Policy
We operate a centralized treasury function, the prime objective of which is to
optimize the return on our cash balances and to manage our working capital
requirements. In addition to liquidity risks, the principal financial risks to
which we are exposed arise from volatility in foreign currency exchange rates
and interest rates.

Liquidity Risk
We have financed our operations through a mixture of issued share capital and
long-term convertible and non-convertible debt. The proceeds from these issues
are invested in marketable government securities or placed on short-term deposit
prior to being invested in our operations. In addition to the financial
instruments issued to finance our operations, we hold other financial
instruments in the normal course of business such as trade debtors and trade
creditors.

Foreign Currency Risk
We are exposed to fluctuations in foreign currencies as our revenues, costs,
assets and liabilities are, for the most part, denominated in local currencies.
To manage this exposure, our strategy is to raise our financing in a combination
of Euro denominated instruments to the extent possible in proportion to our
existing net investment and committed capital expenditure in those currencies,
offsetting currency differences arising with similar denominated borrowings.
From time to time, we have entered into forward contracts to purchase foreign
currencies to fund a portion of our capital expenditure in those currencies. At
31 December 2004, no such contracts were outstanding.

Transactions denominated in foreign currencies are translated at the rate
prevailing at the time of the transaction. Monetary assets and liabilities are
translated at the period end rate. Exchange differences arising from the
retranslation of the opening net assets of foreign subsidiaries, denominated in
foreign currencies, and any related loans, together with the differences between
profit and loss accounts translated at average rates and rates ruling at the
period end are taken directly to reserves.


                                     - 51 -
<PAGE>


Translation differences on intra-group currency loans and foreign currency
borrowings to the extent that they are used to finance or hedge group equity
investments in foreign enterprises are taken directly to reserves together with
the exchange differences on the carrying value of the related investments.

Forward exchange contracts are deemed hedges only where they relate to actual
foreign currency assets and liabilities or commitments which have been
identified and where they involve the same, or similar, currency as the hedged
transaction and reduce the risk to our operations arising from foreign currency
exchange movements. Gains and losses on forward exchange contracts deemed as
hedges are deferred and included in the value of the related foreign currency
transaction. We do not use any other derivative instruments.

All other exchange differences are taken to the profit and loss account.

Interest Rate Risk
We have managed risks associated with fluctuating interest rates by raising debt
at fixed rates. As interest is earned on cash deposits and liquid resources at
variable as well as fixed rates, changes in interest rates will have an impact
on the amount of interest income earned.

Concentration of Credit Risk
Financial instruments which potentially subject us to concentration of credit
risk consist principally of accounts receivable and cash and investments in
liquid resources.

There are no material commitments for capital expenditure.

C. Research and development, patents and licenses, etc.

We do not engage in significant research and development activities.

D. Trend information

The telecommunications market remains tough with no signs of improvement.

For further discussion of significant recent trends in our financial condition
and results of operations, please see Item 5.A, Operating and Financial Review
and Prospects - Operating Results and Item 5.B, Operating and Financial Review
and Prospects - Liquidity and Capital Resources.

E. Off-balance sheet arrangements

There were no off-balance sheet arrangements.

F. Tabular disclosure of contractual obligations

The following table summarizes the Company's long-term commitments as at 31
December 2004, including commitments pursuant to debt agreements, lease
obligations and other long terms contracts.
<TABLE>
<CAPTION>
                                                                     Payment due by period
L'000                                            Total         Less than                 1-3           3-5    more than 5
                                                                  1 year               years         years          years
                                         ---------------------------------------------------------------------------------
<S>                                          <C>                 <C>                 <C>           <C>            <C>
Long-term debt obligations                     827,377            81,692             382,320       363,365              -

Capital lease obligations                        2,156               523                 501           347            785

Operating lease obligations                    271,515            38,066              52,007        38,715        142,727

                                         ---------------------------------------------------------------------------------
Total contractual cash obligations           1,101,048           120,281             434,828       402,427        143,512
                                         ---------------------------------------------------------------------------------

Other commercial commitments
</TABLE>


                                     - 52 -
<PAGE>


<TABLE>
<S>                                          <C>                 <C>                 <C>           <C>            <C>
Guarantees provided by banks                         -                 -                   -             -              -

Standby repurchase obligations                       -                 -                   -             -              -

Other commercial commitments                         -                 -                   -             -              -

                                         ---------------------------------------------------------------------------------
                                                     -                 -                   -             -              -
                                         ---------------------------------------------------------------------------------
</TABLE>

G. Safe harbor

Not applicable.


Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

Chairman
Barry Bateman, 60, was appointed to the Board on 27 September 1996 and as
Chairman on 1 January 2003. Barry is vice-chairman of Fidelity International and
a director of the Investment Management Association. Barry has previously held a
number of directorships within the Fidelity International group and has also
worked for Datastream and Hoare Govett.

Executive Directors
Jean-Yves Charlier, Chief Executive Officer, 41, is on secondment from Fidelity
International and was appointed to the Board on 30 August 2004. Jean-Yves was
previously chief of operations of the Global Services division of BT Group and
has also worked for Equant and Wang.

Antony Bates, Chief Administrative and Financial Officer, 48, is a Chartered
Accountant and was appointed to the Board on 1 May 2004, having joined us in
November 2003 as interim Chief Financial Officer. Antony was previously group
finance director of EMI and has also worked for Habitat, Phillip Morris (now
Altria) and Arthur Andersen.

Non-executive Directors
Andreas Barth, 60, was appointed to the Board on 1 September 2003. Andreas is
chairman of the board of BOG Management and a member of the supervisory board of
TDS Informationstechnologie. Andreas was previously senior vice-president of
Compaq Computer Corporation and has also worked for Thomson-CSF, Texas
Instruments and Ford.

Vincenzo Damiani, 65, was appointed to the Board on 23 July 2002. Vincenzo is a
non-executive director of Banca di Roma and of Data Services SpA. Vincenzo was
previously corporate vice-president of EDS Corporation and has also worked for
Digital Equipment Europe and IBM.

Hans Eggerstedt, 67, was appointed to the Board on 2 June 2003. Hans is a member
of the advisory council of the ING Group, a member of the supervisory board of
Rodamco Europe, a member of the supervisory board of Unilever Deutschland and a
non-executive director of Jeronimo Martins. Hans was previously finance director
of Unilever.

Gene Gabbard, 64, was appointed to the Board on 6 January 2005. Gene is a member
of the board of Trillion Partners, a member of the board of PRE Holdings, a
member of the board of Knology, a special limited partner of Ballast Point
Ventures and a review committee member for Dali Hook Partners. Gene was
previously executive vice president and chief financial officer of MCI
Communications and has also been an advisor to The Walt Disney Company and
worked for Telecom*USA, Digital Communications (now Hughes Network Systems) and
COMSAT Laboratories.


                                     - 53 -
<PAGE>


Robert Hawley, 68, was appointed to the Board on 21 August 1998. Robert is a
non-executive director of Rutland Trust. Robert was previously chief executive
of British Energy and of Nuclear Electric and was also an advisor to HSBC Bank.

Timothy Hilton, 52, was appointed to the Board on 26 May 1999. Timothy is
president of Fidelity Broadband Group. Timothy was previously president of
Fidelity Capital and was also a partner of the U.S. corporate law firm Sullivan
& Worcester.

John Remondi, 68, was appointed to the Board on 31 December 2004. John is senior
vice president and managing director of FMR Corp. John is a director of Asia
Telecom Group, MetroRED Telecom Group, The Strober Organisation, W.R. Hambrecht
and Geerlings & Wade. John has previously held a number of senior positions
within the Fidelity organization.

H. Frans van den Hoven, 81, was appointed to the Board on 30 September 1996.
Frans is a member of the board of Hunter Douglas and a non-executive director of
three funds managed by Fidelity International. Frans was previously chairman of
ABN Amro Bank and of Unilever.

Senior Management
Richard Blaustein, Managing Director France, joined us in September 2004.
Richard was previously vice president Global transformation for BT Global
Services and has also worked for Equant, Gartner Group, Cap Gemini Sogeti,
Becton Dikinson and Price Waterhouse France.

Wolfgang Essig, Managing Director Germany, joined us in July 2003. Wolfgang was
previously head of Central and Eastern Europe for British Telecom and has also
worked for Siemens and Deutsche Bundespost (now Deutsche Telekom).

Lakh Jemmett, Managing Director Strategic Markets, joined us in December 1997.
Lakh has previously worked for Commercial Cable Telecom, British Telecom, Global
One UK and Sprint International.

Bruce King, Managing Director Human Resources, joined us in December 2004. Bruce
was previously director Human Resources International for EMC Corporation and
has also worked for Getronics NV, Wang Global and Unisys.

Tanuja Randery, Managing Director Business Transformation, joined us in
September 2004. Tanuja was previously vice president of Global Strategic
Initiatives and of the Software Group of EMC Corporation and has also worked for
McKinsey.

Detlef Spang, Managing Director Sales and Marketing, joined us in September
2004. Detlef was previously senior vice president EMEA for Equant and has also
worked for Global One US, Deutsche Telekom, Sprint Germany and Cable and
Wireless Germany.

Ken Starkey, Chief Operations Officer, is on secondment from FMR Corp. and
joined us in August 2002. Ken was previously executive vice president for the
Telecommunications Group of Fidelity Investments Systems Company and has also
worked for Bear Stearns, MCI Telecommunications.

Tim Wort, Managing Director UK, joined us in September 2004. Tim was previously
general manager EMEA for Vignettte Corporation and has also worked for Siebel
Systems and IBM.

B. Compensation

The total aggregate remuneration paid or accrued by us during the financial year
ended 31 December 2004 to or for the benefit of directors during the period and
those listed as senior management in Item 6.A was L3,803,203, of which
L1,481,143 was paid as bonuses and L188,276 was pension
contributions.


                                     - 54 -
<PAGE>


Included in the above figures is the remuneration of individual directors as
follows:
<TABLE>
<CAPTION>
Name                                 Salary / Fee            Bonus      Other Cash       Benefits         Pension              Total
----                                 ------------            -----      ----------       --------         -------              -----
<S>                           <C>         <C>              <C>             <C>            <C>              <C>             <C>
Steven Akin                   (1)         145,200          217,900               -        110,900          10,800            484,800
Andreas Barth                              30,000                -               -              -               -             30,000
Barry Bateman                                   -                -               -              -               -                  -
Antony Bates                  (2)         216,600          340,000         200,000          1,600          39,000            797,200
Jean-Yves Charlier            (3)         133,300          195,000               -          1,600          18,700            348,600
Paul Chisholm                 (4)          30,000                -               -              -               -             30,000
James Curvey                  (4)          30,000                -               -              -               -             30,000
Vincenzo Damiani                           35,000                -               -              -               -             35,000
Hans Eggerstedt                            34,300                -               -              -               -             34,300
Gene Gabbard                  (7)             n/a                -               -              -               -                n/a
Robert Hawley                              35,000                -               -              -               -             35,000
Timothy Hilton                                  -                -               -              -               -                  -
Mark Jenkins                  (5)          15,900                -               -            700           2,800             19,400
John Remondi                  (6)               -                -               -              -               -                  -
Frans van den Hoven                        35,000                -               -              -               -             35,000
-------------------------- ------- --------------- ---------------- --------------- -------------- --------------- -----------------
Total                                     740,300          752,900         200,000        114,800          71,300          1,879,300
-------------------------- ------- --------------- ---------------- --------------- -------------- --------------- -----------------
<FN>
(1) Was Chief Executive Officer until 30 August 2004 and left 31 December 2004
(2) Appointed 1 May 2004
(3) Appointed 30 August 2004
(4) Left 31 December 2004
(5) Left 29 February 2004
(6) Appointed 31 December 2004
(7) Appointed 6 January 2005
</FN>
</TABLE>

In addition to the remuneration above, the directors listed above have been
granted share options as follows; further details of the share option plans are
given in Item 6.E:

COLT Telecom Group Share Plan

<TABLE>
<CAPTION>
Name                    01-Jan-04     Granted  Exercised    Lapsed   18-Apr-05     Date of  Market   Option    Usual date      Usual
----                    ---------     -------  ---------    ------   ---------    exercise   value exercise    from which     expiry
                                                                                  --------   -----    price         first       date
                                                                                                        per   exercisable       ----
                                                                                                      share   -----------
                                                                                                      -----
<S>                     <C>        <C>           <C>       <C>       <C>         <C>        <C>     <C>      <C>           <C>
Steven Akin               500,000          -           -         -     500,000                       0.4800  29-Jul-03 to  29-Jul-12
                                                                                                                29-Jul-07
                          150,000          -           -   150,000         Nil                       0.7692  28-Jul-06 to  28-Jul-13
                                                                                                                28-Jul-08
                  -------------------------------------------------------------
                          650,000          -           -   150,000     500,000
------------------------------------------------------------------------------------------------------------------------------------
Andreas Barth                 Nil          -           -         -         Nil
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                     - 55 -
<PAGE>


<TABLE>
<CAPTION>
Name                    01-Jan-04     Granted  Exercised    Lapsed   18-Apr-05     Date of  Market   Option    Usual date      Usual
----                    ---------     -------  ---------    ------   ---------    exercise   value exercise    from which     expiry
                                                                                  --------   -----    price         first       date
                                                                                                        per   exercisable       ----
                                                                                                      share   -----------
                                                                                                      -----
<S>                     <C>        <C>           <C>       <C>       <C>         <C>        <C>     <C>      <C>           <C>
------------------------------------------------------------------------------------------------------------------------------------
Barry Bateman                 Nil          -           -         -         Nil

------------------------------------------------------------------------------------------------------------------------------------
Antony Bates                  Nil    500,000           -         -     500,000                       0.7667   4-May-07 to   4-May-14
                                                                                                                 4-May-09
                              Nil  4,000,000           -         -   4,000,000                        0.495     24-Mar-08  24-Mar-15
                  -------------------------------------------------------------
                              Nil  4,500,000           -         -   4,500,000
------------------------------------------------------------------------------------------------------------------------------------
Jean-Yves                     Nil    800,000           -         -     800,000                       0.3800  31-Aug-07 to  31-Aug-14
Charlier                                                                                                        31-Aug-09
                              Nil  6,000,000           -         -   6,000,000                        0.495     24-Mar-08  24-Mar-15
                  -------------------------------------------------------------
                              Nil  6,800,000           -         -   6,800,000
------------------------------------------------------------------------------------------------------------------------------------
Paul Chisholm           5,100,000          -     500,000         -   4,600,000   25-Feb-04  1.1300   0.6875  17-Dec-97 to  17-Dec-06
                                                                                                                17-Dec-01
                          400,000          -           -         -     400,000                       1.7000  15-Dec-98 to  15-Dec-07
                                                                                                                15-Dec-02
                  -------------------------------------------------------------
                        5,500,000          -     500,000         -   5,000,000
------------------------------------------------------------------------------------------------------------------------------------
James Curvey                  Nil          -           -         -         Nil
------------------------------------------------------------------------------------------------------------------------------------
Vincenzo Damiani           40,000          -           -         -      40,000                       0.4800  29-Jul-03 to  29-Jul-12
                                                                                                                29-Jul-07
------------------------------------------------------------------------------------------------------------------------------------
Hans Eggerstedt               Nil          -           -         -         Nil
------------------------------------------------------------------------------------------------------------------------------------
Gene Gabbard                  Nil          -           -         -         Nil
------------------------------------------------------------------------------------------------------------------------------------
Robert Hawley              68,060          -           -         -      68,060                       7.4940  25-Nov-99 to  25-Nov-08
                                                                                                                25-Nov-03
------------------------------------------------------------------------------------------------------------------------------------
Timothy Hilton                Nil          -           -         -         Nil
-------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Mark Jenkins              160,000          -           -   160,000         Nil                       6.6000   4-Aug-99 to   4-Aug-08
                                                                                                                 4-Aug-03

                           20,000          -           -    20,000         Nil                      13.3700  27-Feb-02 to  27-Feb-11
                                                                                                               cliff vest

                           20,000          -       8,000    12,000         Nil   25-Mar-04  0.9525   0.4125  26-Feb-03 to  26-Feb-12
                                                                                                                26-Feb-07

                           20,000          -       4,000    16,000         Nil   25-Mar-04  0.9525   0.4800  29-Jul-03 to  29-Jul-12
                                                                                                                29-Jul-07
                  -------------------------------------------------------------
                          220,000          -      12,000   208,000         Nil
------------------------------------------------------------------------------------------------------------------------------------
John Remondi                  Nil          -           -         -         Nil
------------------------------------------------------------------------------------------------------------------------------------
Frans van den              16,000          -           -         -      16,000                       8.5000       All 17-        All
Hoven                                                                                                           Dec-96 to  17-Dec-06
                                                                                                                17-Dec-00
                           16,000          -           -         -      16,000                      29.0000
                           16,000          -           -         -      16,000                      14.8600
                  -------------------------------------------------------------
                           48,000          -           -         -      48,000
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                     - 56 -
<PAGE>


COLT Deferred Bonus Plan
<TABLE>
<CAPTION>
Name                         01-Jan-04        Granted         Exercised         Lapsed           18-Apr-05        Date of vesting
-----                        ---------        -------         ---------         -------          ---------        ---------------
<S>                              <C>          <C>                   <C>           <C>             <C>                   <C>
Steven Akin                        Nil              -                 -               -                Nil
Andreas Barth                      Nil              -                 -               -                Nil
Barry Bateman                      Nil              -                 -               -                Nil
Antony Bates                       Nil         50,000                 -               -             50,000              26-Oct-07
Jean-Yves Charlier                 Nil        250,000                 -               -            250,000              31-Aug-07
Paul Chisholm                      Nil              -                 -               -                Nil
James Curvey                       Nil              -                 -               -                Nil
Vincenzo Damiani                   Nil              -                 -               -                Nil
Hans Eggerstedt                    Nil              -                 -               -                Nil
Gene Gabbard                       Nil              -                 -               -                Nil
Robert Hawley                      Nil              -                 -               -                Nil
Timothy Hilton                     Nil              -                 -               -                Nil
Mark Jenkins                     1,685              -                 -           1,685                Nil              27-Feb-04
John Remondi                       Nil              -                 -               -                Nil
Frans van den Hoven                Nil              -                 -               -                Nil
</TABLE>


COLT Savings Related Share Option Scheme
<TABLE>
<CAPTION>
Name                         01-Jan-04    Granted    Exercised    Lapsed     18-Apr-05         Option        Usual date       Usual
-----                        ---------    -------    ---------    -------    ---------        exercise       from which      expiry
                                                                                             price per            first        date
                                                                                                 share      exercisable        ----
                                                                                                 -----      -----------
<S>                             <C>           <C>          <C>     <C>             <C>          <C>            <C>         <C>
Steven Akin                        Nil          -            -          -          Nil
Andreas Barth                      Nil          -            -          -          Nil
Barry Bateman                      Nil          -            -          -          Nil
Antony Bates                       Nil          -            -          -          Nil
Jean-Yves Charlier                 Nil          -            -          -          Nil
Paul Chisholm                      Nil          -            -          -          Nil
James Curvey                       Nil          -            -          -          Nil
Vincenzo Damiani                   Nil          -            -          -          Nil
Hans Eggerstedt                    Nil          -            -          -          Nil
Gene Gabbard                       Nil          -            -          -          Nil
Robert Hawley                      Nil          -            -          -          Nil
Timothy Hilton                     Nil          -            -          -          Nil
Mark Jenkins                    18,000          -            -     18,000          Nil          0.4000         1-Mar-06    1-Aug-06
John Remondi                       Nil          -            -          -          Nil
Frans van den Hoven                Nil          -            -          -          Nil
</TABLE>

C. Board practices

Directors' Service Agreements
Jean-Yves Charlier's services are provided under a secondment agreement with
Fidelity International Limited. The secondment is for three years from 1
September 2004 but can be terminated by Fidelity International Limited or by the
Company at any time. In the event of termination there is no right to
compensation

Antony Bates has a service contract that can be terminated by him giving notice
of six months. Until 30 April 2005, the service contract can be terminated by
the Company giving notice of twenty-four months less the number of completed
months since 1 May 2004. From 1 May 2005, the service contract can be terminated
by the Company giving notice of twelve months. In the event of termination, he
has the right to receive an amount which, subject to mitigation, is equal to his
salary and other benefits for the period of notice plus bonus equal to


                                     - 57 -
<PAGE>


the average bonus percentage of salary achieved during the previous two years
or, if termination is before two bonus payments have been made, at 127.5% of his
base salary.

Barry Bateman, Gene Gabbard and John Remondi have service contracts which can be
terminated by them or by the Company by giving notice of three months. In the
event of termination no compensation is due.

Andreas Barth, Hans Eggerstedt, Vincenzo Damiani, Robert Hawley, Timothy Hilton
and Frans van den Hoven have service contracts which can be terminated by them
or by the Company at any time. In the event of termination there is no right to
compensation.

For information on the period of service of our directors, please see Item 6.A.
"Directors and Senior Management." The Articles of Association require that all
directors retire and submit themselves for re-election each year.

Audit Committee
Hans Eggerstedt is the chairman of the Audit Committee and is also the committee
member identified as having recent and relevant financial experience. The other
members of the committee are Vincenzo Damiani, Robert Hawley and Frans van den
Hoven. Hans Eggerstedt was appointed to the committee on 23 February 2004 and as
committee chairman on 20 October 2004, replacing Frans van den Hoven.

Normally attending meetings of the committee in advisory capacities are the
Chief Administrative and Financial Officer, the Group Financial Controller, the
Senior Director of Audit, Risk and Security and representatives from the
external auditors.

During 2004, the committee met the external auditors without any Company
management present and it is intended that this will happen at least once in
2005.

The duties of the committee are to review the integrity of the financial
statements, to review the effectiveness of the internal control policies, to
review the procedures for managing risks, to oversee the internal audit
function, to consider the appointment and relationship with the external
auditors, and to review procedures for handling allegations from whistleblowers.

During 2004, the committee considered, among other matters, compliance with the
provisions of the Combined Code and with the requirements of the US
Sarbanes-Oxley Act of 2002, accounting developments, the financial control
environment, and risk management and control.

To guard against the objectivity and independence of the external auditor being
compromised, the committee has adopted a policy under which it is required to
pre-approve non-audit services performed by the external auditor.

Compensation Committee
Robert Hawley is the chairman of the Compensation Committee and the other
members are Andreas Barth, Barry Bateman and Vincenzo Damiani. Andreas Barth was
appointed to the committee on 24 February 2004 and Robert Hawley was appointed
to the committee and as committee chairman on 31 December 2004, replacing Barry
Bateman. James Curvey was a member of the committee until 31 December 2004.

Normally attending meetings of the committee in an advisory capacity is the
Managing Director, Human Resources.

The duties of the committee are to review the compensation policy, to determine
the remuneration of executive Directors, and to exercise discretions on behalf
of the Board in relation to employee benefit schemes.

D. Employees

At 31 December 2004, we had 3,869 full-time and part-time employees and a
further 218 individuals were engaged either on contract, fixed term or on
secondment. Although a small number of our employees are members of a union they
are not covered by a collective bargaining agreement. Works Councils, which have


                                     - 58 -
<PAGE>


rights to be consulted on certain employment and business issues, exist in three
of the countries in which we operate, namely France, Germany and The
Netherlands. In connection with the construction and maintenance of our networks
and the conduct of our other business operations, we use third party
contractors, some of whose employees may be represented by unions or collective
bargaining agreements.

Employees at 31 December 2004 by geographic region were:
 North Region                            1,489
 Central Region                          1,271
 South Region                              908
 India                                     201
                                 -------------
 Total                                   3,869
                                 -------------

The countries in each region are:
 Region              Countries comprising the region
 North Region        Belgium, Denmark, Ireland, The Netherlands, Sweden and the
                     United Kingdom
 Central Region      Austria, Germany and Switzerland
 South Region        France, Italy, Portugal and Spain

E. Share ownership

COLT Telecom Group Share Plan.
The COLT Telecom Group Share Plan was adopted on 7 November 1996, for the
issuance to our key employees and consultants of options to purchase our
Ordinary Shares.

At 18 April 2005 options to subscribe for our Ordinary Shares under the Share
Option Plan were as follows:
<TABLE>
<CAPTION>
Date of grant  Exercise price     Dates of vesting     Date of                      Number of Ordinary Shares under option
-------------  --------------     ----------------     expiration                   --------------------------------------
                                from               to  ----------            Granted      Exercised         Lapsed    Outstanding
                                ----               --                        -------      ---------         ------    -----------
<S>                   <C>       <C>                    <C>               <C>             <C>            <C>            <C>
Dec 96                L0.6880   Dec 97         Dec 01  Dec 06             25,824,000     12,744,036      7,776,964      5,303,000
Jan 97                L0.7790   Jan 98         Jan 02  Jan 07                396,000        226,400        149,600         20,000
Apr 97                L0.7060   Apr 98         Apr 02  Apr 07              1,280,000        675,000        377,600        227,400
Aug 97                L0.9560   Aug 98         Aug 02  Aug 07              2,488,000        726,000        923,600        838,400
Nov 97                L1.2850   Nov 98         Nov 02  Nov 07              3,196,000      1,418,362      1,286,038        491,600
Dec 97                L1.7000   Dec 98         Dec 02  Dec 07              4,204,000      1,104,400      1,148,000      1,951,600
Feb 98                L2.7380   Feb 99         Feb 03  Feb 08                140,000         56,000         84,000              -
Feb 98                L2.7430   Feb 99         Feb 03  Feb 08                900,000        530,220        369,780              -
May 98                L4.7560   May 99         May 03  May 08                830,000        207,750        340,000        282,250
Aug 98                L6.6000   Aug 99         Aug 03  Aug 08              2,906,000        591,544      1,695,712        618,744
Nov 98                L7.4940   Nov 99         Nov 03  Nov 08              1,408,075        113,215        980,400        314,460
Dec 98                L7.8770   Dec 99         Dec 03  Dec 08                100,000              -        100,000              -
Mar 99                L11.300   Mar 00         Mar 04  Mar 09                990,000        122,500        597,000        270,500
Apr 99                L10.934   Apr 00         Apr 04  Apr 09              1,000,000        150,000        850,000              -
May 99                L12.254   May 00         May 04  May 09                585,000         58,000        390,000        137,000
Aug 99                L12.744   Aug 00         Aug 04  Aug 09                930,000         15,000        659,000        256,000
Nov 99                L21.000   Nov 00         Nov 04  Nov 09                800,500              -        587,500        213,000
Dec 99                L24.394   Dec 00         Dec 04  Dec 09                740,000              -        470,000        270,000
Feb 00                L36.177   Feb 01         Feb 05  Feb 10                745,000              -        440,000        305,000
May 00                L22.610   May 01         May 05  May 10                792,500              -        396,174        396,326
Jun 00                L26.660   Jun 01         Jun 05  Jun 10                846,000              -        455,500        390,500
Aug 00                L19.157   Aug 01         Aug 05  Aug 10              1,181,500              -        690,434        491,066
Aug 00                L17.727   Aug 01         Aug 05  Aug 10                317,500              -        161,250        156,250
Nov 00                L19.484   Nov 01         Nov 05  Nov 10                800,000              -        330,000        470,000
Dec 00                L15.184   Dec 01         Dec 05  Dec 10                757,321              -        334,001        423,320
Feb 01                L13.370   Feb 02         Feb 06  Feb 11              2,401,040              -      1,616,292        784,748
Feb 01                L20.055   Feb 02         Feb 06  Feb 11                400,000              -        400,000              -
Feb 01                L26.740   Feb 02         Feb 06  Feb 11                750,000              -        750,000              -
May 01                L8.4370   May 02         May 06  May 11                866,500              -        588,500        278,000
May 01                L12.656   May 02         May 06  May 11                250,000              -        250,000              -
May 01                L16.874   May 02         May 06  May 11                250,000              -        250,000              -
Jun 01                L7.1000   Jun 02         Jun 06  Jun 11              2,688,750              -      1,193,000      1,495,750
</TABLE>


                                     - 59 -
<PAGE>


<TABLE>
<CAPTION>
Date of grant  Exercise price     Dates of vesting     Date of                      Number of Ordinary Shares under option
-------------  --------------     ----------------     expiration                   --------------------------------------
                                from               to  ----------            Granted      Exercised         Lapsed    Outstanding
                                ----               --                        -------      ---------         ------    -----------
<S>                   <C>       <C>                    <C>               <C>             <C>            <C>            <C>
Aug 01                L3.2170   Aug 02         Aug 06  Aug 11              1,464,500              -        972,500        492,000
Nov 01                L1.7240   Nov 02         Nov 06  Nov 11                231,000              -         26,000        205,000
Dec 01                L1.5610   Dec 02         Dec 06  Dec 11              1,410,500              -        408,100      1,002,400
Feb 02                L0.4125   Feb 03         Feb 07  Feb 12              4,688,500        180,000      2,638,000      1,870,500
May 02                L0.4475   May 03         May 07  May 12                 72,500          6,000         51,500         15,000
Jul 02                L0.4800   Jul 03         Jul 07  Jul 12              5,602,300        128,360      1,380,900      4,093,040
Aug 02                L0.5042   Aug 03         Aug 07  Aug 12                250,000              -              -        250,000
Oct 02                L0.3234   Oct 03         Oct 07  Oct 12                250,000         70,000        180,000              0
Nov 02                L0.4359   Nov 03         Nov 07  Nov 12                400,000              -              -        400,000
Mar 03                L0.4067   Mar 04         Mar 08  Mar 13                200,000              -              -        200,000
Apr 03                L0.4550   Apr 04         Apr 08  Apr 13                 32,500              -         22,500         10,000
May 03                L0.4675   May 04         May 08  May 13                150,000              -              -        150,000
May 03                L0.4925   May 04         May 08  May 13                 50,000              -              -         50,000
Jul 03                L0.7690   Jul 06         Jul 08  Jul 13              7,161,000              -      1,317,000      5,844,000
Oct 03                L1.0120   Oct 06         Oct 08  Oct 13                 60,000              -              -         60,000
Feb 04                L1.1283   Feb 07         Feb 09  Feb 14                 60,000              -              -         60,000
Apr 04                L0.8400   Apr 07         Apr 09  Apr 14                 20,000              -              -         20,000
May 04                L0.7700   May 07         May 09  May 14                500,000              -              -        500,000
Jul 04                L0.4200   Jul 07         Jul 09  Jul 14                165,000              -              -        165,000
Aug 04                L0.3800          Aug 07          Aug 14              6,392,500              -        139,700      6,252,800
Aug 04                L0.3800   Aug 07         Aug 09  Aug 14                800,000              -              -        800,000
Oct 04                L0.4100   Oct 07         Oct 09  Oct 14              1,210,000              -              -      1,210,000
Mar 05                L0.5500   Mar 08         Mar 10  Mar 15                770,000              -              -        770,000
Mar 05                L0.4950          Mar 08          Mar 15             32,000,000              -              -     32,000,000
                                                                       -------------  -------------  -------------  -------------
                                                                         125,703,986     19,122,787     33,776,545     72,804,654
                                                                       -------------  -------------  -------------  -------------
</TABLE>

In addition to options granted under the COLT Telecom Group Share Plan, options
to subscribe for 80,000 Ordinary Shares were granted to Frans van den Hoven,
16,000 of which vested on the closing of our initial public offering, 16,000 of
which vested on each of 17 December 1997, 1998, 1999 and 2000. The exercise
price for the initial 16,000 option was L0.6875; the exercise price for the
16,000 option vesting on 17 December 1997, 1998, 1999 and 2000 is L1.65875,
L8.50, L29.00 and L14.86 per share respectively. He exercised 16,000 options
with an exercise price of L0.6875 and 16,000 with an exercise price of L1.65875
on 13 August 1999 and 5 June 2000, respectively. These Options are included in
the COLT Telecom Group Share Plan table in Item 6.B above.

Of the share options outstanding under this plan, 12,456,060 are held by our
directors as set out in the COLT Telecom Group Share Plan table in Item 6.B.
This figure is inclusive of the options for Frans van den Hoven set out in the
paragraph above,

For additional information relating to the COLT Telecom Group Share Plan, please
refer to our Financial Statements included as part of this report.

COLT Deferred Bonus Plan.
The COLT Deferred Bonus Plan was adopted on 25 May 2000. Under this plan,
selected senior employees may be entitled to receive an award of shares
representing a proportion of the amount of their annual cash bonus. In October
2003 the rules were amended so that selected senior employees may be invited to
defer all or a portion of their annual cash bonus and receive a matching award
in the form of an option to acquire shares with a market value equal to half the
amount of the deferred bonus.

At 18 April 2005, outstanding options to subscribe for our Ordinary Shares under
this part of the Deferred Bonus Plan were as follows:


                                     - 60 -
<PAGE>


<TABLE>
<CAPTION>
                                                                                Number of Ordinary Shares
                                                                                -------------------------
Date of grant       Date of vesting                         Granted           Exercised             Lapsed        Outstanding
-------------       ---------------                         -------           ---------             ------        -----------
<S>                 <C>                                     <C>                  <C>                <C>               <C>
Feb 01              Feb 2004 to Feb 06                       24,182              15,722              8,460                  -
Feb 04              Feb 07                                  156,519                   -             34,581            121,938
Aug 04              Aug 07                                  250,000                   -                  -            250,000
Oct 04              Oct 07                                   50,000                   -                  -             50,000
Mar 05              Mar 08                                   66,678                   -                  -             66,678
                                                     ---------------    ---------------    ---------------    ---------------
                                                            547,379              15,722             43,041            488,616
                                                     ---------------    ---------------    ---------------    ---------------
</TABLE>

Of the share awards outstanding under this plan, 300,000 are held by our
directors as set out in the COLT Deferred Bonus Plan table in Item 6.B.

For additional information relating to the COLT Deferred Bonus Plan, please
refer to our Financial Statements included within this report.

COLT Savings Related Share Option Scheme
The Savings Related Share Option Plan was approved by our shareholders on 17
June 1997. It is open to all of our U.K. employees and our participating
subsidiaries subject to the power of the Board to impose a minimum qualification
period, which must not exceed five years (and in the case of any director, who
is required to devote not less than 25 hours a week to his duties). We have
established a Qualifying Employee Share Ownership Trust ("QUEST") to deliver the
shares to U.K. option holders at the time of exercise in the most efficient
manner.

At 18 April 2005, outstanding options to subscribe for our Ordinary Shares under
the Savings Related Share Option Plan were as follows:
<TABLE>
<CAPTION>
Date of Grant       Option Price  Date of Vesting                 Options         Exercised           Lapsed         Outstanding
-------------       ------------  ---------------                 -------         ---------           ------         -----------
<S>                     <C>       <C>                          <C>                  <C>           <C>                 <C>
Dec 01                  L 1.6150  1 Mar 05                      6,986,000                 -        6,602,132             383,868
Dec 02                  L 0.4000  1 Mar 06                     18,410,000           342,141        4,962,743          13,105,116
Dec 03                  L 1.0270  1 Mar 07                        58,323*                 -                -              58,323
Dec 03                  L 0.9950  1 Mar 07                      1,560,919                 -          845,782             715,137
Dec 04                  L 0.4300  1 Mar 09                       202,330*                 -                -             202,330
Dec 04                  L 0.4650  1 Mar 08                      3,737,658                 -           85,589           3,652,069
                                                          ----------------   --------------   --------------   -----------------
                                                               30,955,230           342,141       12,496,246          18,116,843
                                                          ----------------   --------------   --------------   -----------------
<FN>
* each option holder entered into a four year savings contract.
</FN>
</TABLE>

Of the options outstanding under this scheme, there were none held by our
directors.

For additional information relating to the Savings Related Share Option Plan,
please refer to our Financial Statements included within this report.

Shareholdings
The interests of directors in our Ordinary Shares at 18 April 2005 are as
follows:
 Andreas Barth                                      41,961
 Barry Bateman                                           -
 Antony Bates                                      100,000
 Jean-Yves Charlier                                500,000
 Vincenzo Damiani                                  166,866
 Hans Eggerstedt                                    39,094
 Gene Gabbard                                       23,282
 Robert Hawley                                      96,865
 Timothy Hilton                                     46,080
 John Remondi                                      200,000
 Frans van den Hoven                               107,116

All interests reflected above represent less than 1% of the Ordinary Shares
outstanding.


                                     - 61 -
<PAGE>


For additional information on share ownership plans, please refer to our
Financial Statements included as part of this report.

Item 7. Major Shareholders and Related Party Transactions

A. Major shareholders

The following table sets out at 18 April 2005 the beneficial ownership of our
Ordinary Shares by each person or entity known by us to beneficially own more
than 5% of the outstanding share capital:
<TABLE>
<CAPTION>
Shareholder                                                                Number of Ordinary            %
                                                                                       Shares
<S>                                                           <C>                 <C>                  <C>
FMR Corp.                                                     (1)                 471,089,421          31.2
82 Devonshire Street
Boston, Massachusetts 02109

Fidelity Investors Limited Partnership                        (2)                 313,073,111          20.7
82 Devonshire Street
Boston, Massachusetts 02109

Amvescap plc                                                  (3)                 150,163,486           9.9
30, Finsbury Square
London, EC2A 1AG
England

Fidelity International Limited                                (4)                 107,906,957           7.1
Pembroke Hall
42 Crow Lane
Pembroke
Bermuda HM-19

<FN>
(1) 1. FMR Corp.'s holding is held through:
(a) FMR Corp directly holds 61,884,335 ordinary shares;
(b) a wholly owned subsidiary, that as trustee holds 70,852,670 ordinary shares
for The Colt, Inc. 2004 Annuity Trust, 157,739,775 ordinary shares for The Colt,
Inc. 2003 Annuity Trust, 55,235,694 ordinary shares for The Colt, Inc. 2002
Annuity Trust, 57,882,702 ordinary shares for The Colt, Inc. 2001 Annuity Trust
and 119,767 ordinary shares for The Colt, Inc. 2001 Charitable Trust; and
(c) a wholly-owned subsidiary, Strategic Advisers, Inc., that as manager of
three charitable foundations has sole voting power over 9,715,293 ordinary
shares for the Edward C. Johnson Fund, 9,810,218 ordinary shares for the
Fidelity Foundation and 45,142,291 ordinary shares for the Fidelity Non-Profit
Management Foundation

(2) Fidelity Investors Limited Partnership is a Delaware limited partnership.

(3) Amvescap PLC is a fund manager whose interest is a non-beneficial interest
held either directly or through its subsidiary companies.

(4) Fidelity International Limited is a Bermuda company.
</FN>
</TABLE>

We have a relationship agreement with certain members of the Fidelity Group
which provides, among other things, that as long as the Fidelity Group owns, or
has voting control of, at least 50% of our Ordinary Shares, we are restricted
from issuing any Ordinary Shares or other equity securities (including
securities convertible into Ordinary Shares), subject to certain exceptions,
without the prior written consent of Fidelity. Other than as provided in the
relationship agreement, no shareholder has any special voting rights.


B. Related party transactions

Please refer to that portion of Section A of Item 5 "Operating and Financial
Review and Prospects" entitled "Transactions with Affiliates" and Section A of
Item 7 "Major Shareholders."


                                     - 62 -
<PAGE>


Item 8. Financial Information

The Financial Statements are set out in Item 18.

Item 9. The Offer and Listing

A. Offer and Listing Details

Our Ordinary Shares are traded on the London Stock Exchange and our ADSs, each
representing four of our Ordinary Shares, are included for trading in the Nasdaq
National Market System, or Nasdaq. The ADSs are evidenced by American Depositary
Receipts, or ADRs issued by The Bank of New York, as Depositary under a Deposit
Agreement, dated 17 December 1996, as amended, among COLT, the Depositary and
the holders from time to time of the ADRs.

The tables below set forth, for the periods indicated (i) the reported high and
low sales prices for Ordinary Shares based on the Daily Official List of the
London Stock Exchange and (ii) the reported high and low sales prices of the
ADSs on Nasdaq.

<TABLE>
<CAPTION>
                              The London Stock Exchange                                  NASDAQ
                                  (Pounds per Share)                             (U.S. Dollars per ADS)
                                        High                     Low                    High                    Low
<C>                                    <C>                     <C>                    <C>                     <C>
2000                                   40.73                   12.10                  266.88                  62.75
2001                                   19.21                    0.62                  113.00                   3.57
2002                                    1.33                    0.28                    8.00                   1.63
2003                                    1.16                    0.30                    7.50                   2.00
2004                                    1.31                    0.36                   10.00                   2.73

<CAPTION>
                              The London Stock Exchange                                  NASDAQ
                                  (Pounds per Share)                             (U.S. Dollars per ADS)
                                        High                     Low                    High                    Low
<C>                                    <C>                     <C>                    <C>                     <C>
2003
          First Quarter                 0.46                    0.34                    2.95                   2.03
          Second Quarter                0.77                    0.30                    4.99                   2.00
          Third Quarter                 1.16                    0.59                    7.49                   4.18
          Fourth Quarter                1.11                    0.89                    7.50                   6.02
2004
          First Quarter                 1.31                    0.89                   10.00                   6.59
          Second Quarter                0.97                    0.69                    7.13                   4.80
          Third Quarter                 0.53                    0.36                    3.95                   2.73
          Fourth Quarter                0.48                    0.40                    3.71                   3.00
2005
          First Quarter                 0.62                    0.46                    4.67                   3.45

<CAPTION>
                              The London Stock Exchange                                  NASDAQ
                                  (Pounds per Share)                             (U.S. Dollars per ADS)
                                        High                     Low                    High                    Low
<C>                                    <C>                     <C>                    <C>                     <C>
October 2004                            0.45                    0.40                    3.26                   3.00
November 2004                           0.48                    0.43                    3.69                   3.15
December 2004                           0.47                    0.44                    3.71                   3.33
January 2005                            0.57                    0.46                    4.35                   3.45
February 2005                           0.62                    0.54                    4.67                   4.10
March 2005                              0.55                    0.49                    4.26                   3.66
</TABLE>


                                     - 63 -
<PAGE>


At 18 April 2005, 21,907,679 Ordinary Shares and ADRs evidencing 7,554,068 ADSs
(representing 30,216,272 Ordinary Shares) were held of record in the U.S. These
Ordinary Shares and ADRs, were held by 15 and 32 record holders, respectively,
and represented 1.5% of, and evidenced ADSs representing 0.5% of, respectively,
the total number of Ordinary Shares outstanding. Since certain of these Ordinary
Shares and ADRs were held by brokers or other nominees, the number of record
holders in the U.S. may not be representative of the number of beneficial
holders or of where the beneficial holders are resident.

Between November 1997 and April 2000 we issued L50,000,000 principal amount of
10.125% Senior Notes due November 2007 ("2007 Sterling 10.125% Note"),
DM150,000,000 principal amount of 8.875% Senior Notes due November 2007; ("2007
DM 8.875% Note"), DM600,000,000 principal amount of 7.625% Senior Notes due July
2008 ("2008 DM 7.625% Note"), DM600,000,000 principal amount of 2% Senior
Convertible Notes due August 2005 ("2005 DM Convertible Note"),
(euro)295,000,000 principal amount of 2% Senior Convertible Notes due March 2006
("March 2006 Euro Convertible Note"), (euro)368,000,000 principal amount of 2%
Senior Convertible Notes due December 2006 ("December 2006 Euro Convertible
Note"), (euro)320,000,000 principal amount of 7.625% Senior Notes due December
2009 ("2009 DM 7.625% Note") and (euro)402,500,000 principal amount of 2% Senior
Convertible Notes due April 2007 ("2007 Euro Convertible Note").

The 2005 DM Convertible Note and December 2006 Euro Convertible Note were
redeemed in full by us on 19 October 2004. The 2007 Sterling 10.125% Note and
2007 DM 8.875% Note were redeemed in full by us on 21 January 2005.

The 2008 DM 7.625% Note, March 2006 Euro Convertible Note, 2009 DM 7.625% Note
and 2007 Euro Convertible Note (collectively referred to as the "Senior Notes")
are listed on the London Stock Exchange. However, because little or no active
trading market exists for the Senior Notes, no price information is provided for
them.

B. Plan of distribution

Not Applicable.

C. Markets

See subsection A entitled "Offer and Listing Details," above.

D. Selling shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the issue

Not applicable.

Item 10. Additional Information

A. Share capital

Not Applicable.

B. Memorandum and Articles of Association

We are registered with the Registrar for Companies for England and Wales under
Company No. 3232904.


                                     - 64 -
<PAGE>


Object and Purposes
Our principal objects are to carry on business as a public limited company and
to carry on any trade or business whatsoever. We have multiple business
objectives and purposes and are authorised to do such things as the Board may
consider to further our interests, all as provided in our Memorandum of
Association at clause 4.

Directors
(A) Subject to the provisions of the Companies Acts and of paragraph (J) of
article 94 of the Articles of Association, no director or proposed or intending
director shall be disqualified by his office from contracting with the company,
either with regard to his tenure of any office or place of profit or as vendor,
purchaser or in any other manner whatever, nor shall any contract in which any
director is in any way interested be liable to be avoided, nor shall any
director who is so interested be liable to account to the company or the members
for any remuneration, profit or other benefit realised by the contract by reason
of the director holding that office or of the fiduciary relationship thereby
established.

Save as otherwise provided by the articles, a director shall not vote on, or be
counted in the quorum in relation to, any resolution of the board in respect of
any contract in which he has an interest which (taken together with any interest
of any person connected with him) is to his knowledge a material interest and,
if he shall do so, his vote shall not be counted, but this prohibition shall not
apply to any resolution where that material interest arises only from one or
more of the following matters:

(i) the giving to him of any guarantee, indemnity or security in respect of
money lent or obligations undertaken by him or by any other person at the
request of or for the benefit of the company or any of its subsidiary
undertakings,

(ii) the giving to a third party of any guarantee, indemnity or security in
respect of a debt or obligation of the Company or any of its subsidiary
undertakings for which he himself has assumed responsibility in whole or in part
under a guarantee or indemnity or by the giving of security,

(iii) where the company or any of its subsidiary undertakings is offering
securities in which offer the director is or may be entitled to participate as a
holder of securities or in the underwriting or sub-underwriting of which the
director is to participate,

(iv) any contract in which he is interested by virtue of his interest in shares
or debentures or other securities of the company or by reason of any other
interest in or through the company,

(v) any contract concerning any other company (not being a company in which the
director owns one per cent or more) in which he is interested directly or
indirectly whether as an officer, shareholder, creditor or otherwise howsoever,

(vi) any contract concerning the adoption, modification or operation of a
pension fund or retirement death or disability benefits scheme which relates
both to directors and employees of the company or of any of its subsidiary
undertakings and does not provide in respect of any director as such any
privilege or advantage not accorded to the employees to which the fund or scheme
relates,

(vii) any contract for the benefit of employees of the company or of any of its
subsidiary undertakings under which he benefits in a similar manner to the
employees and which does not accord to any director as such any privilege or
advantage not accorded to the employees to whom the contract relates, and

(viii) any contract for the purchase or maintenance for any director or
directors of insurance against any liability.

A company shall be deemed to be one in which a director owns one per cent or
more if and so long as (but only if and so long as) he, taken together with any
person connected with him, is to his knowledge (either directly or indirectly)
the holder of or beneficially interested in one per cent or more of any class of
the equity share capital of that company or of the voting rights available to
members of that company. For the purpose of this paragraph of this article there
shall be disregarded any shares held by the director or any such person as bare
or custodian trustee and in which he has no beneficial interest, any shares
comprised in a trust in which his, or any


                                     - 65 -
<PAGE>


such person's, interest is in reversion or remainder if and so long as some
other person is entitled to receive the income of the trust and any shares
comprised in an authorised unit trust scheme in which he, or any such person, is
interested only as a unit holder.

Where a company in which a director owns one per cent or more is materially
interested in a contract, he also shall be deemed materially interested in that
contract.

If any question shall arise at any meeting of the board as to the materiality of
the interest of a director (other than the chairman of the meeting) or as to the
entitlement of any director (other than the chairman of the meeting) to vote or
be counted in the quorum and the question is not resolved by his voluntarily
agreeing to abstain from voting or not to be counted in the quorum, the question
shall be referred to the chairman of the meeting and his ruling in relation to
the director concerned shall be conclusive except in a case where the nature or
extent of his interest (so far as it is known to him) has not been fairly
disclosed to the board. If any question shall arise in respect of the chairman
of the meeting, the question shall be decided by a resolution of the board (for
which purpose the chairman shall be counted in the quorum but shall not vote on
the matter) and the resolution shall be conclusive except in a case where the
nature or extent of the interest of the chairman (so far as it is known to him)
has not been fairly disclosed to the board.

A director who to his knowledge is in any way, whether directly or indirectly,
interested in a contract with the Company shall declare the nature of his
interest at the meeting of the board at which the question of entering into the
contract is first taken into consideration, if he knows his interest then
exists, or in any other case at the first meeting of the board after he knows
that he is or has become so interested. For the purposes of this article, a
general notice to the board by a director to the effect that (a) he is a member
of a specified company or firm and is to be regarded as interested in any
contract which may after the date of the notice be made with that company or
firm or (b) he is to be regarded as interested in any contract which may after
the date of the notice be made with a specified person who is connected with
him, shall be deemed to be a sufficient declaration of interest under this
article in relation to any such contract; provided that no such notice shall be
effective unless either it is given at a meeting of the board or the director
takes reasonable steps to secure that it is brought up and read at the next
board meeting after it is given.

References in the articles to a contract include references to any proposed
contract and to any transaction or arrangement whether or not constituting a
contract.

(B) A director shall not vote on or be counted in the quorum in relation to any
resolution of the board concerning his own appointment, or the settlement or
variation of the terms or the termination of his own appointment, as the holder
of any office or place of profit with the Company or any other company in which
the Company is interested but, where proposals are under consideration
concerning the appointment, or the settlement or variation of the terms or the
termination of the appointment, of two or more directors to offices or places of
profit with the Company or any other company in which the Company is interested,
a separate resolution may be put in relation to each director and in that case
each of the directors concerned shall be entitled to vote and be counted in the
quorum in respect of each resolution unless it concerns his own appointment or
the settlement or variation of the terms or the termination of his own
appointment or the appointment of another director to an office or place of
profit with a company in which the Company is interested and the director
seeking to vote or be counted in the quorum owns one per cent or more of it.

(C) The board may exercise all the powers of the Company to borrow money and to
mortgage or charge all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company and to issue debentures
and other securities, whether outright or as collateral security for any debt,
liability or obligation of the Company or of any third party.

(D) No person shall be disqualified from being appointed a director, and no
director shall be required to vacate that office, by reason only of the fact
that he has attained the age of seventy years or any other age nor shall it be
necessary by reason of his age to give special notice or comply with any other
special formality in connection with his appointment or election. Where the
board convenes any general meeting of the company at which (to the knowledge of
the board) a director will be proposed for appointment or reappointment who at
the date for which the meeting is convened will have attained the age of seventy
years or more, the board shall give notice of his age in years in the notice
convening the meeting or in any document accompanying the notice, but


                                     - 66 -
<PAGE>


the accidental omission to do so shall not invalidate any proceedings, or any
appointment or reappointment of that director, at that meeting. At each Annual
General Meeting of COLT all directors retire and are eligible for re-election.

(E) No shareholding qualification for directors is required.

Shares
COLT's authorised share capital consists of 2,075,000,000 Ordinary Shares.

Voting Rights. Subject to any special rights or restrictions (including
disenfranchisement) as to voting attached by or in accordance with the Articles
to any class of shares, every shareholder present in person at a general meeting
shall have one vote on a show of hands and on a poll every shareholder present
in person or by proxy shall have one vote for each share held.

An annual general meeting of shareholders must be held once in every year
(within a period of not more than 15 months after the holding of the last
preceding annual general meeting). The Board of Directors may convene an
extraordinary general meeting of shareholders whenever they think fit. General
meetings may be held at such time and place as may be determined by the Board of
Directors. An annual general meeting may be convened on at least 21 clear days
written notice to shareholders entitled to receive notice. Most extraordinary
general meetings may be convened on at least 14 clear days written notice, but
extraordinary general meetings at which it is proposed to pass certain types of
special resolutions must be convened on at least 21 clear days written notice.
Except as otherwise provided by the Articles, two shareholders present in person
or by proxy and entitled to vote shall constitute a quorum for all purposes at
general meetings.

Voting at any general meeting is by a show of hands unless a poll is properly
demanded. A poll may be demanded by (i) the chairman of the meeting, (ii) not
less than five shareholders present in person or by proxy and entitled to vote,
(iii) any shareholder or shareholders present in person or by proxy and
representing in the aggregate not less than one-tenth of the total voting rights
of all shareholders having the right to attend and to vote at such meeting or
(iv) any shareholder or shareholders present in person or by proxy and holding
shares in COLT conferring a right to attend and to vote at the meeting being
shares on which an aggregate sum has been paid up equal to not less than
one-tenth of the total sum paid up on all the shares conferring that right.
Where a poll is not demanded, the interests of beneficial owners of Ordinary
Shares who hold through a nominee may not be reflected in votes cast on a show
of hands if such nominee does not attend the meeting or receives conflicting
voting instructions from different beneficial owners for whom it holds as
nominee. Since under English law voting rights are only conferred on registered
holders of shares, a person holding through a nominee may not directly demand a
poll. COLT's listing arrangements with the NASDAQ National Market require that a
poll be taken with respect to any proposed action on which the holders of the
American Depositary Receipts (ADRs) have not instructed the depositary to vote
the same way.

Unless otherwise required by law or the Articles of Association, voting in a
general meeting is by ordinary resolution. An ordinary resolution (e.g., a
resolution for the election of directors, the approval of Financial Statements,
the declaration of a final dividend, the appointment of auditors, the increase
of authorised share capital or the grant of authority to allot shares) requires
the affirmative vote of a majority of the shareholders entitled to vote and
present in person, in the case of a vote by show of hands, or present in person
or by proxy and holding shares conferring in the aggregate a majority of the
votes actually cast on the ordinary resolution, in the case of a vote by poll. A
special resolution (e.g., a resolution amending the Memorandum of Association or
Articles of Association, changing the name of COLT or waiving the statutory
pre-emptive rights) or an extraordinary resolution (e.g., modifying the rights
of any class of shares at a meeting of the holders of such class or relating to
certain matters concerning the liquidation of COLT) requires the affirmative
vote of not less than three-fourths of the shareholders entitled to vote and
present in person, in the case of a vote by show of hands, or present in person
or by proxy and holding shares conferring in the aggregate at least
three-fourths of the votes actually cast on the resolution, in the case of a
vote by poll. In the case of a tied vote, whether on a show of hands or on a
poll, the chairman of the meeting is entitled to cast a deciding vote.


                                     - 67 -
<PAGE>


Dividends. COLT may by ordinary resolution of the shareholders declare dividends
but no such dividend shall exceed the amount recommended by the directors. If
and so far as in the opinion of the directors the financial position of COLT
justifies such payments, the directors may also from time to time pay interim
dividends of such amounts and on such dates and in respect to such periods as
they think fit. Subject to the extent that rights attached to any shares or the
terms of issue thereof provide otherwise, all dividends shall (as regards shares
not fully paid throughout the period in respect of which the dividend is paid)
be apportioned and paid proportionately to the amounts paid up during any
portion of the period in respect of which the dividend is paid. No amount paid
up on a share in advance of calls shall be treated as paid up on the share.

No dividend shall be paid otherwise than out of profits available for
distribution under the provisions of the Companies Act 1985. No dividend or
other moneys payable on or in respect of a share shall bear interest against
COLT. Any dividend unclaimed after a period of twelve years from the date on
which such dividend was declared or became due for payment shall be forfeited
and shall revert to COLT. Dividends may be declared or paid in any currency.
Sanctions imposed, in accordance with the Articles of Association, upon certain
shareholders may include the withholding of payment of all or any part of any
dividends in specified circumstances.

Distribution of Assets. Upon the winding up of COLT, the remaining assets
available for distribution will be paid to the holders of Ordinary Shares.

If COLT commences liquidation, the liquidator may, with the sanction of a
special resolution of COLT and any other sanction required by law: (i) divide
amongst the shareholders in kind the whole or any part of the assets of COLT
(whether they shall consist of property of the same kind or not) and, for that
purpose, set such values as he deems fair upon any property to be divided and
determine how the division shall be carried out between the shareholders or
different classes of shareholders; or (ii) vest the whole or any part of the
assets in trustees upon such trusts for the benefit of the contributories as the
liquidator shall think fit; but no shareholder shall be compelled to accept any
shares or other assets in respect of which there is any liability.

Issues of Shares. Subject to the Companies Act 1985 and without prejudice to any
special rights previously conferred on the holders of any issued shares or class
of shares, any share in COLT may be issued with such preferred, deferred or
other special rights, or subject to such restrictions, whether as regards
dividends, return of capital, voting or otherwise, as an ordinary resolution of
a general meeting of shareholders may from time to time determine (or, in the
absence of any such determination, as the Board of Directors may determine).
Subject to the provisions of the Companies Act 1985 and the rights conferred on
the holders of existing shares, COLT may issue redeemable shares.

Subject to the provisions of the Companies Act 1985 relating to authority,
pre-emptive rights and otherwise and of any resolution of COLT in general
meeting, all unissued shares shall be at the disposal of the directors and they
may allot (with or without conferring a right of renunciation), grant options
over or otherwise dispose of them to such persons, at such times and on such
terms as they think proper.

Transfer of Shares. The Ordinary Shares are eligible for trading in CREST, a
paperless settlement system enabling securities to be evidenced in
uncertificated form and transferred otherwise than by a written instrument,
which was introduced in the United Kingdom in July 1996. Any holder of
certificated shares may transfer all or any of his shares by an instrument of
transfer in any usual or in any other form which the directors may approve. The
instrument of transfer of a share shall be executed by or on behalf of the
transferor and (except in the case of fully paid shares) by or on behalf of the
transferee. The directors may in their absolute discretion and without assigning
any reason therefore refuse to register any transfer of shares (not being fully
paid shares), provided that when any such shares are admitted to the Official
List of the London Stock Exchange, such discretion may not be exercised to
prevent dealings in such shares from taking place on an open and proper basis.
The directors may also refuse to register any transfer (whether fully paid or
not) to more than four persons jointly. The directors may also refuse to
register a transfer of certificated shares unless the instrument of transfer is
both (i) in respect of only one class of share, and (ii) lodged with COLT
accompanied by the relevant share certificate(s) and such other evidence as the
directors may reasonably require to show the right of the transferor to make
such transfer. Pursuant to the Articles of Association, the Board of Directors
may decline to register a transfer of COLT's shares if a restriction notice has
been served on the shareholder unless the transfer is shown to the Board of
Directors to be pursuant to an arm's length sale (as defined in the Articles


                                     - 68 -
<PAGE>


of Association). Where the Ordinary Shares are held in uncertificated form the
directors may refuse to register the transfer only if such transfer is not in
accordance with the regulations relating to CREST or the transfer is in favor of
more than four transferees.

Variation of Rights
Subject to the provisions of the Companies Acts, all or any of the rights for
the time being attached to any class of shares for the time being issued may
from time to time (whether or not the company is being wound up) be varied
either with the consent in writing of the holders of not less than three-fourths
in nominal value of the issued shares of that class or with the sanction of an
extraordinary resolution passed at a separate general meeting of the holders of
those shares. All the provisions of these articles as to general meetings of the
Company shall with any necessary modifications apply to any such separate
general meeting, but so that the necessary quorum shall be a person or persons
holding or representing by proxy not less than one-third in nominal value of the
issued shares of the class, (but so that at any adjourned meeting of the holders
one holder present in person or by proxy (whatever the number of shares held by
him) shall be a quorum), that every holder of shares of the class shall be
entitled on a poll to one vote for every share of the class held by him and that
any holder of shares of the class present in person or by proxy may demand a
poll.

General Meetings and Extraordinary General Meetings
Any general meeting of the Company other than an annual general meeting shall be
called an extraordinary general meeting. The board shall convene and the Company
shall hold general meetings as annual general meetings in accordance with the
requirements of the Companies Act. The board may convene an extraordinary
general meeting whenever it thinks fit.

Two members present in person or by proxy and entitled to vote shall constitute
a quorum for all purposes, save as otherwise provided by the Articles of
Association. If a quorum is not present within five minutes after the
commencement time of the meeting, the meeting will be adjourned to another day,
being not less than three and not more than twenty eight days later. At that
reconvened meeting, one member present in person or by proxy shall constitute a
quorum.

The board may direct that persons wishing to attend any general meeting should
submit to such searches or other security arrangements or restrictions as the
board shall consider appropriate in the circumstances and shall be entitled in
its absolute discretion to, or to authorize some one or more persons who shall
include a director, the secretary or the chairman of the meeting to, refuse
entry to, or to eject from, such general meeting any person who fails to submit
to such searches or to otherwise comply with such security arrangements or
restrictions.

Limitations on Rights to own Shares
Shareholders with registered addresses outside the United Kingdom are not
entitled to receive notices from COLT unless they have given COLT an address
within the United Kingdom at which such notices may be served. There are no
limitations in the Articles of Association on the rights of non United Kingdom
citizens or residents to hold or exercise voting rights attached to the Ordinary
Shares.

Change in Control
None.

Notification of Shareholding
There are no provisions in the Memorandum of Association or Articles of
Association governing the ownership threshold above which shareholder ownership
must be disclosed.

Electronic Communications with Shareholders.
Certain shareholder documents, which the Companies Act 1985 previously required
a company to transmit to its members in writing, may be sent (where the
shareholder concerned has expressly agreed) to an electronic address nominated
by the shareholder for that purpose. We may also post communications on our
website where they will be accessible by shareholders and, subject to various
safeguards, receive proxies electronically. The procedures are not mandatory -
they enable the Company and those of its shareholders who wish to do so to
communicate electronically only if both the Company and shareholder concerned
expressly agree. Members will not be obliged to receive electronic
communications if they do not wish to do so.


                                     - 69 -
<PAGE>


Differences from law in host country
With respect to the items discussed above, applicable U.K. law is not materially
different from applicable U.S. law, except that the U.S. threshold for
shareholder ownership disclosure is 5% whereas the U.K. threshold for
shareholder ownership disclosure is 3%.

Changes in Capital
The provisions in the Memorandum and Articles of Association in respect of
changes in the Company's capital are no more stringent than required by English
law. Thus, the Company may by ordinary resolution increase, consolidate,
consolidate and then divide, sub-divide its shares or any of them (subject to
the Companies Acts), or cancel any shares which, at the date of the resolution,
have not been taken or agreed to be taken by any person. The Company may,
subject to the Companies Act, by special resolution reduce its share capital,
any capital redemption reserve, any share premium account or any other
undistributable reserve.

C. Material contracts

We have not entered into any material contracts other than in the ordinary
course of business in the past two years.

D. Exchange Controls

There are currently no U.K. foreign exchange control restrictions on remittances
of dividends on Ordinary Shares or on the conduct of our operations.

Under English Law persons who are neither residents nor nationals of the U.K.
may freely hold, vote and transfer their Ordinary Shares in the same manner as
U.K. residents or nationals.

E. Taxation

General
In this section we summarize U.K. tax consequences and U.S. federal income tax
consequences to U.S. holders, as defined below, of the acquisition, ownership
and disposition of senior notes, convertible notes, warrants, Ordinary Shares
and Ordinary Shares represented by ADSs, or, collectively, the "instruments."
This summary is not a comprehensive description of all of the tax consequences
that may be relevant to holders of these instruments, and you should consult
your professional advisor as to the tax consequences of the acquisition,
ownership and disposition of the instruments. In particular, the summary does
not address your tax treatment if you are subject to special tax rules under
income tax law, for example, if you are
     o    a bank, life insurance company, regulated investment company or other
          financial institution,
     o    a broker or dealer in securities or foreign currency,
     o    a person that has a functional currency other than the U.S. dollar,
     o    a person who acquires an instrument in connection with employment or
          other performance of services,
     o    a person subject to alternative minimum tax,
     o    a person who owns an instrument as part of a straddle, hedging
          transaction, conversion transaction, constructive sale transaction or
          constructive ownership transaction,
     o    a tax-exempt entity, or
     o    an expatriate of the United States.

If you hold directly or indirectly (considering applicable constructive
ownership rules) 10% or more in voting power or value of our Ordinary Shares,
including through ownership of outstanding ADSs, you could be subject to
additional rules for shareholders of controlled foreign corporations that we do
not discuss in this summary.

In addition, the following summary of U.K. tax consequences does not, except
where specifically discussed, address the tax consequences to you if you are a
U.S. holder
     o    that is resident, or, in the case of an individual, ordinarily
          resident, in the U.K. for U.K. tax purposes,


                                     - 70 -
<PAGE>


     o    whose holding of any instruments is effectively connected with a
          permanent establishment in the U.K. through which you carry on
          business activities or, if you are an individual who performs
          independent personal services, with a fixed base situated in the U.K.,
          or
     o    that is a corporation which, alone or together with one or more
          associated corporations, directly or indirectly controls 10% or more
          of COLT.

For purposes of this summary, a U.S. holder is
     o    a citizen or resident of the United States, including an alien
          individual who is a lawful permanent resident of the United States or
          meets the substantial presence residency test under U.S. federal
          income tax laws,
     o    a corporation, or other entity treated as a corporation for U.S.
          federal income tax purposes, that is created or organized in or under
          the laws of the United States, any of its states or the District of
          Columbia,
     o    an estate the income of which is subject to U.S. federal income
          taxation regardless of its source,
     o    a trust if a court within the United States is able to exercise
          primary supervision over the administration of the trust and one or
          more United States persons have the authority to control all
          substantial decisions of the trust, or electing trusts in existence on
          August 20, 1996 to the extent provided in Treasury regulations, or
     o    any person otherwise subject to U.S. federal income tax on a net
          income basis in respect of any of the instruments,

whose status as a U.S. holder is not overridden pursuant to the provisions of an
applicable tax treaty. If an entity treated as a partnership for U.S. federal
income tax purposes holds instruments, the tax treatment of each partner will
depend upon the status of the partner and the activities and the status of the
partnership under both U.S. and U.K. law. If you are a partner in a partnership
that holds instruments, you should consult your tax advisor.

This summary applies only to U.S. holders who hold instruments as capital
assets, which generally are assets held for investment rather than as inventory
or as property used in a trade or business. In addition, except where
specifically discussed, this summary applies to you only if you purchased a
senior note or convertible note pursuant to its initial offering at the
applicable issue price described below. Further, with respect to the convertible
notes, except where we make reference specifically to the book-entry interests
or the definitive registered securities, this summary applies to both forms of
ownership. This summary is based upon:

     o    current U.K. law and current U.S. federal income tax law and the
          practices of the U.K. Inland Revenue and the U.S. Internal Revenue
          Service, and is subject to subsequent changes to those laws and
          practices, which could have retroactive effect,
     o    the Income Tax Convention and the Protocol (together, the "Treaty")
          between the United States and the United Kingdom dated July 24, 2001
          and in force as of March 31, 2003, and
     o    the U.S.-U.K. tax treaty relating to estate and gift taxes that is
          currently in effect.

The following summary does not address the tax consequences to holders of
instruments under state, local or other (e.g., non-U.S. federal income,
non-U.K.) tax laws.

U.S. holders of ADSs will be treated as owners of the Ordinary Shares underlying
the ADSs evidenced by ADRs. Accordingly, unless otherwise noted, the U.S.
federal income and U.K. tax consequences discussed below apply commensurately to
U.S. holders of ADSs and Ordinary Shares.

For purposes of discussing the tax consequences of investments in notes, we
refer to the (euro) senior convertible notes and the DM senior convertible notes
together as convertible notes. In this summary the senior notes are a separate
category of notes that do not have a conversion feature.

Holders of instruments are advised to consult their own tax advisers with
respect to the overall tax implications of the Treaty.


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<PAGE>


U.K. Tax Consequences
We are resident in the U.K. for U.K. tax purposes. The statements regarding U.K.
tax consequences set forth below relate only to the position of persons who are
the absolute beneficial owners of the relevant notes, warrants or shares and may
not apply to some classes of holders, such as dealers in securities.

If you are considering the acquisition, ownership or disposition of the
instruments, you should consult your own tax advisor concerning the U.K. tax
consequences in light of your particular situation.

Taxation of the Senior Notes and the Convertible Notes
Payment on the Notes. Provided the senior notes and the convertible notes
continue to be listed on the London Stock Exchange, or some other stock exchange
recognized by the U.K. Inland Revenue, payments of interest to you may be made
without withholding or deduction for U.K. income tax.

In other cases, interest will generally be paid after deduction on account of
U.K. income tax at the lower rate, currently 20%. If you reside in a
jurisdiction other than the U.K., you may be entitled to a refund of all or part
of any tax withheld or to make a claim for interest on your senior notes and
convertible notes to be paid without, or subject to a reduced rate of, deduction
or withholding under the provisions of an applicable tax treaty. A refund of all
or part of any tax withheld may also be available, depending on your individual
circumstances, if you are a Commonwealth citizen or otherwise entitled to a U.K.
personal allowance.

You will not generally be assessed for U.K. income tax on the discount or
interest on the note. If you are, you may be able to make a claim under an
appropriate tax treaty for an exemption from, or a reduction of, any U.K. tax
liability that would otherwise arise.

Original Issue Discount. Original issue discount is not subject to withholding
for U.K. income tax.

Sale or Disposal, including Conversion or Redemption. You will not be liable for
U.K. tax on gains realised on the sale or other disposal, including conversion
or redemption, of your notes.

Taxation of the Warrants
You will not be liable for U.K. tax on gains on the exercise, disposal or
abandonment of your warrants.

Taxation of Ordinary Shares or ADSs
Taxation of Dividends. We do not currently anticipate paying dividends within
the foreseeable future.

There is no U.K. withholding tax on dividends. A shareholder resident for U.K.
tax purposes in the United Kingdom who receives a dividend from us may generally
claim a tax credit in an amount equal to one-ninth of the dividend.

Under the Treaty, U.S. holders are not entitled to a payment in respect of any
U.K. tax credit received, nor are dividends subject to a notional U.K.
withholding tax.

Disposition of the Ordinary Shares or ADSs. You will not be liable for U.K. tax
on gains realised on the sale or other disposal of your Ordinary Shares or ADSs.

Inheritance and Gift Taxes
If you are an individual domiciled in the U.S. for the purposes of the U.S.-U.K.
estate tax treaty and you are not a national of the U.K. for the purposes of the
U.S.-U.K. estate tax treaty, you will generally not be subject to U.K.
inheritance tax in respect of the instruments on your death or upon a gift of
any of the instruments during your lifetime provided that you have paid any
applicable U.S. federal gift or estate tax liability. If you have placed any
instruments you acquired in a trust when you were a U.S. holder, those
instruments will generally not be subject to U.K. inheritance tax if, at the
time you placed them in a trust, you were domiciled in the U.S. and you were not
a U.K. national. In the exceptional case where you are subject to both U.K.
inheritance tax and U.S. federal gift or estate tax with respect to any of the
instruments you hold or previously acquired, the U.S.-U.K. estate tax treaty
generally provides that the tax you pay in the U.K. may be credited against
federal tax you pay in the U.S. and federal tax you pay in the U.S. may be
credited against tax you pay in the U.K. based on priority rules set out in the
U.S.-U.K. estate tax treaty.


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Stamp Duty and Stamp Duty Reserve Tax
No U.K. stamp duty or stamp duty reserve tax is payable on the issue, transfer,
conversion or redemption of your senior notes or convertible bearer notes, or on
the issue of warrants.

There will generally be a liability to stamp duty on a transfer of warrants, or
Ordinary Shares acquired upon exercise of the warrants, at the rate of 0.5
percent of the amount or value of the consideration given for the transfer,
rounded up to the nearest L5 where necessary. Stamp duty is normally a liability
of the purchaser.

There will also generally be a liability to stamp duty reserve tax on an
agreement to transfer your warrants, or Ordinary Shares acquired on exercise of
the warrants, at the rate of 0.5 percent of the amount or value of the agreed
consideration. However, the stamp duty reserve tax liability is cancelled, and
the tax will be refunded if already paid, if the agreement is completed by a
duly stamped instrument of transfer within six years of the date on which the
agreement was made, or, if the agreement was conditional, the date on which the
condition is satisfied.

You may be charged stamp duty or stamp duty reserve tax at the higher rate of
1.5 percent of the amount or value of the consideration, or in some
circumstances, the value of the Ordinary Shares transferred or issued to you,
your nominee, or your agent, if you are a person whose business is or includes
the provision of clearance services or the issuance of depositary receipts. If
your business is or includes clearance services, you may elect, with the U.K.
Inland Revenue's approval in some circumstances, to be subject to stamp duty
reserve tax at the normal rate on transactions within the service, instead of at
the higher rate, on the issue or transfer of shares into the clearance service.

Deposit Agreement
No stamp duty reserve tax is chargeable on an agreement for the transfer of an
ADR or beneficial ownership of an ADR; and no stamp duty is payable on the
acquisition or transfer of an ADS evidenced by an ADR or beneficial ownership of
an ADR, provided that any instrument of transfer or written agreement to
transfer is not executed in, or at any time brought into, the U.K.

U.S. Federal Income Tax Consequences
The following summary is based upon the U.S. Internal Revenue Code of 1986, as
amended, applicable Treasury regulations promulgated and proposed under the
Internal Revenue Code, judicial authority and current administrative rulings and
practices. All of these are subject to change, possibly with retroactive effect,
or different interpretations. We have not sought any ruling from the Internal
Revenue Service with respect to any matter described in the following summary,
and we cannot provide any assurance that the IRS or a court will agree with the
statements we make in this summary.

For purposes of this summary, the "spot rate" generally means a rate that
reflects the fair market rate of exchange available to the public for currency
under a spot contract in a free market and involving representative amounts. A
spot contract is a contract to buy or sell a currency on or before two business
days following the date of the execution of the contract. If a spot rate cannot
be demonstrated in this manner, the IRS has the authority to determine the spot
rate.

We redeemed the DM Senior Convertible Notes and the Senior Convertible Notes due
December 2006 during 2004.

Taxation of COLT
In general, we will be subject to U.S. federal income tax only to the extent we
have income which has its source in the U.S. or is effectively connected with a
U.S. trade or business. We anticipate that we will derive substantially all of
our income from foreign sources and that none of our income will be effectively
connected with a U.S. trade or business, except for the modest amounts of income
from our two U.S. subsidiaries. In addition, we anticipate that any U.S. source
investment income we derive will come from investments the interest on which
will be exempt from U.S. federal income taxation. In sum, we should be subject
to little or no U.S. federal income taxation.


                                     - 73 -
<PAGE>


Taxation of the Senior Notes and the Convertible Notes
Acquisition of a Senior Note or a Convertible Note. If you acquire a senior note
or a convertible note with foreign currency, your initial adjusted income tax
basis in the note will generally be determined by translating into U.S. dollars
the purchase price, excluding any amounts paid for prior accrued interest, at
the spot rate on the date of purchase. If the notes are traded on an established
securities market and you are a cash basis taxpayer (or an electing accrual
basis taxpayer), you will determine the U.S. dollar value of the cost of a note
you purchase by translating the amount paid at the spot rate of exchange on the
settlement date of the purchase. The special election available to accrual basis
taxpayers in regard to the purchase of notes traded on an established securities
market must be applied consistently to all debt instruments from year to year
and cannot be changed without the consent of the IRS.

Your income tax basis in purchased foreign currency generally will be its U.S.
dollar value at the spot rate on the date of purchase of the currency. The
amount of gain or loss you will recognize on a sale, exchange or other
disposition of foreign currency will be equal to the difference between the
number of U.S. dollars received, the U.S. dollar value at the spot rate of a
different foreign currency received, or the fair market value in U.S. dollars of
the property received, as the case may be, and your income tax basis in the
disposed of foreign currency. Accordingly, if you purchase a note with foreign
currency, you will generally recognize exchange gain or loss on the foreign
currency in an amount equal to the difference, if any, between your tax basis in
the foreign currency and the U.S. dollar value at the spot rate of the foreign
currency on the date of purchase of the note. If the notes are traded on an
established securities market and you are a cash basis taxpayer (or an electing
accrual basis taxpayer), you will determine the U.S. dollar value of the
currency used to purchase a note by translating the amount paid at the spot rate
of exchange on the settlement date of the purchase, as discussed above.
Generally, exchange gain or loss will be ordinary income or loss and will not be
treated as interest income or expense, except as any IRS administrative
pronouncements provide otherwise.

Interest on the Senior Notes. If you use the accrual method of accounting for
U.S. federal income tax purposes, you generally will be required to include
interest in income as the interest accrues on the senior notes. If instead you
use the cash basis method of accounting, you generally will be required to
include interest in income when you receive interest payments on the senior
notes. This interest generally is treated as foreign source passive income or
financial services income for U.S. foreign tax credit purposes. Based upon
applicable Treasury regulations, the senior notes are not treated as having been
issued with OID, as explained below.

If you are a cash basis holder, the amount you are required to include in income
upon receipt of a payment on your senior notes is the U.S. dollar value of the
amount received, determined on the basis of the spot rate on the date you
receive the payment, regardless of whether the payment is in fact converted into
U.S. dollars. You will not recognize exchange gain or loss upon receipt of the
interest payment.

If you are required to accrue interest income on a senior note prior to receipt,
unless you have made a spot rate convention election described below, then you
will be required to include in income for each taxable year the U.S. dollar
value of the interest that has accrued during that year, determined by
translating the accrued interest at the average rate of exchange for the period,
or partial period if the period spans two taxable years, during which the
interest has accrued. The average rate of exchange for an interest accrual
period is the simple average of the exchange rates for each business day of that
period, or some other average that you have reasonably derived and consistently
applied. Upon receipt of an interest payment in foreign currency, you will
recognize ordinary gain or loss in an amount equal to the difference between the
U.S. dollar value of the foreign currency you receive, determined on the basis
of the spot rate on the date you receive the payment, and the U.S. dollar value
of the interest income that you have previously included in income with respect
to that interest payment. Generally, this gain or loss will be treated as
ordinary income or loss and will not be treated as interest income or expense,
except as any IRS administrative pronouncements provide otherwise.

You may make a spot rate convention election to translate accrued interest into
U.S. dollars at the spot rate on the last day of an accrual period, or, in the
case of an accrual period that spans two taxable years and is thus treated as
two partial periods, at the spot rates on the last day of the taxable year and
on the last day of the accrual period. Additionally, if you receive a payment of
interest within five business days of the last day of the accrual period, you
may instead translate the accrued interest into U.S. dollars at the spot rate on
the day of receipt. If you make a spot rate convention election, then you must
apply it consistently to all debt instruments


                                     - 74 -
<PAGE>


from year to year, and you cannot change the election without the consent of the
IRS. You should consult your tax advisor regarding this election.

Interest on the Convertible Notes. For the reasons discussed below, the
convertible notes are deemed to have been issued with original issue discount
(OID) for U.S. federal income tax purposes. Accordingly, if you hold a
convertible note, then, regardless of whether you are a cash or accrual basis
taxpayer, you are required to include in income in each taxable year, in advance
of your receipt of cash payments on the convertible notes, that portion of the
OID, computed on a constant interest rate basis, attributable to each day of the
year during which you held the convertible notes. The amounts of OID are
determined in the foreign currency in which the notes are denominated and are
then translated into U.S. dollars. The OID generally is treated as foreign
source passive income or financial services income for U.S. foreign tax credit
purposes.

The amount of OID with respect to each convertible note is equal to the excess
of its stated redemption price at maturity over its issue price. The issue price
for a convertible note is equal to the offering price to the public, not
including any bond house, broker or similar person or organization acting in the
capacity of an underwriter, placement agent or wholesaler, at which a
substantial number of the convertible notes is sold, which in the case of the
July 1998 offering of convertible notes was 1,000DM, and in each of the March
1999, December 1999 and March 2000 offerings was (euro)1,000.

The stated redemption price at maturity of each convertible note includes all
payments to be made in respect of the note, other than payments of qualified
stated interest. Qualified stated interest is interest that is unconditionally
payable in cash or property, except additional debt of the debtor, at least
annually at a single fixed rate. Convertible notes pay interest annually at a
stated percentage of the issue price, followed by a receipt of a redemption
price higher than the issue price. The convertible notes' stated interest
constitutes qualified stated interest, and thus their stated redemption price at
maturity consists only of the redemption price.

Taxation of OID. If you hold a debt instrument issued with OID, in each taxable
year you are required to include in gross income for federal income tax purposes
an amount equal to the sum of the daily portions of the OID for all days during
the taxable year on which you hold the debt instrument, including the purchase
date but excluding the disposition date. The daily portions of OID required to
be included in your gross income in a taxable year are determined on a constant
interest rate basis by allocating to each day during the taxable year on which
you hold the debt instrument a pro rata portion of the OID on the debt
instrument which is attributable to the accrual period in which that day is
included. The amount of the OID on your convertible note attributable to each
accrual period is the product of its adjusted issue price at the beginning of
the accrual period multiplied by its yield to maturity, less any qualified
stated interest for that accrual period. Your convertible note's yield to
maturity is that discount rate which, when used in computing the present value
of all principal and stated interest payments to be made on a convertible note,
produces an amount equal to its issue price. The adjusted issue price of your
convertible note at the beginning of an accrual period is its issue price plus
the aggregate amount of OID that accrued in all prior accrual periods,
determined without regard to the rules described below concerning acquisition
premium and bond premium, less any cash payments you receive on the convertible
note other than qualified stated interest.

Unless you have made a spot rate convention election, you will be required to
include in gross income for each taxable year the U.S. dollar value of the OID
that has accrued during that year, determined by translating the accrued OID at
the average rate of exchange for the period during which the OID has accrued, or
partial period if the OID accrual period spans two taxable years. The average
rate of exchange for an accrual period is the simple average of the exchange
rates for each business day of the period, or some other average that you have
reasonably derived and consistently applied. Upon receipt of a payment of OID in
a foreign currency, you will recognize ordinary gain or loss in an amount equal
to the difference between the U.S. dollar value of the foreign currency you
received, determined on the basis of the spot rate on the date the payment is
received, and the U.S. dollar value of the OID that you have previously included
in income with respect to the payment. Generally, this gain or loss will be
treated as ordinary income or loss and will not be treated as interest income or
expense, except as any IRS administrative pronouncements provide otherwise.


                                     - 75 -
<PAGE>


If you have made a spot rate convention election, then you must translate OID
into U.S. dollars at the spot rate on the last day of the accrual period for the
OID. In the case of an accrual period that straddles the last day of your
taxable year and is thus treated as two partial periods, you must translate OID
into U.S. dollars at the spot rates on the last day of your taxable year and on
the last day of the accrual period. Additionally, if you receive a payment of
OID within five business days of the last day of the accrual period, you may
instead translate the OID into U.S. dollars at the spot rate on the day of
receipt.

Election to Treat all Interest as OID. If you hold a convertible note or a
senior note, then you may be eligible to elect to include in gross income for
U.S. federal income tax purposes all interest that accrues on the convertible
note or the senior note by accruing daily portions of interest on a constant
interest rate basis as described above. For purposes of the election, interest
includes stated and unstated interest, acquisition discount, OID, de minimis
OID, market discount and de minimis market discount, as adjusted by any
amortizable bond premium or acquisition premium. If you make this election in
respect of a convertible note or a senior note with market discount or bond
premium, you will be deemed to have made an election to currently include market
discount in income or to amortize bond premium, as the case may be. You should
consult your tax advisor regarding this election.

Acquisition Premium. If you acquire a convertible note and immediately after
acquisition your income tax basis in the note, usually your purchase price for
the note exclusive of any amounts paid allocable to prior accrued qualified
stated interest,
     o    exceeds the convertible note's adjusted issue price, but
     o    is less than or equal to the sum of all amounts that are still payable
          on the convertible note after the acquisition date, other than any
          qualified stated interest,

then the excess over adjusted issue price is acquisition premium. The daily
portion of the OID that you are required to include in income will be reduced by
an amount equal to the OID multiplied by the fraction obtained by taking the
acquisition premium and dividing it by the amount of OID for the period
remaining after your purchase to the maturity date of the convertible note. As
with the OID itself, the amount of acquisition premium is determined in the
foreign currency in which the note is denominated.

Market Discount. Generally, the market discount rules discussed below will not
apply to the senior notes or convertible notes that you acquire in an original
issuance of these notes. However, you can acquire a note at market discount if
you acquire a note and immediately after acquisition your income tax basis in
the note, usually your purchase price for the note exclusive of any amounts paid
allocable to prior accrued qualified stated interest,
     o    is less than its stated principal amount, in the case of a senior
          note, or
     o    is less than its revised issue price, as defined below, in the case of
          a convertible note.

For federal income tax purposes you will not be treated as having purchased a
note with market discount if the amount of market discount is less than a de
minimis threshold amount.

The revised issue price of a convertible note generally equals the sum of its
issue price, plus the total amount of OID includible in the gross income of all
holders for periods before you acquired the convertible note, without regard to
any reduction in that income resulting from acquisition premium or amortizable
bond premium, and minus any cash payments on the note in those periods other
than qualified stated interest.

Under the market discount rules, you must treat any gain on the sale, exchange,
redemption, or other taxable disposition of a senior note or convertible note,
or any appreciation in a note in the case of a nontaxable disposition such as a
gift, as ordinary income to the extent that market discount has accrued on the
note. You are also generally required to defer, until the maturity of the note
or earlier taxable disposition, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
the senior note or convertible note. The senior notes and the convertible notes
provide that they may be redeemed, in whole or in part, before maturity. If some
or all of the senior notes or convertible notes are redeemed and you have
acquired those notes with market discount, then you will be required to treat
the principal payment as ordinary income to the extent of accrued market
discount on all of your senior notes or convertible notes.


                                     - 76 -
<PAGE>


Any market discount will be considered to accrue ratably during the period from
the date of acquisition to the maturity date of the note, unless you elect to
accrue the market discount on a constant interest rate method. You may also
elect to include market discount in income currently as it accrues, on either a
ratable or constant interest rate method, and your basis in the note will
increase by the amounts included in your income. If you make this election, the
rules described above regarding ordinary income on dispositions and deferral of
interest deductions will not apply. This current inclusion election, once made,
applies to all market discount obligations you acquire on or after the first day
of the first taxable year to which the election applies, and you may not revoke
the election without the consent of the IRS. You should consult your tax advisor
regarding these market discount elections.

In the case of a debt instrument denominated in a foreign currency, such as the
senior notes and the convertible notes, market discount is computed in the
applicable foreign currency. If you do not elect current inclusion of market
discount, accrued market discount is translated into U.S. dollars at the spot
rate on the date of payment or disposition. No part of this accrued market
discount is treated as exchange gain or loss. If you elect current inclusion of
market discount, the amount of market discount currently includible in income
for a taxable year is the U.S. dollar value of the market discount that has
accrued during the year, determined by translating the accrued market discount
at the average rate of exchange for the accrual period or periods, including, if
applicable, the two partial periods in the case of an accrual period that
straddles your taxable year. Accordingly, you will recognize exchange gain or
loss with respect to this accrued market discount under the same rules that
apply to accrued interest you receive on a senior note or convertible note if
you are on the accrual basis or to OID you receive on a convertible note.

Amortizable Bond Premium. If you acquire a senior note and immediately after
acquisition your income tax basis in the note, usually your purchase price for
the note exclusive of any amounts paid allocable to prior accrued qualified
stated interest, exceeds its stated principal amount, then you will be
considered to have acquired the senior note with bond premium in an amount equal
to that excess. You generally may elect to amortize bond premium over the
remaining term of the senior note on a constant interest rate method, and the
amount amortised in any year will be treated as a reduction of your interest
income from the note for that year. If the bond premium amortisation would be
lower if calculated based on an earlier optional redemption date and price than
the amount of amortisation calculated through that date based on the note's
maturity date and its stated principal amount, then you must calculate the
amount and timing of the bond premium amortisation deductions assuming that the
senior note will be redeemed on that earlier date at the optional redemption
price. You may generally recalculate your bond premium amortisation amount and
schedule of deductions to the extent your note is not actually redeemed on the
optional redemption date. If you elect to amortize bond premium, you must reduce
your tax basis in the related senior note by the aggregate amount of bond
premium amortised. If you do not elect to amortize bond premium, then the bond
premium on your note will decrease the gain or increase the loss that you
otherwise recognize on a disposition of that note. Any election to amortize bond
premium applies to all debt obligations, other than debt obligations the
interest on which is excludable from gross income, that you hold at the
beginning of the first taxable year to which the election applies and that you
thereafter acquire. You may not revoke an election to amortize bond premium
without the consent of the IRS. You should consult with your tax advisor
regarding this election.

The amortizable bond premium rules also apply to your acquisition of a
convertible note, but only after first determining the amount of your income tax
basis that is amortizable under these rules. For these purposes, your income tax
basis in your convertible note immediately after acquisition, usually your
purchase price for the note exclusive of any amounts paid allocable to prior
accrued qualified stated interest, is reduced by any value attributable to your
option to convert the note into Ordinary Shares of COLT. If your income tax
basis in the note as adjusted is still greater than the convertible note's
stated redemption price at maturity, then the excess over the stated redemption
price at maturity, if you so elect, is subject to the rules governing the
deduction of amortizable bond premium as described above.

With respect to a convertible note, if you acquire the note with amortizable
bond premium, then you are not required to include any amounts of OID in income
with respect to the note because there is no discount between your cost basis
and the note's stated redemption price at maturity.

With respect to your senior notes and convertible notes, amortizable bond
premium is calculated in the currency in which the note is denominated. The
amortisation deduction calculated reduces the interest income received


                                     - 77 -
<PAGE>


so that the net amount of interest less the amortisation deduction in the
applicable foreign currency is the amount translated into U.S. dollars and
reported in your gross income. You will recognize ordinary gain or loss in an
amount equal to the difference between the U.S. dollar value of the amortisation
deduction at the time of the deduction and the U.S. dollar value of that portion
of the bond premium upon acquisition of the note. This gain or loss generally
will not be treated as interest income or expense, except as any IRS
administrative pronouncements provide otherwise. Each reduction of your interest
income by amortizable bond premium also reduces your income tax basis in the
note by the U.S. dollar value of that portion of amortizable bond premium as of
your acquisition of the note.

Additional Amounts. If you receive any additional amounts with respect to your
senior notes or convertible notes, those payments will be taxed as ordinary
income in accordance with your method of accounting. U.K. withholding tax, if
any, imposed on payments you receive on your senior notes or convertible notes
will generally be treated as foreign tax eligible for credit against your U.S.
federal income tax. For foreign tax credit purposes, additional amounts should
generally be treated as foreign source passive income, or, in the case of some
holders, financial services income.

Disposition. In general, you will recognize gain or loss upon the sale,
exchange, redemption or other taxable disposition of a senior note or a
convertible note equal to your amount realised in the disposition less your
adjusted income tax basis in the note. Your amount realised is the amount of
cash and the fair market value of property received, or the U.S. dollar value of
the amount realised in foreign currency on the date you receive payment from us
or you dispose of (or are deemed to dispose of) the note, as applicable, less
any amount attributable to accrued qualified stated interest, which will be
taxed as interest in the manner described above. If the notes are traded on an
established securities market and you are a cash basis taxpayer (or an electing
accrual basis taxpayer), you will determine the U.S. dollar value of your amount
realised in a sale by translating the amount received at the spot rate of
exchange on the settlement date of the sale. The special election available to
accrual basis taxpayers in regard to the sale of notes traded on an established
securities market must be applied consistently to all debt instruments from year
to year and cannot be changed without the consent of the IRS.

Your adjusted income tax basis in a note will generally be equal to:
     o    your purchase price for the note exclusive of any amounts paid
          allocable to prior accrued qualified stated interest,
     o    plus any amounts of OID that you include in your gross income through
          the day preceding the day of disposition,
     o    plus the accrual of market discount, if any, that you elect to include
          in gross income on a current basis,
     o    minus the amount of any cash payments you receive on the note other
          than qualified stated interest and
     o    minus any reductions in income tax basis related to amortizable bond
          premium if you elect to deduct it on a current basis.

Gain or loss recognized upon the sale, exchange, redemption or other taxable
disposition of a senior note or convertible note will generally be capital gain
or loss. The gain or loss will be ordinary and not capital to the extent of any
gain or loss attributable to changes in exchange rates, described in the next
paragraph, and any gain attributable to any market discount. If you are not a
corporation, then your net capital gain will generally be subject to U.S.
federal income tax at a maximum rate of 20% if you have held the senior note or
convertible note more than one year on the date you sell or dispose of the note;
this maximum rate of 20% has been reduced to 15% for gains properly taken into
account during the period beginning on 6 May 2003 and ending with the end of
your taxable year that begins in 2008. Ordinary or capital gain will generally
be treated as U.S. source income for U.S. foreign tax credit purposes. You
should consult your tax advisor regarding the source of loss recognized on the
sale, exchange, redemption or other taxable disposition of a note.

Gain or loss that you realize on the sale, exchange, redemption or other taxable
disposition of a senior note or convertible note attributable to changes in
exchange rates will be treated as ordinary income or loss and generally will not
be treated as interest income or expense except as any IRS administrative
pronouncements provide otherwise. However, this ordinary gain or loss is only
included in gross income to the extent of your total gain or loss on the sale,
exchange, redemption or other taxable disposition.


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Your income tax basis in foreign currency received on the sale, exchange
redemption, retirement or other taxable disposition of a note will generally be
the foreign currency's U.S. dollar value at the spot rate at the time the
foreign currency is received. If the notes are traded on an established
securities market and you are a cash basis taxpayer (or an electing accrual
basis taxpayer), upon a sale you will translate the foreign currency using the
U.S. dollar value at the spot rate of exchange on the settlement date of the
sale, which should be the date it is received. The special election available to
accrual basis taxpayers in regard to the sale of notes traded on an established
securities market must be applied consistently to all debt instruments from year
to year and cannot be changed without the consent of the IRS. Otherwise, if you
do not receive the foreign currency on the date of disposition, you will
recognize exchange gain or loss on any difference between the U.S. dollar values
of the foreign currency on the dates of disposition and receipt. The amount of
gain or loss you will recognize on a sale, exchange or other disposition of
foreign currency will be equal to the difference between the number of U.S.
dollars received, the U.S. dollar value at the spot rate of the foreign currency
received, or the fair market value in U.S. dollars of the property received, as
the case may be, and your income tax basis in the disposed of foreign currency.
Generally, this exchange gain or loss will be ordinary income or loss and will
not be treated as interest income or expense, except as any IRS administrative
pronouncements provide otherwise.

Conversion of Convertible Notes in Exchange for Ordinary Shares. You generally
will not recognize any income, gain or loss upon conversion of a convertible
note into Ordinary Shares except:
     o    to the extent the Ordinary Shares you receive are considered
          attributable to interest and OID accrued but not previously included
          in income, in which case the value of those shares is taxable as
          interest and OID, respectively, in the manner described above,
     o    to the extent of any accrued market discount which you have not
          previously included in income, if you have elected to include market
          discount in gross income on a current basis,
     o    with respect to cash, if any, you received in lieu of a fractional
          share of the Ordinary Shares, and
     o    with respect to foreign currency gain or loss you realised upon the
          conversion, as described below.

Your income tax basis in the Ordinary Shares that you receive on the conversion
of your convertible note generally will be the same as your adjusted tax basis
in the convertible note just prior to the time of conversion, increased by any
qualified stated interest and OID you have accrued but not previously included
in income upon conversion to the extent the Ordinary Shares you receive are
considered attributable to that accrued interest and OID, increased by any
accrued market discount includible in income due to conversion, reduced by any
basis allocable to a fractional share interest, and adjusted to take into
account the amount of any foreign currency gain or loss realised upon the
conversion as described below. Except to the extent of Ordinary Shares treated
as received in respect of accrued qualified stated interest you have not
previously included in income, your holding period for the Ordinary Shares you
receive on conversion will generally include the holding period of the
convertible note converted.

Any cash you receive in lieu of fractional Ordinary Shares upon conversion will
be treated as a payment in exchange for the fractional Ordinary Shares.
Accordingly, your receipt of cash in lieu of fractional Ordinary Shares
generally will result in capital gain or loss, measured by the difference
between the cash you receive for the fractional Ordinary Shares and your
adjusted tax basis attributable to the fractional Ordinary Shares. Any gain
would be ordinary and not capital gain to the extent of any accrued market
discount on the notes that you had not previously included in income.

Upon the conversion of a convertible note into Ordinary Shares, you will
recognize foreign currency gain or loss in respect of the convertible note's
principal amount and any interest, OID or market discount that you accrued and
included in income but have not yet received, but only to the extent of the
total gain or loss realised on the conversion of the convertible note. This
foreign currency gain or loss will generally be ordinary income or loss and will
generally not be treated as interest income or expense, except as any IRS
administrative pronouncements provide otherwise.

If you acquired a convertible note at a market discount, did not elect to
include that market discount in gross income on a current basis, and have
elected to convert the convertible note into Ordinary Shares, then the amount of
accrued market discount at the time of conversion is not includible in your
income upon conversion, but is transferred as a tax attribute to the Ordinary
Shares you receive, except to the extent of any gain on


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disposition of a fractional share that you report as attributable to accrued
market discount. Any gain upon the subsequent disposition of Ordinary Shares or
ADSs you receive as a result of the conversion would be ordinary gain to the
extent of the accrued market discount transferred to your Ordinary Shares.

Passive Foreign Investment Company Status. If we were or are a passive foreign
investment company for U.S. federal income tax purposes, special rules would
apply to holders of convertible notes. These special rules are discussed below.

Tax Treatment of Warrants
Original Issue Price. Each warrant was originally issued as part of a unit
comprised of one discount note and one warrant. We redeemed the discount notes
in December 2003. For U.S. federal income tax purposes, we allocated the issue
price of a unit between the discount note and warrant components based on the
relative fair market value of each component to the fair market value of both
components taken together as a unit. Under the original issue discount
regulations provided by the U.S. Treasury, the issue price of the unit is equal
to the offering price to the public, not including any bond house, broker or
similar person or organization acting in the capacity of an underwriter,
placement agent or wholesaler, at which a substantial number of the units is
sold. Based on this method, we determined that each warrant was originally
issued with an issue price of $18.08. This allocation reflects our best judgment
as to the relative values of the components at the time of original issuance,
but we cannot assure you that the IRS will not challenge our allocation. If the
IRS successfully challenges our allocation of the issue price, then the amount
of gain or loss on the taxable disposition of your warrants would be different
from those resulting under our allocation.

Our determination of the issue price of the warrant is binding on you, unless
you disclosed the use of a different issue price on the applicable form attached
to your timely filed U.S. federal income tax return for the taxable year that
includes your acquisition of a unit. If you intend to use an issue price
different from what we determined, you should consult your tax advisor as to the
consequences.

Sale or Redemption. You will recognize gain or loss on a sale or other taxable
disposition of a warrant in an amount equal to the difference between the amount
realised and your income tax basis in the warrant. A sale or other taxable
disposition of a warrant will result in a capital gain or loss, and this capital
gain or loss will be long-term capital gain or loss if you have held the warrant
for more than one year at the time of disposition. If you are an individual, any
long-term capital gain will generally be subject to U.S. federal income tax at a
maximum rate of 20% (15% for gains properly taken into account during the period
beginning on 6 May 2003 and ending with the end of your taxable year that begins
in 2008). Gain on disposition of a warrant will generally be treated as U.S.
source income. You should consult your tax advisor regarding the source of loss
recognized on the sale, exchange, redemption or other taxable disposition of a
warrant.

Exercise. You will not recognize gain or loss on the purchase of Ordinary Shares
or ADSs for cash upon exercise of your warrant, except to the extent you receive
cash in lieu of fractional shares less allocable basis from the warrant. Your
adjusted initial basis of the Ordinary Shares or ADSs you acquire will be equal
to your adjusted basis of the warrant you exercised plus the exercise price,
less basis allocable to any cash you receive in lieu of fractional shares. Your
holding period in the Ordinary Shares or ADSs you acquire upon the exercise of a
warrant will not include the holding period of that warrant.

Lapse. If you do not exercise your warrant and allow it to expire, the warrant
will be deemed to have been sold or exchanged on the expiration date. As a
result, you will recognize a capital loss equal to your tax basis in the
warrant. That capital loss will be long-term if you have held the warrant for
more than one year at the time of the expiration of the warrant.

Passive Foreign Investment Company Status. If we were or are a passive foreign
investment company for U.S. federal income tax purposes, special rules would
apply to holders of warrants. These special rules are discussed below.

Tax Treatment of Ordinary Shares or ADSs
Distributions. A distribution you receive from us with respect to your Ordinary
Shares or ADSs will constitute a dividend for U.S. federal income tax purposes
to the extent paid out of our current or accumulated earnings and profits as
determined for U.S. federal income tax purposes. To the extent that a
distribution exceeds our


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available earnings and profits, it will be treated as a nontaxable return of
capital to the extent of your adjusted tax basis in the Ordinary Shares or ADSs
and thereafter as capital gain. Dividends you receive generally will be treated
as foreign source dividend income and will not be eligible for the dividends
received deduction generally allowed to corporate shareholders under the
Internal Revenue Code.

For a temporary period beginning with taxable years beginning in 2003 and ending
with taxable years beginning after 31 December 2008, qualified dividend income
will generally be subject to a maximum U.S. federal income tax rate of 15% if
you are a non-corporate U.S. holder. Because our ADSs trade on NASDAQ, any
dividends we pay to you during that period should constitute qualified dividend
income to you, provided that you meet the minimum holding period requirement,
unless we are or become a passive foreign investment company, which is a
circumstances described below. You generally will meet the holding period
requirement if you held the stock for more than 60 days during the 121 day
period that begins 60 days before the ex-dividend date; the ex-dividend date is
the first date following the declaration of the dividend on which the buyer of
the stock will not receive the next dividend payment.

The amount that you must include in income will be the U.S. dollar value of any
distribution we make to you in pounds sterling or other foreign currency, or
other property you receive, on the date of distribution. The U.S. dollar value
of a distribution paid in pounds sterling or other foreign currency will be
based on the exchange rate on the date of your receipt, or, in the case of the
ADSs, on the date of receipt by the Depositary. For U.S. federal income tax
purposes, you will have a basis in any pounds sterling or other foreign currency
you receive equal to the dollar value of that currency on the date of payment.
Any gain or loss that you recognize upon a subsequent disposition of these
pounds sterling or other foreign currency will generally be ordinary income or
loss and will not be a dividend.

For U.S. federal income tax purposes, dividends we distribute will generally be
income from foreign sources, and will generally be categorized as passive income
or, in the case of some holders, as financial services income, for purposes of
computing allowable foreign tax credits. In general, you may not claim a foreign
tax credit with respect to a category of income in excess of the U.S. federal
income tax otherwise payable with respect to that category of income. For
purposes of this determination you would be required to adjust the amount of any
qualified dividend income we pay to you, while such dividends are subject to the
15% maximum tax rate described above, to account for the difference between the
15% maximum tax rate and ordinary U.S. federal income tax rates. You generally
may carry back any excess foreign taxes to the preceding tax year and then carry
any remaining excess foreign taxes forward ten subsequent tax years to reduce
your U.S. federal income tax payable on foreign source income in the same
category that is not otherwise offset by a foreign tax credit. The consequences
of the separate limitation calculation will depend on the nature and sources of
your income and the deductions allocable to that income. You should consult with
your tax advisor regarding the use of foreign tax credits.

In lieu of claiming a credit, you may claim all foreign tax that you paid during
a particular taxable year as an itemized deduction. A deduction does not reduce
your U.S. federal income tax on a dollar for dollar basis like a tax credit. The
deduction, however, is not subject to the category limitations described above
regarding foreign tax credits.

Sale or Other Taxable Disposition of Ordinary Shares or ADSs. Upon the sale,
exchange or other taxable disposition of an Ordinary Share or an ADS, you will
recognize gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between the fair market value of property you receive in
exchange for the Ordinary Share or ADS and your adjusted tax basis in the
Ordinary Share or ADS. Except to the extent of any accrued market discount in
respect of an Ordinary Share or ADS accounted for upon conversion of a
convertible note, this gain or loss will be a capital gain or loss, and will be
long-term capital gain or loss if you held the Ordinary Share or ADS for more
than one year. If you are not a corporation, the long-term capital gain will
generally be subject to U.S. federal income tax at a maximum rate of 20% (15%
for gains properly taken into account during the period beginning on 6 May 2003
and ending with the end of your taxable year that begins in 2008). Under most
circumstances, the gain or loss from the sale or exchange of Ordinary Shares or
ADSs will be treated as U.S. source income or loss for U.S. foreign tax credit
purposes.

The surrender of ADSs in exchange for Ordinary Shares will not be a taxable
event for U.S. federal income tax purposes. Accordingly, you will not recognize
any gain or loss upon that surrender and exchange.


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Passive Foreign Investment Company Status. If we were or are a passive foreign
investment company for U.S. federal income tax purposes, special rules would
apply to holders of Ordinary Shares or ADSs. These special rules are discussed
below.

Constructive Distributions
Section 305 of the Internal Revenue Code generally treats as a taxable
distribution actual or constructive distributions of stock with respect to
stock, and for this purpose stock includes warrants to purchase stock or
convertible securities. If you hold a convertible note, Treasury regulations
will generally treat you as having received a constructive distribution when the
conversion price of the notes is adjusted to reflect taxable distributions with
respect to the class of stock into which the notes are convertible. Similarly,
you may be treated as receiving a taxable constructive distribution with respect
to a warrant as a result of an adjustment in the exercise price of your warrant,
or in the number of shares of Ordinary Shares or ADSs purchasable upon exercise
of that warrant. In addition, our failure to adjust fully the conversion prices
of convertible notes or warrants, or the shares purchasable by those warrants,
to reflect distributions of stock with respect to Ordinary Shares and ADSs, may
give rise to a deemed taxable stock distribution of Ordinary Shares and ADSs. In
sum, an adjustment or lack of adjustment in the conversion prices of the
convertible notes or warrants may give rise to a deemed taxable stock
distribution in respect of either the convertible notes, the warrants, the
Ordinary Shares or the ADSs.

Foreign Personal Holding Company
The separate income tax regime for foreign personal holding companies has been
repealed for tax years of foreign corporations beginning after 31 December 2004.
But even for our prior tax years, we believe that neither we nor any of our
subsidiaries have been classified as a foreign personal holding company under
U.S. federal income tax laws. If we or one of our subsidiaries had been so
classified, you generally would have been required to include in income as a
dividend in a year your proportionate share of our or our subsidiary's
undistributed foreign personal holding company income. We or one of our
subsidiaries would have been classified as a foreign personal holding company
if:
     o    Ordinary Shares or ADSs representing more than 50% of the total voting
          power of all classes of our stock entitled to vote, or more than 50%
          of the total value of our stock were owned, directly or indirectly, by
          five or fewer U.S. citizen or resident individuals, taking into
          account applicable constructive ownership rules, and
     o    at least 60% of our gross income or the gross income of one of our
          subsidiaries consisted of foreign personal holding company income.

Foreign personal holding company income generally included dividends, interest,
rents, royalties and gains from the sale of stocks, securities or commodities.
We believe that we and our subsidiaries may have met the above ownership
requirement, but that we have failed the above income requirement for the
reasons discussed in more detail below. Accordingly, we expect that we and our
subsidiaries were not treated as foreign personal holding companies for U.S.
federal income tax purposes.

Our principal subsidiaries and affiliates that are conducting business
operations in the U.K., Germany, France, Austria, the Netherlands, Sweden,
Norway, Ireland, Portugal, Finland, and India, as well as intervening holding
companies, are classified as branches for U.S. federal income tax purposes. We
would thus be treated for U.S. federal income tax purposes as directly
recognizing 100% of the income of these principal U.K., German, French,
Austrian, Dutch, Swedish, Norwegian, Irish, Portuguese, Finnish, and Indian
operating entities, which income we believe has consisted of active business
income. Accordingly, we believe that we would fail to meet the foreign personal
holding company income requirement, and so we would not be treated as a foreign
personal holding company for U.S. federal income tax purposes.

Our subsidiaries that are classified as branches for U.S. federal income tax
purposes are not classified as corporations and hence cannot be foreign personal
holding companies. As to each of our subsidiaries which is not classified as a
branch but rather is classified as a corporation for U.S. federal income tax
purposes, we believe that each of these subsidiaries has not met the foreign
personal holding company income requirement described above. However, we cannot
provide any assurance that applicable tax law or other relevant circumstances
will not result in an adverse determination of foreign personal holding company
status.


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Passive Foreign Investment Company

Summary
Special U.S. federal income tax rules apply to U.S. holders that own shares of a
passive foreign investment company, commonly known by its acronym, PFIC. We
believe that we might have become a PFIC in 2002. We believe, however, there is
a low probability we could have become a PFIC in 2003, that we could not have
become a PFIC during 2004, and we do not believe we will become a PFIC under our
current financial circumstances. We do not believe we became a PFIC in any
period prior to 2002. If we are classified as a PFIC during your holding period
in our Ordinary Shares, ADSs, warrants, or convertible notes, then you could be
subject to additional taxes and an interest charge. This adverse consequence of
becoming a PFIC could be reduced provided you elect one of two alternative tax
regimes as described below and we agree to provide the required financial
information. However, holders of our warrants and convertible notes are limited
in their ability to elect the two alternative tax regimes.

The PFIC rules are particularly complex and we suggest that you consult your tax
advisor regarding the PFIC rules and their U.S. tax consequences to holders of
Ordinary Shares, ADSs, warrants and convertible notes.

Discussion
We will be considered a PFIC for any taxable year in which 75% or more of our
gross income is passive income or in which 50% or more of the average value of
our assets is attributable to what are considered passive assets. Passive income
generally consists of interest, dividends, rents, and royalties. Passive assets
are assets that produce passive income or that we hold for the production of
passive income. The asset test is applied by determining the percentage of
passive assets for each quarter of our tax year and then averaging those
percentages. Our tax year is the calendar year. While the U.S. holder ultimately
makes the determination concerning our PFIC status, legislative history to the
PFIC rules indicates that determining whether we are a PFIC under the asset test
can generally be done by assuming that the value of our assets equals the market
capitalization of our equity plus the value of our liabilities. However, there
are no regulations or other guidance from the IRS on the subject, and we cannot
provide any assurance that the IRS will not challenge this method.

We believe we were at risk of having become a PFIC in 2002 because the average
percentage of our passive assets (cash and short-term investments) might have
equaled or exceeded 50% of the value of all of our assets. If we use the general
method described above and value our traded debt at its market price, we believe
the average percentage of passive assets would have exceeded 50% and therefore
we would have become a PFIC during 2002. However, if our assets were properly
valued by considering the company's indebtedness at its book value, we believe
we would not have become a PFIC during 2002. Neither U.S. Treasury regulations
nor the PFIC statute's legislative history establishes a method of valuing
traded debt for this purpose. As a result of increases in our market
capitalization in 2003, we think there is little risk that we became a PFIC
during 2003. Further, as a result of a combination of decreases in our passive
assets and increases in the market price of our traded debt, we think we could
not have become a PFIC in 2004.

Whether or not we have been or will be a PFIC is a factual determination that
must be made separately for each calendar year, and we cannot guarantee that the
IRS will agree with our methodology for ascertaining PFIC status or with our
ultimate determination. In addition, the calculation to determine whether we are
classified as a PFIC for the calendar year cannot be made until after the close
of the year, when the financial information for the year ended December 31 has
been finalized. Also, we cannot provide any assurance that the applicable tax
law or other relevant circumstances will not change in a manner which affects
our PFIC status determinations, and such changes could be retroactively
effective.

If we are a PFIC, then one or more of our subsidiaries could also become a PFIC
if the subsidiary is treated as a corporation for U.S. federal income tax
purposes, rather than as an entity disregarded from its sole owner, and the
subsidiary itself meets either the income or asset test for PFIC status. We
believe that none of our current subsidiaries is a PFIC and that none of the
subsidiaries we establish in the future will be PFICs. However, if that were to
change, additional, special rules would apply, and we would attempt to inform
you which of our subsidiaries has in our estimation become a PFIC.

If we are a PFIC for a taxable year, then each of the direct and certain
indirect shareholders holding our Ordinary Shares or ADSs at any time during
that taxable year could be subject to an increased tax liability,


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possibly including an interest charge, under the default U.S. federal income tax
regime for PFICs. Alternatively, you might avoid some of the increased tax
liability if you elect to be treated under one of two alternative elective tax
regimes. These three different tax regimes for PFIC shareholders are discussed
in more detail below.

Under the PFIC rules, holders of our warrants and convertible notes are treated
as holders of options to purchase Ordinary Shares or ADSs. Under proposed
Treasury regulations, the default tax regime governing PFIC shareholders applies
to holders of options to acquire our Ordinary Shares and ADSs with respect to
dispositions of options to purchase stock, and to dispositions of stock acquired
upon exercise of an option. Treasury regulations deny option holders the ability
to use the elective Qualified Electing Fund tax regime discussed below, and it
is not clear to what extent option holders could make use of the elective mark
to market tax regime discussed below. If you hold our warrants or convertible
notes, you should consult your tax advisor about the consequences of holding our
warrants or convertible notes if we become a PFIC. The following discussion
focuses on the consequences for holders of our Ordinary Shares and ADSs that did
not acquire these interests by exercise of a warrant, convertible note, or other
option.

Default Tax Regime. If we are a PFIC and you do not elect out of being taxed
under the default tax regime, then you will be subject to a special tax
calculation if you sell or dispose of your Ordinary Shares or ADSs at a gain.

Under the default regime's special tax calculation, you must prorate your gain
over every day of your holding period for the disposed Ordinary Shares or ADSs.
Then you must sum the daily portions of prorated gain for each of your taxable
years during the holding period. Amounts allocated to the year of disposition
and to years prior to the first year in which we became a PFIC would then be
taxed as ordinary income in the year of your disposition. For amounts allocated
to years prior to the year of disposition and during or after the year we first
became a PFIC, the gain would not be taxable as income received in the year of
disposition. Instead, you would be required to apply the highest ordinary income
tax rate possibly applicable to you in that earlier year to the amount of gain
allocated to that year, and then you would accrue interest on that tax amount as
if it were an item of unpaid income tax from that prior year. You would then add
the tax and interest charge for each of the affected, earlier years to the rest
of your income tax for the year of disposition. The interest charge relates to a
debt to pay U.S. federal income tax, so if you are not a corporation, your
interest expense would be personal interest expense, and not deductible for U.S.
federal income tax purposes. This special tax regime also applies to
distributions you receive from us with respect to Ordinary Shares or ADSs that
exceed a formula threshold amount, but we do not discuss those rules in any
detail here because at this time we do not anticipate making any such
distributions.

If we become a PFIC during your holding period in our Ordinary Shares, ADSs,
warrants, or convertible notes, then under the default tax regime you would be
required to continue to treat us as a PFIC even if in a later tax year we no
longer met the asset or income test that originally made us a PFIC. To terminate
the effect of the default tax regime if we cease to be a PFIC, it would be
necessary for you to elect to recognize gain as of the last day of the last year
in which we were still a PFIC.

Through statute and proposed regulations, "disposition" with respect to stock of
a PFIC has been defined under the default tax regime to include transactions
that are normally not income or gain recognition events for U.S. federal income
tax purposes. One rule is that a pledge of your Ordinary Shares or ADSs as
collateral for a loan is considered a disposition for the amount of the loan.
The rules and exceptions to these PFIC rules are complex, and you would have to
consult your tax advisor as to whether you have effected a taxable deemed
disposition of our Ordinary Shares or ADSs if we are or become a PFIC and you do
not make either election discussed below.

Qualified Electing Fund Election. If we are a PFIC, then with our cooperation
you can elect, generally with your timely filed income tax return, to treat your
investment in our Ordinary Shares or ADSs as an investment in a qualified
electing fund, commonly referred to as a QEF, for the year of your election and
for all subsequent years. Under a QEF election you must for each of your taxable
years report as gross income your pro rata share of our net capital gain (which
is the excess of net long-term capital gain over any net short-term capital
loss), but not more than our earnings and profits, for our taxable year that
ends within or with your taxable year. If our earnings and profits for that
taxable year exceed net capital gain, you must also report as gross income your
pro rata share of earnings and profits for the year less any net capital gain.
You would report any net


                                     - 84 -
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capital gain as long-term capital gain and any earnings and profits in excess of
net capital gain as ordinary income. If we do not have earnings and profits in a
year that we are a PFIC, a U.S. holder who has made a timely QEF election would
not be required to include any amount in income. If it appears that we will be
classified as a PFIC for the year, we will, upon request, provide the annual
information statement and provide access to and copies of our financial records
in order to establish that we have properly calculated your pro rata shares of
ordinary earnings and net capital gain in accordance with U.S. federal income
tax principles. You would generally increase your income tax basis in your
Ordinary Shares or ADSs by the amounts required to be included in income under
the QEF election. A QEF election would remain effective even if we ceased to be
a PFIC and then became a PFIC again in a later tax year, although the QEF
inclusion rules would not apply for any year in which we were not a PFIC. Once
you make a QEF election you can revoke it only with the consent of the IRS.

In conjunction with your QEF election, you can also elect to defer payment of
your resulting marginal federal income tax on the excess of the amounts you must
include in income pursuant to the election over the distributions, if any, you
receive. You generally must make this election on a timely filed U.S. federal
income tax return for the year in which these conditions apply. In addition,
there are certain situations where your election with respect to a deferred tax
would generally be terminated.

If you made a timely QEF election with respect to either the first year in which
you acquired our Ordinary Shares or ADSs or the first year in which we became a
PFIC, then the default tax regime for PFICs discussed above would not apply to a
disposition of your Ordinary Shares or ADSs. If for any portion of your holding
period we were a PFIC but your QEF election was not yet effective, then the
default regime would still apply to any dispositions, and to any distributions,
all as discussed above. In addition, you would still be required to treat us as
a PFIC in years in which we did not qualify as a PFIC under the income and asset
tests, whereas a QEF election would otherwise relieve you from having to treat
us as a PFIC for years in which we did not meet those tests. If you make a QEF
election for a taxable year which is not the first year of your holding period
and we became a PFIC before the year for which you make this election, then to
avoid the default tax regime in the future, you generally must report any gain
you have in Ordinary Shares or ADSs under the default tax regime as if you had
sold them for their fair market value on the first day of the first year in
which your QEF election becomes effective.

Mark to Market Election. An alternative to the QEF election discussed above is
an election to recognize gain and, under limited circumstances, loss as if you
had disposed of your Ordinary Shares or ADSs on the last day of each taxable
year. You can make this election only if our Ordinary Shares and ADSs are
considered marketable stock, which is stock regularly traded on a national
securities exchange in the United States or in any other exchange which has
rules and standards to prevent manipulation of stock prices so that the quoted
prices for our Ordinary Shares or ADSs represent a legitimate and sound fair
market value. We believe that our Ordinary Shares and ADSs regularly trade on
such markets so that they would constitute marketable stock, although we cannot
guarantee that the IRS will agree with our determination.

Under the mark to market election, you would compare the value of your Ordinary
Shares or ADSs at the end of your tax year to your adjusted tax basis in the
Ordinary Shares or ADSs. If the fair market value exceeds basis, you must
include the excess as ordinary income on your U.S. federal income tax return for
that year, regardless of whether you received any distributions on or disposed
of your Ordinary Shares or ADSs. In addition, if you actually sell or otherwise
dispose of your stock during the year, any gain you realize is taxable as
ordinary income. "Disposition" for this purpose might include a gift, a transfer
by reason of death, or a pledge of the Ordinary Shares or ADSs, and you should
consult your tax advisor about whether you have disposed of our Ordinary Shares
or ADSs for this purpose. If your tax basis exceeds the value, then you can
report that loss as an ordinary loss on your federal income tax return, but only
to the extent of any cumulative mark to market gains (net of allowed mark to
market losses) reported in prior tax years under this election. Your tax basis
in your Ordinary Shares or ADSs is increased by the amount of gain you must
report and reduced by losses allowed under this election. Special rules apply if
you were to recognize gain or loss on Ordinary Shares or ADSs you own indirectly
or if you became a U.S. holder in the year in which you make the election. Your
gain or loss allowed would be sourced as U.S. or foreign source income as if you
had actually sold your Ordinary Shares or ADSs. By electing to mark your
Ordinary Shares or ADSs to market, you would avoid being taxed under the default
tax regime for PFICs upon an actual disposition of the Ordinary Shares or ADSs
or for any distributions received on them, except as discussed below.


                                     - 85 -
<PAGE>


You would make the mark to market election with your U.S. federal income tax
return for the first year you desire it to apply to your Ordinary Shares or
ADSs. The election would apply to that year and to all subsequent tax years
while you hold our Ordinary Shares or ADSs, until the earlier of the year in
which our Ordinary Shares and ADSs cease to be marketable stock or the year for
which you request to revoke the election, which requires the consent of the IRS.
Special rules apply if you make this election for a tax year which is not the
first year of your holding period.

Backup Withholding and Information Reporting
If you hold a senior note, convertible note, warrant, Ordinary Share or ADS,
payments to you of interest, OID, dividends, or gross proceeds from dispositions
may be subject to information reporting to the IRS and to possible backup
withholding of U.S. federal income tax, currently at a 28% rate. However, you
will not be subject to backup withholding if you properly execute, under
penalties of perjury, an IRS Form W-9 or a substantially similar form in which
you provide your correct taxpayer identification number, certify that it is
correct, certify that you are a U.S. person, and certify as to one of the
following conditions: (1) you are not subject to backup withholding because you
are a corporation or come within another enumerated exempt category, (2) you
have not been notified by the IRS that you are subject to backup withholding, or
(3) you have been notified by the IRS that you are no longer subject to backup
withholding.

If you do not provide your correct taxpayer identification number on the IRS
Form W-9 or a substantially similar form, you may be subject to penalties
imposed by the IRS. Unless you have established on a properly executed IRS Form
W-9 or a substantially similar form that you are a corporation or come within
another enumerated exempt category, interest, OID, dividends and other payments
paid to you during the taxable year, and the amount of tax withheld, if any,
will be reported to you and to the IRS.

Amounts withheld under backup withholding generally may be refunded or credited
against your U.S. federal income tax liability, provided you furnish the
required information to the IRS. You should be exempt from backup withholding
with respect to cash payments in respect of OID, interest, dividends or the
gross proceeds from the disposition of any instruments you hold if, for example,
you are a corporation or financial institution. You should consult your tax
advisor as to your qualification for exemption from backup withholding and the
procedure for obtaining that exemption.

F. Dividends and paying agents

Not Applicable.

G. Statement By experts

Not Applicable.

H. Documents on display

We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934 and file reports and other information with the Securities
and Exchange Commission. You may examine the reports and other information filed
by us, without charge, at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also receive copies
of these materials by mail from the SEC's Public Reference Branch at 450 Fifth
Street, N.W., Washington, D.C., 20549. For more information on the public
reference rooms, call the SEC at 1-800-SEC-0330 or visit their web site at
www.sec.gov.

I. Subsidiary Information

Not Applicable.


                                     - 86 -
<PAGE>


Item 11. Quantitative and Qualitative Disclosures About Market Risk

Please refer to that portion of Section B of Item 5 "Operating and Financial
Review and Prospects" entitled "Liquidity and capital resources" for details of
the liquidity, foreign currency, interest rate and concentration of credit risk.

Sensitivity Analysis
As a result of the procedures we have implemented to manage foreign currency
exchange and interest rate risk as described above, a 10% change in the value of
British Pounds relative to other currencies would lead to a corresponding change
in the fair value of its foreign currency denominated financial instruments of
approximately L53.7 million. A 10% change in interest rates across all
maturities would lead to a corresponding change in our earnings of approximately
L4.6 million based on the interest bearing assets and liabilities held during
2004.

Item 12. Description of Securities Other than Equity Securities

Not applicable.


                                     - 87 -
<PAGE>


                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds

Not applicable.

Item 15. Controls and Procedures

Within the 90 days prior to the date of this report, our management carried out
an evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14 and 15d-14. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information required to be included in our periodic SEC filings.

There have been no significant changes in our internal controls or in other
factors that could significantly affect those controls since our evaluation of
these controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Item 16A. Audit committee financial expert

The Board has determined that at least one audit committee financial expert
serves on our Audit Committee. The named audit committee financial expert is
Hans Eggerstedt.

Item 16B. Code of Ethics

We have adopted a Code of Business Conduct that applies to all of our officers
and employees, including the Chief Executive Officer, the Chief Financial
Officer and our principal accounting officer.

The Code of Business Conduct is available free of charge by writing to the
Corporate Secretary, COLT Telecom Group plc, Beaufort House, 15 St. Botolph's
Street, London, EC3A 7QN, England.

Item 16C. Principal Accountant Fees and Services

The remuneration paid to the auditors during the previous two fiscal years
ending 31 December was:
                                                        2003              2004
                                                       L'000             L'000
                                                       -----             -----
Audit Fees                                               920               906
Audit-Related Fees                    (1)                 88               235
Tax Fees                              (2)                854               632
All Other Fees                        (3)                 40               189

(1)  These are services that are outside the agreed scope of the statutory audit
     but are consistent with the role of auditor and include the statutory
     audits of our non-UK subsidiaries and services performed in connection with
     the preparation of this report.
(2)  These are tax based services that the auditors are best placed to provide
     and include advice on tax return preparation, tax compliance and tax
     planning.
(3)  These are services undertaken that do not fall into the categories above
     and which do not impair the independence of the auditor and include advice
     on our Total Cost of Ownership Project.


                                     - 88 -
<PAGE>


Our audit committee has established policies and procedures which are intended
to control the services provided by our auditors and to monitor their continuing
independence. Under these policies, no services may be undertaken by our
auditors unless the engagement is specifically approved by our audit committee
or the services are included within a category which has been pre approved by
our audit committee. The maximum charge for services is established by the audit
committee when the specific engagement is approved or the category of services
pre approved.

Our audit committee will not approve engagements relating to, or pre approve
categories of, non-audit services to be provided by our auditors (i) if such
services are of a type the performance of which would cause our auditors to
cease to be independent within the meaning of applicable SEC or NASDAQ rules,
and (ii) without consideration, among other things, of whether our auditors are
best situated to provide the required services and whether the required services
are consistent with their role as auditor.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the year ended 31 December 2004 we had the requisite authority of our
shareholders to purchase up to 150 million of our Ordinary Shares but the Board
did not exercise this authority.


                                     - 89 -
<PAGE>


                                    PART III

Item 17. Financial Statements

We have responded to Item 18 in lieu of responding to this Item.

Item 18. Financial Statements

The Financial Statements described below are set forth on pages F-1 through F-51
of this report and are incorporated herein by reference.

<TABLE>
<CAPTION>
Index to Financial Statements                                                       Page
-----------------------------                                                       ----
<S>                                                                                 <C>
Report of Independent Accountants                                                    F-1
Group Profit and Loss Account                                                        F-2
Group Statement of Total Recognized Gains and Losses                                 F-3
Group Reconciliation of Changes in Equity Shareholders' Funds                        F-3
Group Balance Sheet                                                                  F-4
Group Cash Flow Statement                                                            F-5
Note 1      Basis of Presentation and Principal Accounting Policies                  F-6
Note 2      Segmental Analysis                                                       F-8
Note 3      Loss on Ordinary Activities Before Taxation                             F-13
Note 4      Directors' Emoluments                                                   F-13
Note 5      Employee Information                                                    F-14
Note 6      Interest Payable and Similar Charges                                    F-15
Note 7      Exceptional Items                                                       F-15
Note 8      Taxation                                                                F-16
Note 9      Loss per Share                                                          F-17
Note 10     Intangible Fixed Assets                                                 F-18
Note 11     Tangible Fixed Assets                                                   F-19
Note 12     Debtors - Amounts falling due within one year                           F-20
Note 13     Capital and Reserves                                                    F-21
Note 14     Creditors - Amounts falling due within one year                         F-25
Note 15     Creditors - Amounts falling due after more than one year                F-26
Note 16     Provisions for liabilities and charges                                  F-29
Note 17     Cash Flow Reconciliations                                               F-29
Note 18     Analysis of Net Debt                                                    F-30
Note 19     Capital Commitments                                                     F-31
Note 20     Financial Commitments                                                   F-31
Note 21     Financial Instruments                                                   F-32
Note 22     Pension Arrangements                                                    F-35
Note 23     Transactions with Related Entities                                      F-35
Note 24     Post Balance Sheet Events                                               F-35
Note 25     Company Balance Sheet                                                   F-36
Note 26     Summary of differences between U.K. Generally Accepted
            Accounting Principles ("GAAP") and U.S. GAAP                            F-40
Note 27     Subsidiary Undertakings                                                 F-47
2004 Quarterly Group Financial Results (Unaudited)                                  F-48
2004 Operating Statistics (Unaudited)                                               F-49
Five Year Summary                                                                   F-51
</TABLE>


                                     - 90 -
<PAGE>


Financial Statements Schedules
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
        L'000                                             Balance at
                                                        beginning of     Charged to costs                           Balance at end
        Description                                           period         and expenses           Deduction*           of period
        -----------                                           ------         ------------           ----------           ---------
<S>                                                          <C>                  <C>                 <C>                  <C>
        Allowance for doubtful debts
        2004                                                  45,386                7,418             (16,180)              36,624
        2003                                                  43,883                7,052              (5,549)              45,386
        2002                                                  22,884               22,464              (1,465)              43,883

        Deferred tax valuation allowance
        2004                                                 497,643               23,695                    -             521,338
        2003                                                 373,599              124,044                    -             497,643
        2002                                                 206,528              167,071                    -             373,599
<FN>
          * Amounts written off as uncollectable, net of recoveries
</FN>
</TABLE>

Item 19. Exhibits

Exhibit
Number   Exhibit
------   -------
1.1      Memorandum of Association (Incorporated by reference to the Company's
         Annual Report on Form 20-F for the year ended December 31, 1996.)
1.2      Articles of Association, as amended (Incorporated by reference to the
         Company's Annual report on Form 20-F for the year ended December 31,
         2002)
2.1      Indenture, dated November 26, 1997, relating to the L50,000,000 10 1/8%
         Senior Notes including the Form of Note (Incorporated by reference to
         the Company's Annual Report on Form 20-F for the year ended December
         31, 1997.)
2.2      Indenture, dated November 26, 1997, relating to the DM150,000,000 8
         7/8% Senior Notes including the Form of Note (Incorporated by reference
         to the Company's Annual Report on Form 20-F for the year ended December
         31, 1997.)
2.3      Indenture, dated July 28, 1998, relating to the DM600,000,000 7.625%
         Senior Notes including the Form of Note (Incorporated by reference to
         the Company's Annual Report on Form 20-F for the year ended December
         31, 1998.)
2.4      Indenture, dated August 6, 1998, relating to the DM600,000,000 2%
         Senior Convertible Notes including the Form of Note (Incorporated by
         reference to the Exhibits to the Company's Annual Report on Form 20-F
         for the year ended December 31, 1998.)
2.5      Indenture, dated March 29, 2003, relating to the (euro)295,000,000
         Senior Convertible Notes including the Form of Note (Incorporated by
         reference to the Company's Annual Report on Form 20-F for the year
         ended December 31, 1998.)
2.6      Indenture, dated December 16, 1999, relating to the (euro)368,000,000
         2% Senior Convertible Notes including the Form of Note (Incorporated by
         reference to the Company's Annual Report on Form 20-F for the year
         ended December 31, 1999.)
2.7      Indenture, dated December 16, 1999, relating to the (euro)320,000,000
         7.625% Senior Notes including the Form of Note (Incorporated by
         reference to the Company's Registration Statement on Form F-4 filed
         April 26, 2000.)
2.8      Indenture, dated April 3, 1999, relating to the (euro)402,500,000 2%
         Senior Convertible Notes including the Form of Note (Incorporated by
         reference to the Company's Annual Report on Form 20-F for the year
         ended December 31, 1999.)


                                     - 91 -
<PAGE>


Exhibit
Number   Exhibit
------   -------
2.9      Deposit Agreement, dated November 26, 1997, relating to the L50,000,000
         10 1/8% Senior Notes and the DM150,000,000 8 7/8% Senior Notes
         (Incorporated by reference to the Company's Annual Report on Form 20-F
         for the year ended December 31, 1997.)
2.10     Deposit Agreement, dated December 17, 1996, including Form of American
         Depository Receipt (Incorporated by reference to the Company's Annual
         Report on Form 20-F for the year ended December 31, 1996.)
2.11     Deposit Agreement, dated July 28, 1998, relating to the DM600,000,000
         7.625% Senior Notes and DM600,000,000 2% Senior Convertible Notes
         (Incorporated by reference to the Company's Annual Report on Form 20-F
         for the year ended December 31, 1998.)
2.12     Deposit Agreement, dated March 29, 2003, relating to the
         (euro)295,000,000 Senior Convertible Notes (Incorporated by reference
         to the Company's Annual Report on Form 20-F for the year ended December
         31, 1998.)
2.13     Deposit Agreement, dated December 16, 1999, relating to the
         (euro)368,000,000 2% Senior Convertible Notes (Incorporated by
         reference to the Company's Annual Report on Form 20-F for the year
         ended December 31, 1999.)
2.14     Deposit Agreement, dated December 16, 1999, relating to the
         (euro)320,000,000 7.625% Senior Notes (Incorporated by reference to the
         Company's Registration Statement on Form F-4 filed April 26, 2000.)
2.15     Deposit Agreement, dated April 3, 2000, relating to the
         (euro)402,500,000 2% Senior Convertible Notes (Incorporated by
         reference to the Company's Annual Report on Form 20-F for the year
         ended December 31, 1999.)
4.1      Registration Rights Agreement, dated as of December 12, 2001, by and
         among COLT Telecom Group plc and the Investors named therein
         (Incorporated by reference to the Company's Annual Report on Form 20-F
         for the year ended December 31, 2001.)
4.2      The COLT Performance Share Plan* (Incorporated by reference to the
         Company's Annual Report on Form 20-F for the year ended December 31,
         2002.)
4.3      The COLT Deferred Bonus Plan* (Incorporated by reference to the
         Company's Annual Report on Form 20-F for the year ended December 31,
         2002.)
8.1      List of Subsidiaries (Filed herewith.)
11.1     Code of Business Ethics (Incorporated by reference to the Company's
         Annual report on Form 20-F for the year ended December 31, 2003)
12.1     Certification Required by Rule 13a-14(a)/15d-14(a) of the Securities
         Exchange Act of 1934, as amended, as adopted Pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002. (Furnished herewith.)
12.2     Certification Required by Rule 13a-14(a)/15d-14(a) of the Securities
         Exchange Act of 1934, as amended, as adopted Pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002. (Furnished herewith.)
13.1     Certification required by 18 U.S.C. Sec. 1350 (Section 906 of the
         Sarbanes-Oxley Act of 2002) (Furnished herewith.)
15.1     Consent of PricewaterhouseCoopers LLP (Filed herewith.)

* Compensatory plan or arrangement applicable to management and/or employees.


                                     - 92 -
<PAGE>


                                   SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorised the undersigned to sign
this annual report on its behalf.

COLT Telecom Group plc
(Registrant)





By: /s/ Caroline Griffin Pain
Caroline Griffin Pain
Company Secretary

Dated: 20 April 2005

















                                     - 93 -
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Directors and Shareholders of COLT Telecom Group plc

In our opinion, the accompanying consolidated balance sheets and the related
consolidated profit and loss accounts, consolidated cash flow statements,
statements of total recognised gains and losses and consolidated reconciliations
of changes in equity shareholders' funds present fairly, in all material
respects, the financial position of COLT Telecom Group plc and its subsidiaries
at 31 December, 2004 and 2003, and the results of their operations and their
cash flows for each of the three years in the period ended 31 December, 2004 in
conformity with accounting principles generally accepted in the United Kingdom.
These financial statements are the responsibility of the company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in note 1, Basis of presentation and principal accounting policies,
to the consolidated financial statements the Company changed its method of
accounting for employee share ownership trusts, in accordance with accounting
principles generally accepted in the United Kingdom. The change has been
accounted for by restating comparative information at 31 December, 2003 and for
the years then ended.

Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States of America. Information relating to the nature and effect of such
differences is presented in note 26, Summary of differences between UK and US
generally accepted accounting principles, to the consolidated financial
statements.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

London, England
23 February, 2005



                                                                              F1

<PAGE>




Group profit and loss account



<TABLE>
<CAPTION>
                                                                  Year ended 31 December
                            --------------------------------------------------------------------------------------------------------
                                2002      2002        2002      2003     2003      2003        2004     2004        2004        2004
                              Before                 After    Before              After      Before                After       After
                              Excep-    Excep-      Excep-    Excep-   Excep-    Excep-      Excep-   Excep-      Excep-      Excep-
                              tional    tional      tional    tional   tional    tional      tional   tional      tional      tional
                               Items     Items       Items     Items    Items     Items       Items    Items       Items       Items
                     Notes     L'000     L'000       L'000     L'000    L'000     L'000       L'000    L'000       L'000       $'000
                    ------- --------  --------    --------  -------- --------  --------    -------- --------    --------    --------
<S>                    <C> <C>       <C>       <C>         <C>         <C>    <C>       <C>            <C>   <C>         <C>
Turnover               2   1,027,258        --   1,027,258 1,166,318       -- 1,166,318   1,214,020       --   1,214,020   2,326,062

Cost of sales
Interconnect and
  network                  (713,615)  (18,320)   (731,935) (766,942)       -- (766,942)   (813,728)       --   (813,728) (1,559,102)
Network depreciation       (212,009) (508,000)   (720,009) (204,417)       -- (204,417)   (191,969)       --   (191,969)   (367,813)
                            --------  --------    --------  -------- --------  --------    -------- --------    --------    --------
                           (925,624) (526,320) (1,451,944) (971,359)       -- (971,359) (1,005,697)       -- (1,005,697) (1,926,915)
                            --------  --------    --------  -------- --------  --------    -------- --------    --------    --------
Gross profit (loss)          101,634 (526,320)   (424,686)   194,959       --   194,959     208,323       --     208,323    399,147

Operating expenses
Selling, general and
  administrative           (242,095)  (18,934)   (261,029) (235,928)    2,453 (233,475)   (246,633)       --   (246,633)   (472,549)
Other depreciation
  and amortisation          (49,879)  (43,000)    (92,879)  (38,531)       --  (38,531)    (30,519)       --    (30,519)    (58,474)
                            --------  --------    --------  -------- --------  --------    -------- --------    --------    --------
                           (291,974)  (61,934)   (353,908) (274,459)    2,453 (272,006)   (277,152)       --   (277,152)   (531,023)
                            --------  --------    --------  -------- --------  --------    -------- --------    --------    --------
Operating loss             (190,340) (588,254)   (778,594)  (79,500)    2,453  (77,047)    (68,829)       --    (68,829)   (131,876)
Other income (expense)
Interest receivable           38,108        --      38,108    26,718       --    26,718      21,001       --      21,001     40,238
Gain on redemption of
  debt                 7          --   101,668     101,668        --    7,589     7,589          --      205         205        393
Amounts written off
  investment in own
  shares               7          --     (409)       (409)        --       --        --          --       --          --          --

Interest payable and
  similar  charges     6    (96,300)        --    (96,300)  (88,295)       --  (88,295)    (66,812)       --    (66,812)   (128,012)
Exchange gain                 12,401     4,844      17,245     6,388       --     6,388           4       --           4          8
                            --------  --------    --------  -------- --------  --------    -------- --------    --------    --------
                            (45,791)   106,103      60,312  (55,189)    7,589  (47,600)    (45,807)      205    (45,602)    (87,373)
                            --------  --------    --------  -------- --------  --------    -------- --------    --------    --------
Loss on ordinary
  activities before
  taxation             3   (236,131) (482,151)   (718,282) (134,689)   10,042 (124,647)   (114,636)      205   (114,431)   (219,249)
Taxation               8          --        --          --        --       --        --          --       --          --          --
                            --------  --------    --------  -------- --------  --------    -------- --------    --------    --------
Loss for period            (236,131) (482,151)   (718,282) (134,689)   10,042 (124,647)   (114,636)      205   (114,431)   (219,249)
                            ========  ========    ========  ======== ========  ========    ======== ========    ========    ========
Basic and diluted
  loss per share       9     L(0.16)   L(0.32)     L(0.48)   L(0.09)    L0.01   L(0.08)     L(0.08)    L0.00     L(0.08)     $(0.15)
                            ========  ========    ========  ======== ========  ========    ======== ========    ========    ========
</TABLE>

There is no difference between the loss on ordinary activities before taxation
and the retained loss for the periods stated above and their historical cost
equivalents.

All of the Group's activities are continuing.

Details of exceptional items are provided in note 7.




                                                                              F2

<PAGE>




Group statement of total recognised
gains and losses




<TABLE>
<CAPTION>
                                                                                          Year ended 31 December
                                                                        ---------------------------------------------------------
                                                                        2002             2003             2004           2004
                                                                        L'000            L'000            L'000          $'000
                                                                        --------         --------         --------       --------
<S>                                                                     <C>              <C>              <C>            <C>
Loss for period                                                         (718,282)        (124,647)        (114,431)      (219,249)
Exchange differences                                                    49,030           31,002           (798)          (1,529)
                                                                        --------         --------         --------       --------
Total recognised losses                                                 (669,252)        (93,645)         (115,229)      (220,778)
Prior year adjustment in respect of the adoption of UITF 38 (note 1)    --               --               910            1,744
                                                                        --------         --------         --------       --------
Total recognised losses since previously reported                       (669,252)        (93,645)         (114,319)      (219,034)
                                                                        ========         ========         ========       ========
</TABLE>








Group reconciliation of changes in equity shareholders' funds



<TABLE>
<CAPTION>
                                                                                                     Year ended 31 December
                                                                                          ---------------------------------------
                                                                                          2003              2004         2004
                                                                                          L'000            L'000         $'000
                                                                                          --------       --------        --------
<S>                                                                                        <C>            <C>             <C>
Opening equity shareholders' funds as previously reported                                  955,010        862,698         1,652,929
Prior year adjustment in respect of the adoption of UITF 38 (note 1)                       (206)          --              --
                                                                                          --------       --------        --------
Opening equity shareholders' funds as restated                                             954,804        862,698         1,652,929
Loss for period                                                                            (124,647)      (114,431)       (219,249)
Issue of share capital (note 13)                                                           1,767          570             1,092
Shares to be issued (note 13)                                                              (239)          --              --
Grant of shares from Group Quest (note 13)                                                 11             55              105
Exchange differences                                                                       31,002         (798)           (1,529)
                                                                                          --------       --------        --------
Closing equity shareholders' funds                                                         862,698        748,094         1,433,348
                                                                                          ========       ========        ========
</TABLE>


                                                                              F3

<PAGE>



Group balance sheet


<TABLE>
<CAPTION>
                                                                                                      At 31 December
                                                                                   ----------------------------------------------
                                                                                  Restated*
                                                                                       2003               2004           2004
                                                             Notes                    L'000              L'000           $'000
                                                           --------                --------           --------           --------
<S>                                                           <C>                <C>                <C>                  <C>
Fixed assets
   Intangible fixed assets                                    10                      9,493              7,317           14,019
   Tangible fixed assets                                      11                  1,344,285          1,253,502           2,401,710
                                                                                   --------           --------           --------
Total fixed assets                                                                1,353,778          1,260,819           2,415,729

Current assets
   Trade debtors                                              12                    199,849            199,074           381,426
   Prepaid expenses and other debtors                         12                     66,834             48,078           92,117
   Investments in liquid resources                            18                    742,143            393,312           753,586
   Cash at bank and in hand                                   18                     60,239             59,404           113,818
                                                                                   --------           --------           --------
Total current assets                                                              1,069,065            699,868           1,340,947
                                                                                   --------           --------           --------
Total assets                                                                      2,422,843          1,960,687           3,756,676
                                                                                   ========           ========           ========

Capital and reserves                                          13
   Called up share capital                                                           37,754             37,778           72,383
   Share premium                                                                  2,315,904          2,316,665           4,438,730
   Merger reserve                                                                    27,359             27,359           52,420
   Shares to be issued                                                                  215                 --           --
   Profit and loss account                                                       (1,518,534)        (1,633,708)          (3,130,185)
                                                                                   --------           --------           --------
Equity shareholders' funds                                                          862,698            748,094           1,433,348


Provisions for liabilities and charges                        16                     62,860             48,708           93,325

Creditors
   Amounts falling due within one year:
   Non-convertible debt                                       18                         --             81,692           156,522
   Other                                                      14                    352,736            336,508           644,749
                                                                                   --------           --------           --------
   Total amounts falling due within one year                                        352,736            418,200           801,271
                                                                                   --------           --------           --------
   Amounts falling due after more than one year:              15
   Convertible debt                                                                 700,131            382,320           732,525
   Non-convertible debt                                                             444,418            363,365           696,207
                                                                                   --------           --------           --------
   Total amounts falling due after more than one year                             1,144,549            745,685           1,428,732
                                                                                   --------           --------           --------
Total creditors                                                                   1,497,285          1,163,885           2,230,003
                                                                                   --------           --------           --------
Total liabilities, capital and reserves                                           2,422,843          1,960,687           3,756,676
                                                                                   ========           ========           ========

<FN>
* Restated as a result of the adoption of UITF 38 "Accounting for ESOP trusts" as disclosed in note 1
</FN>
</TABLE>

Approved by the Board of Directors on 23 February 2005 and signed on its behalf
by:

Antony Bates, Chief Administrative and Financial Officer

                                                                              F4

<PAGE>



Group cash flow statement


<TABLE>
<CAPTION>
                                                                                               Year ended 31 December
                                                                                   ------------------------------------------------
                                                                                   2002         2003          2004         2004
                                                                      Notes        L'000        L'000         L'000        $'000
                                                                    --------       --------     --------      --------     --------
<S>                                                                    <C>         <C>          <C>           <C>          <C>
Net cash inflow from operating activities                              17          139,279      147,866       140,638      269,463

Returns on investments and servicing of finance
   Interest received                                                               39,227       26,526        20,530       39,335
   Interest paid, finance costs and similar charges                                (71,268)     (63,849)      (45,965)     (88,069)
   Cancellation of forward foreign currency contracts                              4,844        --            --           --
                                                                                   --------     --------      --------     --------
Net cash outflow from returns on investments
and servicing of finance                                                           (27,197)     (37,323)      (25,435)     (48,734)
Capital expenditure and financial investment
   Purchase of tangible fixed assets                                               (412,115)    (140,973)     (129,417)    (247,963)
   Sale of fixed assets                                                            --           --            4,721        9,045
                                                                                   --------     --------      --------     --------
Net cash outflow from capital expenditure and financial investment                 (412,115)    (140,973)     (124,696)    (238,918)

Acquisitions and disposals
    Sale of subsidiary undertakings                                                --           912           --           --
    Net cash sold with subsidiary undertakings                                     --           (2,944)       --           --
                                                                                   --------     --------      --------     --------
Net cash outflow from acquisitions and disposals                                   --           (2,032)       --           --

Management of liquid resources                                         18          400,390      187,765       343,297      657,756

Financing
   Issue of ordinary shares                                            13          110          1,630         570          1,092
   Purchase of convertible debt                                        18          (55,573)     (9,606)       (333,659)    (639,291)
   Purchase of non-convertible debt                                    18          (41,704)     (134,869)     (1,635)      (3,133)
                                                                                   --------     --------      --------     --------
Net cash outflow from financing                                                    (97,167)     (142,845)     (334,724)    (641,332)
                                                                                   --------     --------      --------     --------
Increase (decrease) in cash                                            18          3,190        12,458        (920)        (1,765)
                                                                                   ========     ========      ========     ========
</TABLE>

                                                                              F5

<PAGE>




1. Basis of presentation and principal accounting policies



COLT Telecom Group plc ("COLT" or the "Company") together with its subsidiaries
is referred to as the "Group". The Group financial statements consolidate the
financial statements of the Company and its subsidiaries up to 31 December 2004.

Accounting policies

The accounting policies and presentation applied are consistent with those
applied in preparing the Group's financial statements for the year ended 31
December 2003 except for the adoption of UITF 38 "Accounting for ESOP trusts".
Applying the UITF has resulted in the cost of own shares, previously reported as
a fixed asset investment, being shown as a deduction from shareholders' funds. A
prior year adjustment has been made to reflect this change. The aggregate impact
of this adjustment on the previously reported Balance Sheet as at 31 December
2002 and 2003 is to reduce Equity Shareholders' funds by L0.2 million. In
addition, L0.9 million has been included in the Statement of Total Recognised
Gains and Losses being the amount charged to the Profit and Loss Account in
prior years to write-down the carrying value of these shares. The adoption of
UITF 38 has had no impact on the Profit and Loss Account in either 2003 or 2004.

As permitted by paragraph 3 (3) of Schedule 4 of the Companies Act 1985, the
Directors have adapted the prescribed profit and loss format in a manner
appropriate to the nature of the Group's business.

Certain British pound amounts in the financial statements have been translated
into U.S. dollars at 31 December 2004 and for the year then ended at the rate of
$1.916 to the British pound, which was the noon buying rate in the City of New
York for cable transfers in British pounds as certified for customs purposes by
the Federal Reserve Bank on such date. Such translations should not be construed
as representations that the British pound amounts have been or could be
converted into U.S. dollars at that or any other rate.

Basis of accounting

The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom, under the historical cost
convention.

The preparation of financial statements requires management to make estimates
and assumptions that affect; reported amounts of assets and liabilities,
disclosure and valuation of contingent assets and liabilities and the reported
amounts of income and expenditure. Estimates are used principally when
accounting for provisions for doubtful debts and the lengths of fixed asset
lives. These estimates could differ from the actual results.

Turnover

Turnover represents amounts earned for services provided to customers (net of
value added tax and inter-company revenue).

Contracted income invoiced in advance for fixed periods is recognised as
turnover in the period of actual service provision. Turnover from installation
and other up-front set-up activities is recognised in the same period as the
related costs.

Turnover attributable to infrastructure sales in the form of indefeasible
rights-of-use ("IRUs") with characteristics which qualify the transaction as an
outright sale, or transfer of title agreements, are recognised at the time of
delivery and acceptance by the customer. Proceeds from the sale of
infrastructure qualify as turnover where the infrastructure was designated as
built for resale at the outset and where the associated costs of construction
have been classified as inventory for future sale. Where the infrastructure was
not designated for resale and was classified as tangible fixed assets, the
proceeds from these infrastructure sales are recorded net of costs as a gain or
loss on the disposal of a fixed asset.

Charges to customers for services provided through the Group network where the
Group is deemed to be acting as agent are reported net of service providers'
charges to the Group.

Cost of sales

Cost of sales includes payments made to other carriers, depreciation of network
infrastructure and equipment, direct network costs and construction costs
associated with infrastructure sales.

Operating leases

Costs in respect of operating leases are charged on a straight-line basis over
the lease term.

Goodwill

Goodwill arises on the purchase of subsidiary undertakings and represents the
excess of the fair value of purchase consideration over the fair value of assets
acquired. Goodwill arising on all acquisitions prior to 1 January 1998 was
written off against reserves. Goodwill arising on all acquisitions since 1
January 1998 is capitalised in the year in which it arises and is amortised
through the profit and loss account on a straight line basis over its useful
economic life. Goodwill arising on the acquisition of ImagiNet is being
amortised over 10 years (see note 10).

Tangible fixed assets

Tangible fixed assets are recorded at historical cost. Network infrastructure
and equipment comprises assets purchased and built, at cost, together with
capitalised labour which is directly attributable to the cost of construction.

Depreciation is calculated to write off the cost, less estimated residual
values, of tangible fixed assets on a straight-line basis over their expected
economic lives as follows:

<TABLE>
<S>                                                                      <C>
    Network infrastructure and equipment                                 5% - 20% per annum
    Office computers, equipment, fixtures and fittings and vehicles      10% - 33% per annum
</TABLE>

Depreciation of network infrastructure and equipment commences from the date it
becomes operational.

Impairment

                                                                              F6

<PAGE>


Tangible and intangible fixed assets are reviewed for impairment whenever events
or changes in circumstances indicate that carrying amounts may not be
recoverable. An impairment loss is recognised to the extent that the carrying
amount of an asset exceeds its recoverable amount (being the higher of its value
in use and net realisable value).

Investments

The Company's investments in subsidiaries are stated at cost less provision for
impairment.

Licences

Annual amounts payable for telecommunications licences have been expensed as
incurred.

Deferred taxation

Deferred tax is provided on all timing differences which result in an obligation
at the balance sheet date, to pay more tax, or a right to pay less tax, at a
future date, at rates that are expected to apply when the obligation
crystallises, based on current tax rates and laws enacted or substantially
enacted at the balance sheet date. Timing differences arise from the inclusion
of items of income and expenditure in taxation computations in periods different
from those in which they are included in the financial statements. Deferred tax
assets and liabilities are recognised to the extent that it is regarded as more
likely than not that they will be recovered in the foreseeable future. Deferred
tax is measured on a non-discounted basis.

Property provisions

The Group provides for obligations relating to excess leased space in offices
and ISCs. The provisions represent the net present value of the future estimated
costs and the unwinding of the discount is included within the interest charge
for the year.

Finance costs

Costs incurred raising debt finance are deducted from the amount raised and
amortised over the life of the debt facility on a constant yield basis. Costs
incurred in raising equity finance are deducted from the premium arising on the
issue of shares.

Pension schemes

The Group operates a number of defined contribution pension schemes through its
subsidiaries. Pension costs are charged to the profit and loss account on an
accruals basis in the period in which contributions are payable to the schemes.

Foreign currencies and derivative financial instruments

Transactions denominated in foreign currencies are translated at the rate
prevailing at the time of the transaction. Monetary assets and liabilities are
translated at the period end rate. Exchange differences arising from the
re-translation of the opening net assets of foreign subsidiaries, denominated in
foreign currencies, and any related loans, together with the differences between
profit and loss accounts translated at average rates and rates ruling at the
period end are taken directly to reserves.

Translation differences on intra-Group currency loans and foreign currency
borrowings to the extent that they are used to finance or hedge Group equity
investments in foreign enterprises are taken directly to reserves together with
the exchange differences on the carrying value of the related investments.

Forward exchange contracts are deemed hedges only where they relate to actual
foreign currency assets and liabilities or commitments which have been
identified and where they involve the same, or similar, currency as the hedged
transaction and reduce the risk to the Group's operations arising from foreign
currency exchange movements. Gains and losses on forward exchange contracts
deemed as hedges are deferred and included in the value of the related foreign
currency transaction. No other derivative instruments are used by the Group.

All other exchange differences are taken to the profit and loss account.

Liquid resources

Liquid resources include surplus cash which is placed on short-term deposit
which is disposable without curtailing or disrupting the business and are either
readily convertible into known amounts of cash at or close to their carrying
values or traded in an active market. At 31 December 2004 and 31 December 2003,
all of the Group's liquid resources comprised short-term money market deposits.

                                                                              F7

<PAGE>



2. Segmental analysis

Factors used to identify reporting segments

The Group operates in a single business segment, telecommunications, and in
geographical areas as shown below. Country activities and local business are
managed by local management teams. These local management teams are co-ordinated
across the Group through a regional and functional organisational structure.
During the year, the Directors considered the Group's reportable segments to be
North, South and Central. North Region comprised Belgium, Denmark, Ireland, The
Netherlands, Sweden and the U.K. The Central Region comprised Austria, Germany
and Switzerland. The South Region comprised France, Italy, Portugal and Spain.
These reportable segments are expected to change during 2005 as a result of the
reorganisation which was announced in late 2004.

Products and services within each reportable segment

Turnover from the single business segment is attributed within geographical
areas and is classified as Switched, Non-switched, and Other. Turnover by
destination is not materially different from turnover by origin. Switched
turnover comprises services including the transmission of voice, data or video
through a switching centre. Non-switched turnover includes managed and
non-managed network and bandwidth services. Turnover has also been classified by
customer type with wholesale turnover comprising services to other
telecommunications carriers, resellers and internet service providers (ISPs).
Corporate turnover comprises services to corporates and governments. Measurement
of segment performance

Accounting policies adopted by the single business segment and for each
geographical area are described in note 1. Management evaluates performance
based upon profit or loss on ordinary activities before taxation and exceptional
items.

Segmental analysis for the year ended 31 December 2004:

<TABLE>
<CAPTION>
                                              North          Central        South          Corporate &
                                              Region         Region         Region         eliminations           Total
                                                                                                          -----------------------
Turnover                                      L'000          L'000          L'000          L'000          L'000          $'000
                                              --------       --------       --------       --------       --------       --------
<S>                                           <C>            <C>            <C>            <C>            <C>            <C>
   Carrier                                    102,677        179,242        67,307         (85,135)       264,091        505,998
   Non-carrier                                134,377        244,040        104,595        --             483,012        925,451
                                              --------       --------       --------       --------       --------       -------
   Total switched                             237,054        423,282        171,902        (85,135)       747,103        1,431,449
   Non-switched                               181,177        184,116        142,547        (43,999)       463,841        888,719
   Other                                      457            1,647          972            --             3,076          5,894
   Inter region turnover                      (45,250)       (54,868)       (29,016)       129,134        --             --
                                              --------       --------       --------       --------       --------       --------
                                              373,438        554,177        286,405        --             1,214,020      2,326,062
                                              ========       ========       ========       ========       ========       ========
Depreciation and amortisation                 59,168         73,618         47,190         42,512         222,488        426,287
                                              ========       ========       ========       ========       ========       ========
Net interest (payable) receivable             (60,487)       (44,927)       (24,713)       84,316         (45,811)       (87,774)
                                              ========       ========       ========       ========       ========       ========
Profit (loss) on ordinary activities before
   taxation and exceptional items             (83,646)       (34,308)       (22,210)       25,528         (114,636)      (219,643)
                                              ========       ========       ========       ========       ========       ========
Profit (loss) on ordinary activities before
   taxation and after exceptional items       (83,646)       (34,308)       (22,210)       25,733         (114,431)      (219,249)
                                              ========       ========       ========       ========       ========       ========
Expenditure on fixed assets                   42,778         38,630         36,163         15,564         133,135        255,087
                                              ========       ========       ========       ========       ========       ========
Tangible fixed assets                         334,312        517,565        388,848        12,777         1,253,502      2,401,710
                                              ========       ========       ========       ========       ========       ========
Total assets                                  424,641        630,368        486,458        419,220        1,960,687      3,756,676
                                              ========       ========       ========       ========       ========       ========
Equity shareholders' funds                    299,200        495,250        374,500        (420,856)      748,094        1,433,348
                                              ========       ========       ========       ========       ========       ========
</TABLE>

                                                                              F8

<PAGE>



Segmental analysis for the year ended 31 December 2003:
<TABLE>
<CAPTION>
                                              North          Central        South          Corporate &
                                              Region         Region         Region         eliminations           Total
                                                                                                          -----------------------
Turnover                                      L'000          L'000          L'000          L'000          L'000          $'000
                                              --------       --------       --------       --------       --------       --------
<S>                                           <C>            <C>            <C>            <C>            <C>            <C>
   Carrier                                    96,473         146,500        69,134         (73,194)       238,913        457,757
   Non-carrier                                138,431        214,092        111,202        --             463,725        888,497
                                              --------       --------       --------       --------       --------       --------
   Total switched                             234,904        360,592        180,336        (73,194)       702,638        1,346,254
   Non-switched                               182,526        173,935        144,978        (39,035)       462,404        885,966
   Other                                      82             742            584            (132)          1,276          2,445
   Inter region turnover                      (44,910)       (40,866)       (26,585)       112,361        --             --
                                              --------       --------       --------       --------       --------       --------
                                              372,602        494,403        299,313        --             1,166,318      2,234,665
                                              ========       ========       ========       ========       ========       ========
Depreciation and amortisation                 63,020         86,308         53,679         39,941         242,948        465,488
                                              ========       ========       ========       ========       ========       ========
Net interest (payable) receivable             (43,263)       (48,470)       (38,731)       68,887         (61,577)       (117,982)
                                              ========       ========       ========       ========       ========       ========
Profit (loss) on ordinary activities before
   taxation and exceptional items             (60,187)       (52,472)       (35,473)       13,443         (134,689)      (258,064)
                                              ========       ========       ========       ========       ========       ========
Profit (loss) on ordinary activities before
   taxation and after exceptional items       (43,738)       45,963         (35,456)       (91,416)       (124,647)      (238,823)
                                              ========       ========       ========       ========       ========       ========
Expenditure on fixed assets                   41,182         43,325         37,392         6,173          128,072        245,386
                                              ========       ========       ========       ========       ========       ========
Tangible fixed assets                         359,749        564,994        408,349        11,193         1,344,285      2,575,650
                                              ========       ========       ========       ========       ========       ========
Total assets                                  458,642        674,196        523,144        766,861        2,422,843      4,642,167
                                              --------       --------       --------       --------       --------       -------
                                              --------       --------       --------       --------       --------       --------
Equity shareholders' funds                    332,810        535,454        404,917        (410,483)      862,698        1,652,929
                                              ========       ========       ========       ========       ========       ========
</TABLE>


Segmental analysis for the year ended 31 December 2002:
<TABLE>
<CAPTION>
                                              North          Central        South          Corporate &
                                              Region         Region         Region         eliminations          Total
                                                                                                          -----------------------
Turnover                                      L'000          L'000          L'000          L'000          L'000          $'000
                                              --------       --------       --------       --------       --------       --------
<S>                                           <C>            <C>            <C>            <C>            <C>            <C>
   Carrier                                    86,198         127,761        60,567         (63,971)       210,555        403,423
   Non-carrier                                126,827        181,697        104,304        --             412,828        790,978
                                              --------       --------       --------       --------       --------       --------
   Total switched                             213,025        309,458        164,871        (63,971)       623,383        1,194,401
   Non-switched                               155,963        151,317        123,427        (28,654)       402,053        770,334
   Other                                      65             1,330          485            (58)           1,822          3,490
   Inter region turnover                      (37,543)       (32,300)       (22,840)       92,683         --             --
                                              --------       --------       --------       --------       --------       --------
                                              331,510        429,805        265,943        --             1,027,258      1,968,225
                                              ========       ========       ========       ========       ========       ========
Depreciation and amortisation
   (including impairment charges)             (279,368)      (190,889)      (216,871)      (125,760)      (812,888)      (1,557,493)
                                              ========       ========       ========       ========       ========       ========
Net interest (payable) receivable             (34,286)       (48,718)       (45,469)       70,281         (58,192)       (111,496)
                                              ========       ========       ========       ========       ========       ========
Profit (loss) on ordinary activities before
   taxation and exceptional items             (38,614)       (22,791)       (66,910)       (107,816)      (236,131)      (452,427)
                                              ========       ========       ========       ========       ========       ========
Profit (loss) on ordinary activities before
   taxation and after exceptional items       (296,599)      (146,407)      (242,243)      (33,033)       (718,282)      (1,376,229)
                                              ========       ========       ========       ========       ========       ========
 Expenditure on fixed assets                  93,341         90,327         127,064        3,636          314,368        602,329
                                              ========       ========       ========       ========       ========       ========
 Tangible fixed assets                        384,222        580,701        400,368        13,518         1,378,809      2,641,798
                                              ========       ========       ========       ========       ========       ========
 Total assets                                 476,751        679,445        524,512        908,016        2,588,724      4,959,996
                                              ========       ========       ========       ========       ========       ========
 Equity shareholders' funds                   333,636        550,913        401,526        (331,271)      954,804        1,829,404
                                              ========       ========       ========       ========       ========       ========
</TABLE>

Segmental analysis by customer type for the year ended 31 December 2004:

<TABLE>
<CAPTION>
                                              Corporate      Wholesale              Total
                                                                            -----------------------
                                              L'000          L'000          L'000          $'000
                                              --------       --------       --------       --------
<S>                                           <C>            <C>            <C>            <C>
   Carrier                                    --             264,091        264,091        505,998
   Non-carrier                                336,064        146,948        483,012        925,451
                                              --------       --------       --------       --------
   Total switched                             336,064        411,039        747,103        1,431,449
   Non-switched                               359,314        104,527        463,841        888,719
   Other                                      2,963          113            3,076          5,894
                                              --------       --------       --------       --------
Total                                         698,341        515,679        1,214,020      2,326,062
                                              ========       ========       ========       ========
</TABLE>


Segmental analysis by customer type for the year ended 31 December 2003:

<TABLE>
<CAPTION>
                                              Corporate      Wholesale              Total
                                                                            -----------------------
                                              L'000          L'000          L'000          $'000
                                              --------       --------       --------       --------
<S>                                           <C>            <C>            <C>            <C>
   Carrier                                    --             238,913        238,913        457,757
   Non-carrier                                336,980        126,745        463,725        888,497
                                              --------       --------       --------       --------
   Total switched                             336,980        365,658        702,638        1,346,254
   Non-switched                               354,794        107,610        462,404        885,966
   Other                                      909            367            1,276          2,445
                                              --------       --------       --------       --------
Total                                         692,683        473,635        1,166,318      2,234,665
                                              ========       ========       ========       ========
</TABLE>






Segmental analysis by customer type for the year ended 31 December 2002:

<TABLE>
<CAPTION>
                                              Corporate      Wholesale              Total
                                                                            -----------------------
                                              L'000          L'000          L'000          $'000
                                              --------       --------       --------       --------
<S>                                           <C>            <C>            <C>            <C>
   Carrier                                    --             210,555        210,555        403,423
   Non-carrier                                294,757        118,071        412,828        790,978
                                              --------       --------       --------       --------
   Total switched                             294,757        328,626        623,383        1,194,401
   Non-switched                               288,962        113,091        402,053        770,334
   Other                                      1,040          782            1,822          3,490
                                              --------       --------       --------       --------
Total                                         584,759        442,499        1,027,258      1,968,225
                                              ========       ========       ========       ========
</TABLE>

                                                                              F9

<PAGE>



3. Loss on ordinary activities before taxation


Loss on ordinary activities before taxation is stated after charging:

<TABLE>
<CAPTION>
                                                                                             Year ended 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Employee costs (note 5)                                                         205,805       224,085       208,496      399,478
Depreciation of tangible fixed assets                                           259,109       240,832       220,461      422,403
Impairment of tangible fixed assets                                             541,474       --            --           --
Amortisation of intangible fixed assets                                         12,305        2,116         2,027        3,884
Operating lease rentals          - property                                     25,716        27,688        29,679       56,864
                                 - other                                        59,406        68,164        73,045       139,954
Remuneration of auditors
   Statutory audit (Company L0.1 million (2003 and 2002: L0.1 million))         878           920           906          1,736
   Non-statutory assurance services                                             123           88            235          451
   Taxation services             - compliance                                   108           194           176          337
                                 - advisory                                     368           660           456          874
   Other services                                                               537           40            189          362
</TABLE>

Other services in 2002 included fees of L520,000 in relation to Highberry
Limited's (a hedge fund) unsuccessful petition to appoint an administrator.


4. Directors' emoluments


Aggregate emoluments for Directors of COLT in the year were:
<TABLE>
<CAPTION>
                                                                                             Year ended 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Salaries, fees and bonuses                                                      1,343         1,049         1,493        2,861
Long term incentive plan                                                        38            --            --           --
Other benefits                                                                  84            351           315          604
                                                                                --------      --------      --------     --------
Aggregate emoluments                                                            1,465         1,400         1,808        3,465
Pension contributions                                                           100           36            71           136
                                                                                --------      --------      --------     --------
                                                                                1,565         1,436         1,879        3,601
                                                                                ========      ========      ========     ========
Loss of office                                                                  915           --            --           --
                                                                                ========      ========      ========     ========
</TABLE>

                                                                             F10

<PAGE>



5. Employee information

The average monthly number of persons employed by the Group during the period
was:
<TABLE>
<CAPTION>
                                                                                                        Year ended 31 December
                                                                                               ----------------------------------
                                                                                                   2002         2003         2004
                                                                                               --------     --------     --------
<S>                                                                                               <C>          <C>          <C>
By category:
   Operations and technology                                                                      2,820        2,561        2,392
   Sales and marketing                                                                            1,118        1,141          992
   Administration                                                                                 1,067          583          485
                                                                                               --------     --------     --------
                                                                                                  5,005        4,285        3,869
                                                                                               ========     ========     ========
</TABLE>


<TABLE>
<CAPTION>
                                                                                                 At 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Employee costs (for the above persons):
   Wages and salaries                                                           203,513       196,593       185,512      355,441
   Social security costs                                                        34,514        36,643        31,334       60,036
   Other pension costs                                                          12,477        11,087        9,666        18,520
                                                                                --------      --------      --------     --------
                                                                                250,504       244,323       226,512      433,997
Less: employee costs capitalised                                                (44,699)      (20,238)      (18,016)     (34,519)
                                                                                --------      --------      --------     --------
                                                                                205,805       224,085       208,496      399,478
                                                                                ========      ========      ========     ========
</TABLE>

Capitalised employee costs are included in fixed asset additions within the
appropriate asset category.


Long-Term Incentive Plan ("Incentive Plan")

COLT Inc. (a wholly owned subsidiary of FMR Corp.) established, effective 1
December 1995 , an Incentive Plan providing for the issuance, to key employees
of the Group, of incentive deferred compensation in the form of interests in the
appreciation in the value of the Company's ordinary shares over a specified base
amount ("Incentive Units"). The Incentive Plan was not assumed by COLT in the
Group's reorganisation prior to its initial public offering, and remains the
obligation of COLT Inc. There have been no additional Incentive Units awarded
under the Incentive Plan.


COLT Inc.'s obligations to employees holding Incentive Units have been satisfied
by the creation of an irrevocable trust for the benefit of such holders, and the
funding by COLT Inc. of the trust with ordinary shares of COLT. As each holder
becomes entitled to a payment, the trust sells ordinary shares and transfers an
approximately equivalent amount of cash to such holder in retirement of such
holder's units. Included in the table above are charges to the extent that the
Group continues to be responsible for employer taxes related to Incentive Plan
employee payments. For the year ended 31 December 2004 these charges were Lnil
(2003: Lnil, 2002: L0.1 million).

                                                                             F11

<PAGE>



6. Interest payable and similar charges

<TABLE>
<CAPTION>
                                                                                             Year ended 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Interest and similar charges on senior convertible notes                        36,132        34,444        30,257       57,972
Accretion and similar charges on senior discount notes                          20,631        15,352        --           --
Interest and similar charges on senior notes                                    36,844        36,319        34,998       67,056
Charges payable in respect of bank facility                                     145           --            --           --
Other interest payable and similar charges                                      2,548         2,180         1,557        2,984
                                                                                --------      --------      --------     --------
                                                                                96,300        88,295        66,812       128,012
                                                                                ========      ========      ========     ========
</TABLE>



7. Exceptional items



Gain on redemption of debt

During 2004, the Group redeemed some of its debt for a cash outlay of L335.3
million (2003: L144.5 million, 2002: L97.3 million) resulting in an exceptional
gain of L0.2 million (2003: L7.6 million, 2002: L101.7 million).

Disposal of subsidiaries

In December 2003 the Group sold COLT eCustomer Solutions France SAS ("Fitec")
and COLT Internet AB (Sweden Internet) for consideration of L0.9 million and
L0.3 million respectively, which gave rise to a profit on disposal of L2.2
million on Fitec and L0.3 million on Sweden Internet. In the period to December
2003, Fitec's turnover was L9.2 million and its loss after tax was L3.3 million.


Severance

On 21 February 2002, the Group announced an operational effectiveness review
programme to reduce staff levels by approximately 500. On 27 September 2002, the
Group further announced a move to a pan-European organisational structure
following the completion of the construction of its core network infrastructure
enabling the reduction of employee numbers by up to a further 800. The
operational exceptional charge of L18.3 million included in the total
interconnect and network charges for the twelve months ended 31 December 2002
together with the operational exceptional charge of L18.9 million included in
the selling, general and administration charges for the same period, represent
the provisions in respect of the cost of these programmes.


Impairment

During 2002, the Group announced that given the downturn in the
telecommunications industry and overall economic environment it was prudent to
take further action to ensure that its asset base remained aligned with the
realities of the market. As a result "Network depreciation" includes an
exceptional charge of L508.0 million and "Other depreciation and amortisation"
included an exceptional charge of L43.0 million, representing an impairment
provision to write down the book value of fixed assets (including L9.5 million
relating to intangible assets). These non-cash charges were computed in
accordance with the requirements of FRS 11 "Impairment of fixed assets and
goodwill".

Investment in own shares

In 2002 the Group recognised a charge of L0.4 million relating to the
revaluation of shares held in the COLT Qualifying Share Ownership Trust for
certain compensation plans as described in note 13.

Foreign exchange gain

In 2002 the Group realised an exceptional exchange gain of L4.8 million from the
unwinding of forward foreign currency contracts previously held as a condition
of its bank facility which the Group terminated in June 2002.

                                                                             F12

<PAGE>



8. Taxation

There is no tax charge arising in the years ended 31 December 2002, 2003 and
2004 as the Group had no taxable profits.

Net tax losses carried forward amounted to:
<TABLE>
<CAPTION>
                                                                                                 At 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'00
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
North Region                                                                    369,544       457,894       444,261      851,204
Central Region                                                                  271,498       448,453       290,148      555,924
South Region                                                                    79,140        112,812       123,728      237,063
                                                                                --------      --------      --------     --------
                                                                                720,182       1,019,159     858,137      1,644,191
                                                                                ========      ========      ========     ========
</TABLE>

These amounts are not time limited, but must be utilised in the country in which
they arose. The losses carried forward remain subject to legislative provisions
and to agreements with the various tax authorities in jurisdictions where the
Group operates.

The tax losses in the Central region were reduced in 2004 as a result of a
reorganisation of the Group's German operations. The reorganisation generated a
profit of L196.0 million which utilised existing tax losses in Germany. However,
the reorganisation increased, for German tax purposes, the value of assets that
are depreciable and will generate future tax deductions of a similar amount.
This is reflected in the potential deferred tax asset "capital allowances less
depreciation" below.

No deferred tax asset has been recognised in the financial statements. The
unprovided potential deferred tax asset is as follows:

<TABLE>
<CAPTION>
                                                                                                 At 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Capital allowances less depreciation                                            (101,265)     (126,591)     (201,271)    (385,635)
Short-term timing differences                                                   (22,972)      (22,971)      (20,810)     (39,872)
                                                                                --------      --------      --------     --------
Potential deferred tax asset                                                    (124,237)     (149,562)     (222,081)    (425,507)
Add losses available                                                            (249,362)     (348,081)     (299,257)    (573,376)
                                                                                --------      --------      --------     --------
Total potential deferred tax asset after addition of losses                     (373,599)     (497,643)     (521,338)    (998,883)
                                                                                ========      ========      ========     ========
</TABLE>

At the end of 2002 there was a further potential deferred tax asset of L4.4
million which related to timing differences on the accretion of the senior
discount notes. These notes were redeemed in December 2003 and the tax losses
have now crystallised.

                                                                             F13

<PAGE>



9. Loss per share









Basic loss per share is based upon the loss after tax for each period and the
weighted average ordinary shares in issue in the period. All potential ordinary
shares issuable have an anti-dilutive effect on basic loss per share for each
financial year presented and therefore these potential shares have been excluded
in the calculation of diluted loss per share.

<TABLE>
<CAPTION>
                                                                                                 At 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Loss for period                                                                 (718,282)     (124,647)     (114,431)    (219,249)
                                                                                ========      ========      ========     ========
Weighted average ordinary shares issued (`000)                                  (1,507,164)   1,507,771     1,510,853    1,510,853
                                                                                ========      ========      ========     ========
Basic and diluted loss per share                                                L(0.48)       L(0.08)       L(0.08)      $(0.15)
                                                                                ========      ========      ========     ========
</TABLE>




                                                                             F14

<PAGE>



10. Intangible fixed assets
<TABLE>
<CAPTION>
                                                                                                            Total        Total
                                                                                                            L'000        $'000
                                                                                                            --------     --------
<S>                                                                                                         <C>          <C>
Cost
   At 1 January 2003                                                                                        30,689       58,800
   Disposal                                                                                                 (11,053)     (21,178)
   Exchange differences                                                                                     1,762        3,376
                                                                                                            --------     --------
   At 31 December 2003                                                                                      21,398       40,999
   Exchange differences                                                                                     (12)         (23)
                                                                                                            --------     --------
   At 31 December 2004                                                                                       21,386      40,976
                                                                                                            ========     ========


Accumulated amortisation
   At 1 January 2003                                                                                        20,050       38,416
   Charge for the year                                                                                      2,116        4,054
   Disposal                                                                                                 (11,053)     (21,178)
   Exchange differences                                                                                     792          1,517
                                                                                                            --------     --------
   At 31 December 2003                                                                                      11,905       22,810
   Charge for the year                                                                                      2,027        3,884
   Exchange differences                                                                                     137          263
                                                                                                            --------     --------
   At 31 December 2004                                                                                      14,069       26,957
                                                                                                            ========     ========

Net book value

 At 1 January 2003                                                                                          10,639       20,384
                                                                                                            ========     ========
 At 31 December 2003                                                                                        9,493        18,189
                                                                                                            ========     ========
 At 31 December 2004                                                                                        7,317        14,019
                                                                                                            ========     ========
</TABLE>

Intangible fixed assets as at 31 December 2004 comprise purchased goodwill
arising on the acquisition of Planet SA and its subsidiary Imaginet SA (together
"ImagiNet") on 15 July 1998. The goodwill is attributable to the market position
and business development of ImagiNet at the date of acquisition and the
amortisation term of 10 years reflects the period during which the Directors
estimate the value of the underlying business will exceed the value of the
underlying assets.

Goodwill has also arisen on the purchase of Fitec SA and its subsidiaries Apogee
Communications SA and Asthea Ingenerie SARL (together "Fitec"). The total
purchase price of Fitec was L11.3 million and included some deferred shares to
be issued and deferred consideration to be paid over the 2 years ending 3 July
2003 subject to certain criteria being met. In July 2003 the final tranche of
182,228 deferred shares was issued. The issue of these ordinary shares
represented a non-cash transaction. The Fitec goodwill was being amortised over
10 years up to September 2002, at which point the remaining goodwill was
considered fully impaired. In December 2003 the Group sold its interest in
Fitec, resulting in the disposal of the goodwill and accumulated amortisation of
L11.1 million.

                                                                             F15

<PAGE>



11. Tangible fixed assets

<TABLE>
<CAPTION>
                                                                                              Computers,
                                                                               Network        equipment,
                                                                               infrastructure fixtures &
                                                                               and            fittings and
                                                                               equipment      vehicles
                                                                                                            Total        Total
                                                                               --------       --------      --------     --------
                                                                               L'000          L'000         L'000        $'000
                                                                               --------       --------      --------     --------
<S>                                                                            <C>            <C>           <C>          <C>
Cost
   At 1 January 2003                                                           2,433,880      261,619       2,695,499    5,164,575
   Additions                                                                   113,595        14,477        128,072      245,386
   Disposals                                                                   (39,998)       (11,286)      (51,284)     (98,260)
   Exchange differences                                                        149,412        12,804        162,216      310,806
                                                                               --------       --------      --------     --------
   At 31 December 2003                                                         2,656,889      277,614       2,934,503    5,622,507
   Additions                                                                   100,212        32,923        133,135      255,087
   Disposals                                                                   (13,602)       (15,601)      (29,203)     (55,953)
   Exchange differences                                                        12,833         463           13,296       25,476
                                                                               --------       --------      --------     --------
   At 31 December 2004                                                         2,756,332      295,399       3,051,731    5,847,117
                                                                               ========       ========      ========     ========

Accumulated depreciation
   At 1 January 2003                                                           1,143,455      173,235       1,316,690    2,522,778
   Charge for the year                                                         204,417        36,415        240,832      461,434
   Disposals                                                                   (39,447)       (9,674)       (49,121)     (94,116)
   Exchange differences                                                        71,774         10,043        81,817       156,761
                                                                               --------       --------      --------     --------
   At 31 December 2003                                                         1,380,199      210,019       1,590,218    3,046,857
   Charge for the year                                                         191,969        28,492        220,461      422,403
   Disposals                                                                   (8,731)        (15,339)      (24,070)     (46,117)
   Exchange differences                                                        11,087         533           11,620       22,264
                                                                               --------       --------      --------     --------
   At 31 December 2004                                                         1,574,524      223,705       1,798,229    3,445,407
                                                                               ========       ========      ========     ========

Net book value
   At 1 January 2003                                                           1,290,425      88,384        1,378,809    2,641,797
                                                                               --------       --------      --------     --------
   At 31 December 2003                                                         1,276,690      67,595        1,344,285    2,575,650
                                                                               --------       --------      --------     --------
   At 31 December 2004                                                         1,181,808      71,694        1,253,502    2,401,710
                                                                               ========       ========      ========     ========
</TABLE>

Included in network infrastructure and equipment are payments on account and
assets under construction of L32.1 million at 31 December 2004 (2003: L30.1
million, 2002: L39.6 million).

                                                                             F16

<PAGE>



12. Debtors - amounts falling due within one year

Trade debtors:
<TABLE>
<CAPTION>
                                                                                                          At 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Trade debtors                                                                                 245,235       235,698      451,598
Provision against doubtful debts                                                              (45,386)      (36,624)     (70,172)
                                                                                              --------      --------     --------
                                                                                              199,849       199,074      381,426
                                                                                              ========      ========     ========
</TABLE>


Prepaid expenses and other debtors:
<TABLE>
<CAPTION>
                                                                                                          At 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Other debtors                                                                                 34,468        14,785       28,328
Prepayments and accrued income                                                                13,493        18,724       35,875
VAT recoverable                                                                               18,873        14,569       27,914
                                                                                              --------      --------     --------
                                                                                              66,834        48,078       92,117
                                                                                              ========      ========     ========
</TABLE>

                                                                             F17

<PAGE>




13. Capital and reserves

<TABLE>
<CAPTION>
                                                                                                       Restated
                                                                                          Shares       Profit          Total
                                      Ordinary     Share       Share        Merger        to be        and loss        shareholders'
                                      shares (i)   capital     premium      reserve (ii)  issued       reserve (iii)   funds
                                      No'000       L'000       L'000        L'000         L'000        L'000           L'000
                                      --------     --------    --------     --------      --------     --------        --------
<S>                                   <C>          <C>         <C>          <C>           <C>          <C>             <C>
 At 1 January 2003                    1,507,537    37,688      2,314,335    27,227        454          (1,424,900)     954,804
    Shares issued in the year         2,617        66          1,569        132           --           --              1,767
    Shares to be issued               --           --          --           --            (239)        --              (239)
    Loss for period                   --           --          --           --            --           (124,647)       (124,647)
    Exchange differences              --           --          --           --            --           31,002          31,002
    Grant of shares from Group Quest  --           --          --           --            --           11              11
                                      --------     --------    --------     --------      --------     --------        --------
 At 31 December 2003                  1,510,154    37,754      2,315,904    27,359        215          (1,518,534)     862,698
    Shares issued in the year         975          24          546          --            --           --              570
    Shares to be issued               --           --          215          --            (215)        --              --
    Loss for period                   --           --          --           --            --           (114,431)       (114,431)
    Exchange differences              --           --          --           --            --           (798)           (798)
    Grant of shares from Group Quest  --           --          --           --            --           55              55
                                      --------     --------    --------     --------      --------     --------        --------
 At 31 December 2004                  1,511,129    37,778      2,316,665    27,359        --           (1,633,708)     748,094
                                      ========     ========    ========     ========      ========     ========        ========
 At 31 December 2004 ($'000)                       72,383      4,438,730    52,420        --           (3,130,185)     1,433,348
                                                   ========    ========     ========      ========     ========        ========

<FN>
(i)   Authorised share capital comprises 2,075,000,000 shares of 2.5p each.

(ii)  The Group has taken merger relief under the provisions of section 131 of the Companies Act 1985 on shares issued in respect of
      prior year acquisitions. All premium on the issue of those shares has been taken directly to the merger reserve.

(iii) Cumulative goodwill relating to acquisitions made prior to 1 January 1998, which has been eliminated against reserves,
      amounted to L38.4 million (2003: L38.4 million, 2002: L38.4 million).
</FN>
</TABLE>


Warrants

In December 1996, the Company issued US$314 million aggregate principal amount
at maturity of senior discount notes in the form of 314,000 units, each unit
consisting of one 12% senior discount note and one warrant to purchase 31.2
ordinary shares from the Company at an exercise price of L0.7563 per share. The
warrants may be exercised at any time prior to the close of business on 31
December 2006. Warrants that are not exercised by such date will expire. In
accordance with the terms of the warrants, following the completion of the
Company's sale of ordinary shares in December 2001, the number of shares
underlying each outstanding warrant and the warrant exercise price were adjusted
to 45.323 ordinary shares and L0.5206 per ordinary share, respectively. At 31
December 2004, warrants to purchase 881,770 (2003: 881,770) ordinary shares were
outstanding. The Company has authorised and has reserved for issuance such
number of ordinary shares as will be issuable upon the exercise of all
outstanding warrants.


COLT Telecom Group Share Plan

The COLT Telecom Group Share Plan (the "Option Plan") was adopted on 7 November
1996, for the issuance to key employees of the Group incentive compensation
related to the public market performance of the Company's ordinary shares. The
Option Plan is divided into two parts; the "Approved Part" which is approved by
the U.K. Inland Revenue for the purposes of the Income and Corporation Taxes Act
1988, and the "Unapproved Part" which is not so approved. Options may be granted
by the Compensation Committee to Directors and employees of the Group under
either part of the Option Plan. Individuals who provide services to COLT may
also be permitted to participate in the Unapproved Part.

Options granted under the Approved Part will not normally be exercisable until
the third anniversary of the date of grant. Options granted under the Unapproved
Part may become exercisable earlier than the third anniversary. Options may be
exercised early in certain circumstances, including on cessation of employment
under special circumstances and on death. Otherwise, unless the Compensation
Committee agrees otherwise, options lapse when an option holder ceases to be an
employee. The Compensation Committee, at its discretion, may determine in
connection with each grant of options, the terms of vesting and whether or not
vesting will be accelerated upon a change of control event. Options are not
transferable.


Option Plan awards are based on an employee's level of responsibility,
performance and term of service. Options will be granted at an option price
which is not less than the market value of the ordinary shares on the date of
grant and will normally only be granted within six weeks of the announcement of
COLT's results for any period. The grant of options to subscribe for new shares
under each of the plans is limited so that new shares in respect of which
options to subscribe are granted may not, when added to the shares issued or
remaining issuable under any share option scheme, or issued under any share
incentive scheme, in the previous 10 years, exceed 10% of the then issued equity
share capital of the Company.

                                                                             F18

<PAGE>



At 31 December 2004, options outstanding under the Option Plan, together with
their exercise prices and dates, were as follows:

<TABLE>
<CAPTION>
Date of        Exercise           Dates of                 Date of                     Number of ordinary shares under option
                                                                        ------------------------------------------------------------
grant             price            vesting              expiration          Granted       Exercised           Lapsed     Outstanding
--------       --------        --------------          -----------      -----------     -----------      -----------     -----------
<S>               <C>         <C>                           <C>          <C>             <C>              <C>             <C>
Dec-96            L0.69       Dec 97 to Dec 01              Dec-06       25,824,000      12,744,036        6,939,964       6,140,000
Jan-97            L0.78       Jan 98 to Jan 02              Jan-07          396,000         226,400          149,600          20,000
Apr-97            L0.71       Apr 98 to Apr 02              Apr-07        1,280,000         675,000          377,600         227,400
Aug-97            L0.96       Aug 98 to Aug 02              Aug-07        2,488,000         726,000          933,200         828,800
Nov-97            L1.29       Nov 98 to Nov 02              Nov-07        3,196,000       1,418,362        1,158,038         619,600
Dec-97            L1.70       Dec 98 to Dec 02              Dec-07        4,204,000       1,104,400        1,148,000       1,951,600
Feb-98            L2.74       Feb 99 to Feb 03              Feb-08          140,000          56,000           84,000              --
Feb-98            L2.74       Feb 99 to Feb 03              Feb-08          900,000         530,220          369,780              --
May-98            L4.76       May 99 to May 03              May-08          830,000         207,750          340,000         282,250
Aug-98            L6.60       Aug 99 to Aug 03              Aug-08        2,906,000         591,544        1,695,712         618,744
Nov-98            L7.49       Nov 99 to Nov 03              Nov-08        1,408,075         113,215          980,400         314,460
Dec-98            L7.88       Dec 99 to Dec 03              Dec-08          100,000              --          100,000              --
Mar-99           L11.30       Mar 00 to Mar 04              Mar-09          990,000         122,500          597,000         270,500
Apr-99           L10.93       Apr 00 to Apr 04              Apr-09        1,000,000         150,000          850,000              --
May-99           L12.25       May 00 to May 04              May-09          585,000          58,000          390,000         137,000
Aug-99           L12.74       Aug 00 to Aug 04              Aug-09          930,000          15,000          659,000         256,000
Nov-99           L21.00       Nov 00 to Nov 04              Nov-09          800,500              --          587,500         213,000
Dec-99           L24.39       Dec 00 to Dec 04              Dec-09          740,000              --          460,000         280,000
Feb-00           L36.18       Feb 01 to Feb 05              Feb-10          745,000              --          440,000         305,000
May-00           L22.61       May 01 to May 05              May-10          792,500              --          378,674         413,826
Jun-00           L26.66       Jun 01 to Jun 05              Jun-10          846,000              --          450,500         395,500
Aug-00           L19.16       Aug 01 to Aug 05              Aug-10        1,181,500              --          685,434         496,066
Aug-00           L17.73       Aug 01 to Aug 05              Aug-10          317,500              --          161,250         156,250
Nov-00           L19.48       Nov 01 to Nov 05              Nov-10          800,000              --          327,500         472,500
Dec-00           L15.18       Dec 01 to Dec 05              Dec-10          757,321              --          327,702         429,619
Feb-01           L13.37       Feb 02 to Feb 06              Feb-11        2,401,040              --        1,568,792         832,248
Feb-01           L20.06       Feb 02 to Feb 06              Feb-11          400,000              --          400,000              --
Feb-01           L26.74       Feb 02 to Feb 06              Feb-11          750,000              --          750,000              --
May-01            L8.44       May 02 to May 06              May-11          866,500              --          588,500         278,000
May-01           L12.66       May 02 to May 06              May-11          250,000              --          250,000              --
May-01           L16.87       May 02 to May 06              May-11          250,000              --          250,000              --
Jun-01            L7.10       Jun 02 to Jun 06              Jun-11        2,688,750              --        1,179,000       1,509,750
Aug-01            L3.22       Aug 02 to Aug 06              Aug-11        1,464,500              --          953,500         511,000
Nov-01            L1.72       Nov 02 to Nov 06              Nov-11          231,000              --           26,000         205,000
Dec-01            L1.56       Dec 02 to Dec 06              Dec-11        1,410,500              --          390,500       1,020,000
Feb-02            L0.41       Feb 03 to Feb 07              Feb-12        4,688,500         180,000        2,628,000       1,880,500
May-02            L0.45       May 03 to May 07              May-12           72,500           6,000           51,500          15,000
Jul-02            L0.48       Jul 03 to Jul 07              Jul-12        5,602,300         127,360        1,312,100       4,162,840
Aug-02            L0.50       Aug 03 to Aug 07              Aug-12          250,000              --               --         250,000
Oct-02            L0.32       Oct 03 to Oct 07              Oct-12          250,000          50,000          180,000          20,000
Nov-02            L0.44       Nov 03 to Nov 07              Nov-12          400,000              --               --         400,000
Mar-03            L0.41       Mar 04 to Mar 08              Mar-13          200,000              --               --         200,000
Apr-03            L0.46       Apr 04 to Apr 08              Apr-13           32,500              --           20,000          12,500
May-03            L0.47       May 04 to May 08              May-13          150,000              --               --         150,000
May-03            L0.49       May 04 to May 08              May-13           50,000              --               --          50,000
Jul-03            L0.77       Jul 06 to Jul 08              Jul-13        7,161,000              --        1,107,000       6,054,000
Oct-03            L1.01       Oct 06 to Oct 08              Oct-13           60,000              --               --          60,000
Feb-04            L1.13       Feb 07 to Feb 09              Feb-14           60,000              --               --          60,000
Apr-04            L0.84       Apr 07 to Apr 09              Apr-14           20,000              --               --          20,000
May-04            L0.77       May 07 to May 09              May-14          500,000              --               --         500,000
Jul-04            L0.42       Jul 07 to July 09             Jul-14          165,000              --               --         165,000
Aug-04            L0.38            Aug 07                   Aug-14        6,392,500              --           78,700       6,313,800
Aug-04            L0.38       Aug 07 to Aug 09              Aug-14          800,000              --               --         800,000
Oct-04            L0.41       Oct 07 to Oct 09              Oct-14        1,210,000              --               --       1,210,000
                                                                        ------------------------------------------------------------
                                                             Total       92,933,986      19,101,787       32,324,446      41,507,753
                                                                        ============================================================
</TABLE>


The weighted average exercise price of options granted, exercised, lapsed and
outstanding at the beginning and end of the year was L0.44, L0.62, L4.98, L4.11
and L3.25 respectively.


In addition to options granted under the Option Plan, further options to
subscribe for 160,000 ordinary shares have been granted to certain Directors of
the Company. At 31 December 2004 64,000 options had been exercised, 48,000 had
lapsed and 48,000 remained exercisable. The outstanding options at 31 December
2004 vested in three tranches of 16,000 shares with exercise prices of L14.86,
L29.00 and L8.50.


                                                                             F19

<PAGE>





COLT Savings-Related Share Option Scheme

The COLT Savings-Related Share Option Scheme (the "SAYE Scheme") was adopted on
17 June 1997, allowing for eligible employees to apply for an option to acquire
ordinary shares under a three or four year savings contract. The aggregate
monthly contribution payable by an employee under the savings contract may not
exceed an amount established by the U.K. Inland Revenue for the purposes of the
Income and Corporation Taxes Act 1988, currently L250 or the local currency
equivalent. The option exercise price per ordinary share may not be less than
the higher of (a) 80% of the average of the middle market quotations of an
ordinary share for either three consecutive dealing days in the period of 30
days prior to the date of grant or the dealing day prior to the date on which
the exercise price is set and (b) the nominal value of an ordinary share on the
date of grant.

The Group has taken advantage of the exemption, provided by UITF 17 "Employee
Share Schemes", from charging the profit and loss account with the differences
between fair value of the options on the date of grant and any consideration
payable by the employees on exercise.

In normal circumstances, an option may only be exercised while the participant
remains employed within the Group and then only during the six months starting
at the date on which the savings contract matures. At the expiry of that period,
the option will lapse. Earlier exercise is permitted in certain circumstances
where the participant's employment terminates or in the event of change of
control, reorganisation or amalgamation of the Company. During the year ended 31
December 2004, 260,728 options with a maturity date of 1 March 2006 were
exercised early. No other options were exercised during the year.

Options outstanding under the SAYE Scheme were as follows:

<TABLE>
<CAPTION>
                                                                                            Number of options at 31 December 2004
                                                                                            -------------------------------------
                               Exercise price
Date of grant              (L per ordinary share)                  Date of Vesting                Granted             Outstanding
--------------               ------------------                     --------------            -----------             -----------
<S>                                 <C>                              <C>                       <C>                     <C>
December 2001                       1.615                            March 2005                 6,986,000                 666,262
December 2002                       0.40                             March 2006                18,410,000              13,759,505
December 2003                       1.027                            March 2008                   58,323*                  58,323
December 2003                       0.995                            March 2007                 1,560,919                 924,847
December 2004                       0.43                             March 2009                  202,330*                 202,330
December 2004                       0.465                            March 2008                 3,737,658               3,737,658
                                                                                              -----------             -----------
                                                                                               30,955,230              19,348,925
                                                                                              ===========             ===========

<FN>
*Each option holder entered into a four year savings contract.
</FN>
</TABLE>

In March 2000, the Group established a QUEST to acquire, inter alia, shares in
the Company to satisfy existing options granted under the Group's SAYE Scheme.
The shares held in the QUEST are expected to be utilised in full to part-satisfy
the options granted in December 2002 under the SAYE Scheme. At 31 December 2004,
the QUEST held 138,435 shares (2003: 270,559).

COLT Deferred Bonus Plan

The COLT Deferred Bonus Plan (the "Deferred Bonus Plan") was adopted on 25 May
2000. Under this plan, selected senior employees will be entitled to receive an
award of shares representing a proportion (initially expected to be 50%) of the
amount of their annual cash bonus.

In October 2003, the rules were amended so that selected senior employees may be
invited to defer all or a portion of their annual cash bonus and receive a
matching award in the form of an option to acquire shares with a market value
equal to half the amount of the deferred bonus. Receipt of the matching award is
subject to the achievement of performance targets.

At 31 December 2004, share awards outstanding under the Deferred Bonus Plan,
together with dates, were as follows:


<TABLE>
<CAPTION>
                                                                     Number of ordinary shares
                                                ------------------------------------------------------------------
Date of grant          Date of vesting             Granted          Exercised           Lapsed         Outstanding
----------------       ----------------         ----------         ----------       ----------          ----------
<S>                    <C>                         <C>                 <C>               <C>               <C>
Feb 01                 Feb 04 to Feb 06             24,182             15,722            8,460                  --
Feb 04                 Feb 07                      156,519                 --            7,535             148,984
Aug 04                 Aug 07                      250,000                 --               --             250,000
Oct 04                 Oct 07                       50,000                 --               --              50,000
</TABLE>


On 22 March 1999, an Employee Benefit Trust ("EBT") was established. On 26 March
1999, the EBT purchased 440,000 ordinary shares at their nominal value of 2.5p
each. On 13 December 2001, the EBT subscribed for its pro rata share of the
Company's offering, purchasing 104,144 ordinary shares at L0.62 per share. At 31
December 2004, the EBT held 211,380 shares (2003: 217,344).

                                                                             F20

<PAGE>




14. Creditors - amounts falling due within one year

<TABLE>
<CAPTION>
                                                                                                         At 31 December
                                                                                              -----------------------------------

                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Trade creditors                                                                               91,184        86,136       165,037
Other taxation and social security                                                            37,229        28,355       54,328
Other creditors                                                                               29,303        13,648       26,150
Accruals and deferred income                                                                  171,004       183,356      351,310
Interest accrual                                                                              12,592        11,709       22,434
Network infrastructure                                                                        11,424        13,304       25,490
                                                                                              --------      --------     --------
                                                                                              352,736       336,508      644,749
                                                                                              ========      ========     ========
</TABLE>



                                                                             F21

<PAGE>



15. Creditors - amounts falling due after more than one year

<TABLE>
<CAPTION>
                                                                                                         At 31 December
                                                                                              -----------------------------------

                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Repayable between one and two years
   Senior convertible notes                                                                   107,771       135,230      259,101
Repayable between two and three years
   Senior convertible notes                                                                   355,732       247,090      473,424
Repayable between three and four years
   Senior convertible notes                                                                   236,628       --           --
   Senior notes                                                                               83,328        177,484      340,059
Repayable between four and five years
   Senior notes                                                                               176,791       185,881      356,148
Repayable in more than five years
   Senior notes                                                                               184,299       --           --
                                                                                              --------      --------     --------
                                                                                              1,144,549     745,685      1,428,732
                                                                                              ========      ========     ========
</TABLE>


Senior Convertible Notes

1998 Senior Convertible Notes

In August 1998, COLT issued Deutschmark denominated senior convertible notes
("1998 Senior Convertible Notes") in the initial principal amount of DM600.0
million. A total of L204.3 million was raised before issuance costs of L5.2
million. These costs were deducted from the principal amount of the 1998 Senior
Convertible Notes and were charged to the profit and loss account over three
years. The notes bore interest at the rate of 2% of the initial principal amount
per annum, payable in cash annually beginning 6 August 1999. The 1998 Senior
Convertible Notes would have matured on 6 August 2005 and any outstanding notes
would then have been redeemed at a price of 117.907% of the initial principal
amount. The notes were also redeemable at the option of the Company, in whole or
in part, at any time on or after 6 August 2001 at an accreted principal amount
plus any accrued interest. The accreted principal amount is that amount
determined so as to provide a gross yield at redemption (including any accrued
interest and any cash interest previously paid) of 4.25%. The 1998 Senior
Convertible Notes were convertible at any time, at the option of the holder,
unless previously redeemed, repurchased or cancelled, into ordinary shares of
COLT. At issue, the conversion price of the notes was L9.3438 per ordinary share
with a fixed exchange rate of DM2.9392 per L1.00. In accordance with the terms
of the notes, following the completion of the Company's sale of ordinary shares
in December 2001, the conversion price of the notes was adjusted to L7.9039 per
ordinary share with a fixed exchange rate of DM2.9392 per L1.00. The notes
ranked pari passu in right of payment with all other unsubordinated unsecured
indebtedness of the Company and were

                                                                             F22

<PAGE>



senior in right of payment to all subordinated indebtedness of the Company. On
31 December 2001, the 1998 Senior Convertible Notes were redenominated from
Deutschmarks to Euros at a rate of DM1.95583 per (euro)1.00. During 2004, DM32.0
million (2003: DM3.3 million) aggregate initial principal amount of the notes
was purchased. On 19 October 2004, all of the outstanding 1998 Senior
Convertible Notes were redeemed early at the accreted principal amount of the
notes plus accrued coupon interest for a cash consideration of L95.3 million.

March 1999 Senior Convertible Notes
In March 1999, COLT issued Euro denominated senior convertible notes ("March
1999 Senior Convertible Notes") in the initial principal amount of (euro)295.0
million. A total of L199.6 million was raised before issuance costs of L5.1
million. These costs were deducted from the principal amount of the March 1999
Senior Convertible Notes and were charged to the profit and loss account over
three years. The notes bore interest at the rate of 2% of the initial principal
amount per annum, payable in cash annually beginning 29 March 2000. The March
1999 Senior Convertible Notes mature on 29 March 2006 and any outstanding notes
will then be redeemed at a price of 117.907% of the initial principal amount.
The notes are also redeemable at the option of the Company, in whole or in part,
at any time on or after 29 March 2002 at an accreted principal amount plus any
accrued interest. The accreted principal amount is that amount determined so as
to provide a gross yield at redemption (including any accrued interest and any
cash interest previously paid) of 4.25%. The March 1999 Senior Convertible Notes
are convertible at any time, at the option of the holder, unless previously
redeemed, repurchased or cancelled, into ordinary shares of COLT. At issue, the
conversion price of the notes was L14.6460 per ordinary share with a fixed
exchange rate of (euro)1.4780 per L1.00. In accordance with the terms of the
notes, following the completion of the Company's sale of ordinary shares in
December 2001, the conversion price of the notes was adjusted to L12.2351 per
ordinary share with a fixed exchange rate of (euro)1.4780 per L1.00. At 31
December 2004, 9,210,009 ordinary shares are reserved for issuance upon
conversion of the March 1999 Senior Convertible Notes (2003: 9,210,009). The
notes rank pari passu in right of payment to all unsubordinated unsecured
indebtedness of the Company and are senior in right of payment to all
subordinated indebtedness of the Company.

December 1999 Senior Convertible Notes
In December 1999, COLT issued Euro denominated senior convertible notes
("December 1999 Senior Convertible Notes") in the initial principal amount of
(euro)368.0 million. A total of L230.4 million was raised before issuance costs
of L9.3 million. These costs were deducted from the principal amount of the
December 1999 Senior Convertible Notes and were charged to the profit and loss
account over three years. The notes bore interest at the rate of 2% of the
initial principal amount per annum, payable in cash annually beginning 16
December 2000. The December 1999 Senior Convertible Notes would have matured on
16 December 2006 and any outstanding notes would then have been redeemed at a
price of 126.664% of the initial principal amount. The notes were also
redeemable at the option of the Company, in whole or in part, at any time on or
after 16 December 2002 at an accreted principal amount plus any accrued
interest. The accreted principal amount is that amount determined so as to
provide a gross yield at redemption (including any accrued interest and any cash
interest previously paid) of 5.25%. The December 1999 Senior Convertible Notes
are convertible at any time, at the option of the holder, unless previously
redeemed, repurchased or cancelled, into ordinary shares of COLT. At issue, the
conversion price of the notes was L35.5550 per ordinary share with a fixed
exchange rate of (euro)1.5974 per L1.00. In accordance with the terms of the
notes, following the completion of the Company's sale of ordinary shares in
December 2001, the conversion price of the notes was adjusted to L30.0760 per
ordinary share with a fixed exchange rate of (euro)1.5974 per L1.00. The notes
ranked pari passu in right of payment with all other unsubordinated unsecured
indebtedness of the Company and were senior in right of payment to all
subordinated indebtedness of the Company. During 2004, (euro)2.0 million
aggregate initial principal amount of the notes was purchased (2003: (euro)3.6
million). On 19 October 2004, all of the outstanding December 1999 Senior
Convertible Notes were redeemed early at the accreted principal amount of the
notes plus accrued coupon interest for a cash consideration of L228.3 million.

2000 Senior Convertible Notes
In April 2000, COLT issued Euro denominated senior convertible notes ("2000
Senior Convertible Notes") in the initial principal amount of (euro)402.5
million. A total of L245.7 million was raised before issuance costs of L5.6
million. These costs were deducted from the principal amount of the 2000 Senior
Convertible Notes and were charged to the profit and loss account over three
years. The notes bear interest at the rate of 2% of the initial principal amount
per annum, payable in cash annually beginning 3 April 2001. The 2000 Senior
Convertible Notes mature on 3 April 2007 and any outstanding notes will then be
redeemed at a price of 131.238% of the initial principal amount. The notes are
also redeemable at the option of the Company, in whole or in part, at any time
on or after 3 April 2003 at an accreted principal amount plus any accrued
interest. The accreted principal amount is that amount determined so as to
provide a gross yield at redemption (including any accrued interest and any cash
interest previously paid) of 5.75%. The 2000 Senior Convertible Notes are
convertible at any time, at the option of the holder, unless previously
redeemed, repurchased or cancelled, into ordinary shares of COLT. At issue, the
conversion price of the notes was L50.076 per ordinary share with a fixed
exchange rate of (euro)1.6372 per L1.00. In accordance with the terms of the
notes, following the completion of the Company's sale of ordinary shares in
December 2001, the conversion price of the notes was adjusted to L42.3593 per
ordinary share with a fixed exchange rate of (euro)1.6372 per L1.00. During
2004, no initial principal amount of the notes was purchased (2003: (euro)15.0
million). At 31 December 2004, 4,195,217 ordinary shares are reserved for
issuance upon conversion of the 2000 Senior Convertible Notes (2003: 4,195,217).
The notes rank pari passu in right of payment with all other unsubordinated
unsecured indebtedness of the Company and are senior in right of payment to all
subordinated indebtedness of the Company. Senior notes

                                                                             F23

<PAGE>




1997 Senior Notes
In November 1997, COLT issued Sterling and Deutschmark denominated senior notes
("1997 Senior Notes") with aggregate principal amounts at maturity of L50.0
million and DM 150.0 million respectively. A total of L100.7 million was raised
before issuance costs of L3.3 million. These costs were deducted from the
principal amount of the 1997 Senior Notes and were charged to the profit and
loss account over five years. The British pound notes bear interest at the rate
of 10.125% per annum and the Deutschmark notes bear interest at 8.875% per
annum, both payable semi-annually beginning 31 May 1998. The 1997 Senior Notes
mature on 30 November 2007. The 1997 Senior Notes rank pari passu in right of
payment with all other unsubordinated unsecured indebtedness of the Company and
are senior in right of payment to all subordinated indebtedness of the Company.
The 1997 Senior Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after 30 November 2002, initially at 105.0625% of
their principal amount at maturity, plus accrued interest, in the case of the
British pound notes and 104.4375% of their principal amount at maturity, plus
accrued interest, in the case of the Deutschmark notes, declining in each case
to 100% of their principal amount at maturity, plus accrued interest, on or
after 30 November 2004. On 31 December 2001, the Deutschmark denominated 1997
Senior Notes were redenominated from Deutschmarks to Euros at a rate of
DM1.95583 per (euro)1.00. During 2004, DM 5,000,000 aggregate initial principal
amount of the notes was purchased (2003: none purchased). At 31 December 2004,
the 1997 Senior Notes were reclassified to "Creditors - Amounts falling due
within one year" following the early redemption announcement on 14 December
2004. On 21 January 2005, all of the outstanding 1997 Notes were redeemed early
at the principal amount of the notes of L80.9 million, plus accrued coupon
interest of L1.1 million.

1998 Senior Notes
In July 1998, COLT issued Deutschmark denominated senior notes ("1998 Senior
Notes") with aggregate principal amount at maturity of DM600.0 million. A total
of L204.3 million was raised before issuance costs of L5.9 million. These costs
were deducted from the principal amount of the 1998 Senior Notes and were
charged to the profit and loss account over five years. The 1998 Senior Notes
bear interest at the rate of 7.625% per annum, payable semi-annually beginning
31 January 1999. The 1998 Senior Notes mature on 28 July 2008. The 1998 Senior
Notes rank pari passu in right of payment with all other unsubordinated
unsecured indebtedness of the Company and are senior in right of payment to all
subordinated indebtedness of the Company. The 1998 Senior Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after 31
July 2003, initially at 103.8125% of their principal amount at maturity, plus
accrued interest declining to 100% of their principal amount at maturity, plus
accrued interest, on or after 31 July 2005. On 31 December 2001, the 1998 Senior
Notes were redenominated from Deutschmarks to Euros at a rate of DM1.95583 per
(euro)1.00.

1999 Senior Notes
In December 1999, COLT issued Euro denominated senior notes ("1999 Senior
Notes") with aggregate principal amount at maturity of (euro)320.0 million. A
total of L200.3 million was raised before issuance costs of L4.8 million. These
costs were deducted from the principal amount of the 1999 Senior Notes and are
being charged to the profit and loss account over five years. The 1999 Senior
Notes bear interest at the rate of 7.625% per annum, payable semi-annually
beginning 15 June 2000. The 1999 Senior Notes mature on 15 December 2009. The
1999 Senior Notes rank pari passu in right of payment with all other
unsubordinated unsecured indebtedness of the Company and are senior in right of
payment to all subordinated indebtedness of the Company. The 1999 Senior Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after 15 December 2004, initially at 103.8125% of their principal amount at
maturity, plus accrued interest declining to 100% of their principal amount at
maturity, plus accrued interest, on or after 15 December 2007.
Fair value of financial instruments.
The fair values of the Group's financial instruments outstanding at 31 December
2004 are disclosed in note 21.


                                                                             F24

<PAGE>



16. Provisions for liabilities and charges

<TABLE>
<CAPTION>
                                                                                Property      Severance     Total        Total
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
 At 1 January 2003                                                              59,268        28,100        87,368       167,396
 Unwinding of discount                                                          1,133         --            1,133        2,171
 Utilised in the year                                                           (14,066)      (13,121)      (27,187)     (52,090)
 Sale of subsidiary                                                             --            (2,567)       (2,567)      (4,918)
 Exchange difference                                                            3,647         466           4,113        7,881
                                                                                --------      --------      --------     --------
 At 31 December 2003                                                            49,982        12,878        62,860       120,440
 Unwinding of discount                                                          1,510         --            1,510        2,893
 Utilised in the year                                                           (7,180)       (8,252)       (15,432)     (29,568)
 Exchange difference                                                            (76)          (154)         (230)        (440)
                                                                                --------      --------      --------     --------
 At 31 December 2004                                                            44,236        4,472         48,708       93,325
                                                                                ========      ========      ========     ========
</TABLE>


In 2001, the Group made provision against future rents, services, and
re-instatement costs associated with Internet Service Centres being closed or
"mothballed" and excess leased property. Such provisions will be utilised over
the next 12 years and represent the net present value of the future estimated
costs.

The provision for staff reduction programmes is expected to be utilised over the
next 12 months.

<TABLE>
<CAPTION>
                                                                                                        At 31 December
                                                                                              -----------------------------------

Maturity profile of property provision                                                        2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Payable in less than one year                                                                 13,356        10,119       19,388
Payable between one and two years                                                             9,580         12,076       23,138
Payable between two and five years                                                            14,447        10,786       20,666
Payable in more than five years                                                               12,599        11,255       21,563
                                                                                              --------      --------     --------
                                                                                              49,982        44,236       84,755
                                                                                              ========      ========     ========
</TABLE>

17. Cash flow reconciliations

Reconciliation of operating loss to net cash inflow from operating activities
<TABLE>
<CAPTION>
                                                                                                 Year ended 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Operating loss                                                                  (778,594)     (77,047)      (68,829)     (131,876)
Depreciation and amortisation                                                   812,888       242,948       222,488      426,287
Profit on sale of subsidiaries                                                  --            (2,453)       --           --
Exchange differences                                                            540           387           (162)        (310)
Decrease in debtors                                                             56,881        20,681        20,871       39,988
Decrease in creditors                                                           24,948        (9,463)       (16,843)     (32,271)
Increase (decrease) in provision for liabilities and charges                    22,616        (27,187)      (16,887)     (32,355)
                                                                                --------      --------      --------     --------
Net cash inflow from operating activities                                       139,279       147,866       140,638      269,463
                                                                                ========      ========      ========     ========
</TABLE>

                                                                             F25

<PAGE>



18. Analysis of net debt

<TABLE>
<CAPTION>
                                                                          Accretion and
                                                                        amortisation of       Gain on
                                       At 31                 Exchange     finance costs      purchase
                                    December    Cash flow gain (loss)          on notes       of debt            At 31 December
                                    --------     --------    --------          --------      --------        --------       --------
                                        2003                                                                     2004           2004
                                       L'000        L'000       L'000             L'000         L'000           L'000          $'000
                                    --------     --------    --------          --------      --------        --------       --------
<S>                                <C>          <C>          <C>               <C>              <C>       <C>            <C>
Investments in liquid resources    742,143      (343,297)     (5,534)                --            --         393,312        753,586
Cash at bank and in hand           60,239           (920)          85                --            --          59,404        113,818
Senior convertible notes           (700,131)      333,659       4,082          (20,135)           205       (382,320)      (732,525)
Senior notes                       (444,418)        1,635     (1,451)             (823)            --       (445,057)      (852,729)
                                    --------     --------    --------          --------      --------        --------       --------
Total net debt                     (342,167)      (8,923)     (2,818)          (20,958)           205       (374,661)      (717,850)
                                    ========     ========    ========          ========      ========        ========       ========

Analysed in the Balance Sheet:
Investments in liquid resources    742,143                                                                    393,312        753,586
Cash at bank and in hand           60,239                                                                      59,404        113,818
Creditors: amounts falling due
   within one year                 --                                                                        (81,692)      (156,522)
Creditors: amounts falling due
   after more than one year        (1,144,549)                                                              (745,685)    (1,428,732)
                                    --------                                                                 --------       --------
Total net debt                     (342,167)                                                                (374,661)      (717,850)
                                    ========                                                                 ========       ========


<CAPTION>
                                                                          Accretion and
                                                                        amortisation of       Gain on
                                       At 31                 Exchange     finance costs      purchase
                                    December    Cash flow gain (loss)          on notes       of debt            At 31 December
                                    --------     --------    --------          --------      --------        --------       --------
                                        2003                                                                     2004           2004
                                       L'000        L'000       L'000             L'000         L'000           L'000          $'000
                                    --------     --------    --------          --------      --------        --------       --------
<S>                                <C>          <C>          <C>               <C>              <C>       <C>            <C>
 Investments in liquid resources   889,590      (187,765)      40,318                --            --         742,143      1,421,946
 Cash at bank and in hand          45,292          12,458       2,489                --            --          60,239        115,418
 Senior convertible notes          (639,829)        9,606    (54,049)          (22,047)         6,188       (700,131)    (1,341,451)
 Senior discount notes             (142,408)      134,869       6,138                --         1,401              --             --
 Senior notes                      (411,662)           --    (31,324)           (1,432)            --       (444,418)      (851,505)
                                    --------     --------    --------          --------      --------        --------       --------
 Total net debt                    (259,017)     (30,832)    (36,428)          (23,479)         7,589       (342,167)      (655,592)
                                    ========     ========    ========          ========      ========        ========       ========
Analysed in the Balance Sheet:
 Investments in liquid resources   889,590                                                                    742,143      1,421,946
 Cash at bank and in hand          45,292                                                                      60,239        115,418
 Creditors: amounts falling
 due after more than one year      (1,193,899)                                                            (1,144,549)    (2,192,956)
                                    --------                                                                 --------       --------
 Total net debt                    (259,017)                                                                (342,167)      (655,592)
                                    ========                                                                 ========       ========
</TABLE>

                                                                             F26

<PAGE>



19. Capital commitments
<TABLE>
<CAPTION>
                                                                                                         At 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Future capital expenditure contracted but not provided for                                    23,371        23,889       45,771
                                                                                              ========      ========     ========
</TABLE>



20. Financial commitments



The Group has annual commitments under non-cancellable operating leases as
follows:
<TABLE>
<CAPTION>
                                                                                                         At 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Land and buildings
Expiring within one year                                                                      1,305         4,264        8,170
Expiring between two and five years                                                           12,530        11,653       22,327
Expiring in over five years                                                                   20,340        19,645       37,640
                                                                                              --------      --------     --------
                                                                                              34,175        35,562       68,137
                                                                                              ========      ========     ========
Other
Expiring within one year                                                                      535           1,030        1,975
Expiring between two and five years                                                           1,162         1,435        2,750
Expiring in over five years                                                                   37            38           72
                                                                                              --------      --------     --------
                                                                                              1,734         2,503        4,797
                                                                                              ========      ========     ========
</TABLE>

                                                                             F27

<PAGE>




21. Financial instruments

The Group's treasury objectives, policies and strategies are outlined within the
Financial Review on pages 22 to 24 of the Annual Report under the heading
"Treasury Policy" excluding the paragraph titled "Sensitivity analysis". Except
for disclosures under currency exposure below, the following financial
information excludes the Group's short-term debtors and creditors.

Interest rate and currency profile of financial liabilities
<TABLE>
<CAPTION>
                                                                                                At 31 December 2004
                                                                                -------------------------------------------------
                                                                                Weighted      Weighted      Total        Total
                                                                                average       average       financial    financial
                                                                                interest      period for    liabilities  liabilities
                                                                                rate          which rate
                                                                                              is fixed
Currency:                                                                       %             Years         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Non-convertible debt
British pound                                                                   10.1          3             38,188       73,168
Euro                                                                            7.8           4             406,869      779,561
                                                                                --------      --------      --------     --------
Total                                                                           8.0           4             445,057      852,729
                                                                                ========      ========      ========     ========

Convertible debt
Euro                                                                            5.2           2             382,320      732,525
                                                                                ========      ========      ========     ========


<CAPTION>
                                                                                                At 31 December 2003
                                                                                -------------------------------------------------
                                                                                Weighted      Weighted      Total        Total
                                                                                average       average       financial    financial
                                                                                interest      period for    liabilities  liabilities
                                                                                rate          which rate
                                                                                              is fixed
Currency:                                                                       %             Years         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Non-convertible debt
British pound                                                                   10.1          4             38,188       73,168
Euro                                                                            7.8           5             406,230      778,337
                                                                                --------      --------      --------     --------
Total                                                                           7.9           5             444,418      851,505
                                                                                ========      ========      ========     ========

Convertible debt
Euro                                                                            5.1           3             700,131      1,341,451
                                                                                ========      ========      ========     ========
</TABLE>


Further details, including a maturity profile, of the financial liabilities are
set out in note 15. All financial liabilities shown in the table are at fixed
rates of interest. In addition, the Group's provision of L44.2 million
(2003: L50.0 million) for vacant leasehold properties (note 16) meets the
definition of a financial liability. This financial liability is considered to
be a floating rate financial liability. This is because in establishing the
provision the cash flows have been discounted and the discount rate is
re-appraised to ensure that it reflects current market assessments of the time
value of money and the risks specific to the liability.

                                                                             F28

<PAGE>



Interest rate and currency profile of financial assets
<TABLE>
<CAPTION>
                                                                                                         At 31 December
                                                                                              -----------------------------------
                                                                                              Total         Total        Total
                                                                                              assets        assets       assets
                                                                                              2003          2004         2004
Currency:                                                                                     L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
British pound                                                                                 238,514       208,321      399,143
Euro                                                                                          557,889       236,902      453,904
U.S. dollar                                                                                   1,502         1,526        2,924
Other                                                                                         4,477         5,967        11,433
                                                                                              --------      --------     --------
Total                                                                                         802,382       452,716      867,404
                                                                                              ========      ========     ========
</TABLE>

Substantially all financial assets as at 31 December 2004 are floating rate
assets bearing interest at market rates.


Currency exposure

The following table shows the Group's net currency exposures that give rise to
those exchange gains and losses which are taken to the profit and loss account.
Such exposures comprise monetary assets and liabilities of the Group that are
not denominated in the operational or functional currency of the operating
company involved.



<TABLE>
<CAPTION>
                                                       Net foreign currency monetary assets (liabilities)
Functional currency:                                                   At 31 December 2004
                             ---------------------------------------------------------------------------------------------------
                             British           U.S.
                             pound             dollar             Euro               Other              Total           Total
                             L'000             L'000              L'000              L'000              L'000           $'000
                             --------          --------           --------           --------           --------        --------
<S>                          <C>               <C>                <C>                <C>                <C>             <C>
British pound                --                (391)              (3,236)            284                (3,343)         (6,405)
Euro                         (113)             (1,279)            --                 --                 (1,392)         (2,667)
Other                        78                (380)              2,776              (61)               2,413           4,623
                             --------          --------           --------           --------           --------        --------
Total                        (35)              (2,050)            (460)              223                (2,322)         (4,449)
                             ========          ========           ========           ========           ========        ========




<CAPTION>
                                                       Net foreign currency monetary assets (liabilities)
Functional currency:                                                   At 31 December 2003
                             ---------------------------------------------------------------------------------------------------
                             British           U.S.
                             pound             dollar             Euro               Other              Total           Total
                             L'000             L'000              L'000              L'000              L'000           $'000
                             --------          --------           --------           --------           --------        --------
<S>                          <C>               <C>                <C>                <C>                <C>             <C>
British pound                --                971                (1,330)            1,197              838             1,605
Euro                         (110)             (5,752)            --                 (89)               (5,951)         (11,402)
Other                        (41)              (403)              2,568              (14)               2,110           4,043
                             --------          --------           --------           --------           --------        --------
Total                        (151)             (5,184)            1,238              1,094              (3,003)         (5,754)
                             ========          ========           ========           ========           ========        ========
</TABLE>


                                                                             F29

<PAGE>



Fair value of financial instruments

The following table shows the carrying amounts and the fair values of the
Group's financial instruments at 31 December 2003 and 2004. The carrying amounts
of the non-derivatives are included in the Group balance sheet under the
headings indicated. The fair values of the financial instruments are the amounts
at which the instruments could be exchanged in a transaction between willing
parties, other than in a forced or liquidation sale.

<TABLE>
<CAPTION>
                                                  Carrying amount                                    Fair value
                                                   At 31 December                                  At 31 December
                                        ---------------------------------------        ----------------------------------------
                                        2003           2004            2004            2003            2004            2004
                                        L'000          L'000           $'000           L'000           L'000           $'000
                                        --------       --------        --------        --------        --------        --------
Non-derivatives

Assets

<S>                                     <C>            <C>             <C>             <C>             <C>             <C>
   Investments in liquid resources (i)  742,143        393,312         753,586         742,143         393,312         753,586
   Cash at bank and in hand (i)         60,239         59,404          113,818         60,239          59,404          113,818

Liabilities

   Euro senior convertible notes (ii)   700,131        382,320         732,525         660,266         375,850         720,129
   Euro senior notes (ii)               406,230        406,869         779,561         404,620         405,876         777,658
   British pound senior notes (ii)      38,188         38,188          73,168          38,570          38,188          73,168

Derivatives

   Warrants (iii)                       --             --              --              1,051           381             730

<FN>
(i)   The fair value of cash at bank and in hand and investments in liquid resources has been approximated to their carrying amounts
      due to the short maturity of the instruments held.

(ii)  The fair values of the Company's senior convertible, senior discount and senior notes have been estimated on the basis of
      market prices.

(iii) The Group has received warrants from certain suppliers in the ordinary course of business.
</FN>
</TABLE>

                                                                             F30

<PAGE>



22. Pension arrangements

The Group operates a number of defined contribution pension schemes in its
subsidiaries.

Pension costs are charged to the profit and loss account on an accruals basis in
the period in which contributions are payable to the scheme. The pension cost
for 2004 amounted to L9.7 million (2003: L11.1 million, 2002: L12.5 million).

COLT Telecom AG, the Group's Swiss operating company, entered into a pension
scheme in December 2002. Under Swiss law, employees are guaranteed a minimum
return on the assets of the scheme. COLT Telecom AG has an arrangement with a
Switzerland based insurance company to insure the minimum commitment in full. If
the insurance company was unable to meet the minimum guaranteed commitment, then
COLT Telecom AG would be required to fund any deficit. The Directors consider
the likelihood of such a situation arising as remote. At 31 December 2004, the
pension scheme had assets and liabilities of L8.8 million (2003: L7.7 million)
and prepaid contributions of L19,000 (2003: L30,000).




23. Transactions with related entities




The UK pension scheme is administered by Fidelity Pensions Management, a
subsidiary of Fidelity Investments Management Limited ("FIML"), a wholly owned
subsidiary of Fidelity International Limited ("FIL"). The fees for the above
services for the year ended 31 December 2004 were L0.1 million (2003: L0.1
million, 2002: L0.2 million).

The Group has certain agreements with Fidelity Capital Associates Inc. ("FCA"),
a wholly owned subsidiary of FMR Corp., which allow under certain circumstances,
for the Group to obtain consulting services from, or provide consulting services
to, FCA. Compensation under the agreements is at prevailing market rates set
each year.

Pursuant to a contract with the Group, certain FMR Corp. and FIL employees
provide consulting and other services to the Group at agreed rates. The fees for
these services for the year ended 31 December 2004 were approximately L1.9
million (2003: L1.9 million, 2002: L1.4 million) for FMR employees and L1.1
million (2003: L1.1 million, 2002: L0.3 million) for FIL employees. At 31
December 2004, there were creditor balances outstanding to FMR Corp. and FIC of
L1.6 million (2003: L0.8 million), and L0.4 million (2003: L0.7 million)
respectively.

An amount of L2.9 million was billed during 2004 to FIL for voice, data and
eBusiness services (2003: L3.2 million, 2002: L3.9 million). At 31 December
2004, there were balances outstanding from FIL of L0.6 million (2003: L0.7
million).

An amount of L2.9 million was billed during 2004 by Teranua, a 100% owned
subsidiary of FMR Corp., for consultancy services (2003: L0.9 million, 2002:
Lnil). No balances were due to Teranua at 31 December 2004 (2003: Lnil).




24. Post balance sheet events


On 21 January 2005, all of the outstanding L50.0 million 10.125% Senior Notes
due 2007 and the DM150 million 8.875% Senior Notes due 2007 were redeemed. The
redemptions were at the principal amount of the Notes and were funded out of
COLT's cash and liquid resources. The principal amount payable was L80.9
million.






                                                                             F31

<PAGE>




25. Company balance sheet

<TABLE>
<CAPTION>
                                                                                                           At 31 December
                                                                                                ---------------------------------
                                                                                                    2003         2004    2004
                                                                                  Notes            L'000        L'000    $'000
                                                                                --------        --------     --------    --------
<S>                                                                                <C>        <C>          <C>           <C>
Fixed assets
   Tangible fixed assets                                                            b             17,149       24,977    47,856
   Investments                                                                      c          1,785,331    1,526,598    2,924,962
                                                                                                --------     --------    --------
Total fixed assets                                                                             1,802,480    1,551,575    2,972,818

Current assets
   Prepaid expenses and other debtors                                               d              5,923        3,592    6,882
   Investments in liquid resources                                                               237,349      204,085    391,027
   Cash at bank and in hand                                                                            9          100    192
                                                                                                --------     --------    --------
Total current assets                                                                             243,281      207,777    398,101
                                                                                                --------     --------    --------
Total assets                                                                                   2,045,761    1,759,352    3,370,919
                                                                                                ========     ========    ========

Capital and reserves
   Called up share capital                                                                        37,754       37,778    72,383
   Share premium                                                                               2,315,904    2,316,665    4,438,730
   Merger reserve                                                                                 27,359       27,359    52,420
   Shares to be issued                                                                               215           --    --
   Profit and loss account                                                          e         (1,518,339)  (1,483,469)   (2,842,327)
                                                                                                --------     --------    --------
Equity shareholders' funds                                                                       862,893      898,333    1,721,206

Provisions for liabilities and charges                                                             4,401        4,760    9,120

Creditors
   Amounts falling due within one year:
      Non-convertible debt                                                                            --       81,692    156,522
      Other                                                                         f             33,918       28,882    55,339
                                                                                                --------     --------    --------
   Total amounts falling due within one year                                                      33,918      110,574    211,861
                                                                                                --------     --------    --------
   Amounts falling due after more than one year:
      Convertible debt                                                                           700,131      382,320    732,525
      Non-convertible debt                                                                       444,418      363,365    696,207
                                                                                                --------     --------    --------
   Total amounts falling due after more than one year                               g          1,144,549      745,685    1,428,732
                                                                                                --------     --------    --------
Total creditors                                                                                1,178,467      856,259    1,640,593
                                                                                                --------     --------    --------
Total liabilities, capital and reserves                                                        2,045,761    1,759,352    3,370,919
                                                                                                ========     ========    ========
</TABLE>

Approved by the Board of Directors on 23 February 2005 and signed on its behalf
by:

Antony Bates, Chief Administrative and Financial Officer

                                                                             F32

<PAGE>



Notes to the company balance sheet

a) Profit and Loss account

As permitted by Section 230 of the Companies Act of 1985, the parent company's
profit and loss account has not been included in these financial statements. The
parent company's profit for the period was L29.9 million (2003: loss of
L174.7 million, 2002: loss of L1,594.4 million).

b) Tangible fixed assets
<TABLE>
<CAPTION>
                                                                                Computers,
                                                                                equipment,
                                                                                fixtures &    Systems
                                                                                fittings and  under
                                                                                vehicles      development   Total        Total
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Cost
   At 1 January 2003                                                            24,967        13,046        38,013       72,832
   Additions                                                                    50            12,728        12,778       24,483
   Transfers                                                                    10,876        (14,573)      (3,697)      (7,083)
                                                                                --------      --------      --------     --------
   At 31 December 2003                                                          35,893        11,201        47,094       90,232
   Additions                                                                    509           15,100        15,609       29,907
   Transfers                                                                    11,259        (11,259)      --           --
                                                                                --------      --------      --------     --------
   At 31 December 2004                                                          47,661        15,042        62,703       120,139
                                                                                ========      ========      ========     ========

   At 1 January 2003                                                            23,969        --            23,969       45,925
   Charge for the year                                                          5,976         --            5,976        11,450
                                                                                --------      --------      --------     --------
   At 31 December 2003                                                          29,945        --            29,945       57,375
   Charge for the year                                                          7,781         --            7,781        14,908
                                                                                --------      --------      --------     --------
   At 31 December 2004                                                          37,726        --            37,726       72,283
                                                                                ========      ========      ========     ========

Net book value
   At 1 January 2003                                                            998           13,046        14,044       26,907
                                                                                ========      ========      ========     ========
   At 31 December 2003                                                          5,948         11,201        17,149       32,857
                                                                                ========      ========      ========     ========
   At 31 December 2004                                                          9,935         15,042        24,977       47,856
                                                                                ========      ========      ========     ========
</TABLE>


                                                                             F33

<PAGE>



c) Investments
<TABLE>
<CAPTION>
                                                                                                            L'000        $'000
                                                                                                            --------     --------
<S> <C>       <C>                                                                                           <C>          <C>
 At 1 January 2003                                                                                          1,744,330    3,342,136
 Additions                                                                                                  193,974      371,654
 Disposals                                                                                                  (15,068)     (28,870)
 Impairment                                                                                                 (305,422)    (585,189)
 Foreign exchange difference                                                                                167,517      320,963
                                                                                                            --------     --------
 At 31 December 2003                                                                                        1,785,331    3,420,694
 Additions                                                                                                  61,749       118,311
 Disposals                                                                                                  (6,096)      (11,680)
 Movement in long-term loans to subsidiaries                                                                (317,182)    (607,721)
 Exchange difference                                                                                        2,796        5,358
                                                                                                            --------     --------
 At 31 December 2004                                                                                        1,526,598    2,924,962
                                                                                                            ========     ========
</TABLE>


See note 27 for additional subsidiary information.

d) Prepaid expenses and other debtors
<TABLE>
<CAPTION>
                                                                                                           At 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Prepayments                                                                                   1,295         1,645        3,152
Other debtors                                                                                 4,628         1,947        3,730
                                                                                              --------      --------     --------
                                                                                              5,923         3,592        6,882
                                                                                              ========      ========     ========
</TABLE>
e) Profit and loss account
<TABLE>
<CAPTION>
                                                                                                            L'000        $'000
                                                                                                            --------     --------
<S>                                                                                                         <C>          <C>
At 1 January 2003                                                                                           (1,424,694)  (2,729,714)
Retained loss for the period                                                                                (174,697)    (334,719)
Exchange differences (including L86.5 million loss on net foreign currency borrowings)                      81,052       155,296
                                                                                                            --------     --------
At 31 December 2003                                                                                         (1,518,339)  (2,909,137)
Retained profit for the period                                                                              29,885       57,260
Exchange differences (including L3.7 million loss on net foreign currency borrowings)                       4,985        9,550
                                                                                                            --------     --------
At 31 December 2004                                                                                         (1,483,469)  (2,842,327)
                                                                                                            ========     ========
</TABLE>

f) Creditors - amounts falling due within one year
<TABLE>
<CAPTION>
                                                                                                           At 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Accrued expenses                                                                              33,918        28,882       55,339
                                                                                              ========      ========     ========
</TABLE>
g) Creditors - amounts falling due after more than one year
<TABLE>
<CAPTION>
                                                                                                           At 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Repayable between one and two years
   Senior convertible notes                                                                   107,771       135,230      259,101
Repayable between two and three years
   Senior convertible notes                                                                   355,732       247,090      473,424
Repayable between three and four years
   Senior convertible notes                                                                   236,628       --           --
   Senior notes                                                                               83,328        177,484      340,059
Repayable between four and five years
   Senior notes                                                                               176,791       185,881      356,148
Repayable in more than five years
   Senior notes                                                                               184,299       --           --
                                                                                              --------      --------     --------
                                                                                              1,144,549     745,685      1,428,732
                                                                                              ========      ========     ========
</TABLE>


                                                                             F34

<PAGE>




26. Summary of differences between U.K. generally accepted accounting principles
and U.S. generally accepted accounting principles ("GAAP")

The consolidated financial statements have been prepared in accordance with U.K.
GAAP and on the basis of presentation as set out in Note 1, which differs in
certain respects from U.S. GAAP. The main differences between U.K. GAAP and U.S.
GAAP which affect the Group's consolidated net losses and net equity are set out
below.

a) Effects of conforming to U.S. GAAP - impact on net loss
<TABLE>
<CAPTION>
                                                                                                 At 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Loss for period under U.K. GAAP                                                 (718,282)     (124,647)     (114,431)    (219,249)
U.S. GAAP adjustments:
     Amortisation of intangibles (i) (viii)                                     1,076         2,116         2,027        3,884
     Capitalised interest, net of depreciation (ii)                             3,662         (3,082)       (3,712)      (7,112)
     Deferred compensation (i) (iii)                                            (1,946)       (1,012)       337          646
     Payroll taxes on employee share schemes (iv)                               (68)          385           (385)        (738)
     Profit on sale of IRUs (v)                                                 1,044         1,044         1,044        2,000
     Installation revenue (vi)                                                  (3,172)       3,469         4,627        8,865
     Direct costs attributable to installation revenue (vi)                     3,172         (4,231)       --           --
     Warrants (vii)                                                             (991)         199           (670)        (1,284)
     Amount written off investment in own shares (xi)                           409           --            --           --
     Gain on forward foreign exchange contracts (ix)                            (424)         --            --           --
     Impairment (viii) (x)                                                      104,390       (11,221)      (11,221)     (21,499)
                                                                                --------      --------      --------     --------
Loss for period under U.S. GAAP before giving effect
to the change in accounting policy                                              (611,130)     (136,980)     (122,384)    (234,487)
Cumulative effect on prior years of change in accounting policy                 --             --           (72,552)     (139,010)
                                                                                --------      --------      --------     --------
Loss for period under U.S. GAAP                                                 (611,130)      (136,980)    (194,936)    (373,497)
                                                                                ========      ========      ========     ========
Ordinary shares used in calculation of basic
and diluted loss per share (`000)                                               1,507,164     1,507,771     1,510,853    1,510,853
                                                                                ========      ========      ========     ========
Basic and diluted loss per share before giving effect
to the change in accounting policy                                              L (0.41)      L (0.09)      L (0.08)     $ (0.16)
Cumulative effect on prior years of change in accounting policy                 L (0.00)      L 0.00        L (0.05)     $ (0.09)
                                                                                --------      --------      --------     --------
Basic and diluted loss per share                                                L (0.41)      L (0.09)      L (0.13)     $ (0.25)
                                                                                ========      ========      ========     ========
</TABLE>


(i)    On 15 July 1998, the Group completed the acquisition of ImagiNet. A total
       of 1,395,292 ordinary shares were issued at completion. An additional
       476,208 remained to be issued during 1999 and 2000 subject to certain
       criteria being met.

       On 3 July 2001, the Group acquired all the share capital of Fitec. A
       total of 1,518,792 ordinary shares and (euro)4.0 million was paid at
       completion with an additional 317,784 ordinary shares and (euro)1.2
       million paid over the two year period ended June 2003, subject to certain
       criteria being met.

       Under U.K. GAAP, the deferred shares and payments have been included in
       the purchase consideration. The excess purchase consideration over the
       fair value of assets and liabilities acquired is attributed to goodwill
       and is being amortised over its estimated economic life.

       Under U.S. GAAP these deferred shares and payments are excluded from the
       purchase consideration and recognised as compensation expense in the
       profit and loss accounts over the period in which the payments vest. The
       total compensation charge for 2004 was Lnil (2003: L0.3 million, 2002:
       L1.2 million). The goodwill which arose on acquisition for U.S. purposes
       was L13.3 million (2003: L13.3 million, 2002: L20.6 million).

                                                                             F35

<PAGE>



(ii)   Under U.K. GAAP, the Group does not capitalise interest. Under U.S. GAAP,
       the estimated amount of interest incurred on capital projects is included
       in fixed assets and depreciated over the lives of the related assets.

(iii)  The Group operates an Inland Revenue approved Savings-Related Share
       Option Scheme ("SAYE" Scheme). Under this scheme, options may be granted
       at a discount of up to 20%. Under U.K. GAAP no charge is taken in
       relation to the discount. Under U.S. GAAP, the difference between the
       market value of the shares on the date of grant and the price paid for
       the shares is charged as a compensation cost to the profit and loss
       account over the period over which the shares are earned.

       Also under U.S. GAAP, an employer's offer to enter into a new SAYE
       contract at a lower price causes variable accounting for all existing
       awards subject to the offer. Variable accounting commences for all
       existing awards when the offer is made, and for those awards that are
       retained by employees because the offer is declined, variable accounting
       continues until the awards are exercised, are forfeited, or expire
       unexercised. New awards are accounted for as variable to the extent that
       the previous, higher priced options are cancelled.

       The total expected compensation cost is recorded within equity
       shareholders' funds as unearned compensation and additional paid in share
       capital respectively, with the compensation being charged to the profit
       and loss account over the vesting period. The compensation cost for the
       year ended 31 December 2004 under the SAYE scheme was a credit of L0.3
       million (2003: charge of L0.7 million, 2002: charge of L0.8 million). At
       31 December 2004 there were 1,844,978 variable SAYE options outstanding.

(iv)   The Group operates a number of employee share schemes on which it incurs
       employer payroll taxes. Under U.K. GAAP, the cost of the employer taxes
       is recognised over the period from the date of grant to the end of the
       performance period. Under U.S. GAAP, the cost is recognised when the tax
       obligation arises.

(v)    In 2000 and 2001, the Group concluded a number of infrastructure sales in
       the form of 20-year indefeasible rights-of-use ("IRU") with
       characteristics, which qualify the transaction as outright sales for U.K.
       GAAP. Under U.S. GAAP these sales are treated as a 20 year operating
       lease. There were no infrastructure sales in 2004, 2003 or 2002 hence the
       adjustment represents the recognition of profit under U.S. GAAP on the
       sale of IRUs concluded in prior years.

(vi)   Under U.K. GAAP, customer installation revenue is recognised in the same
       period as the related costs. Under U.S. GAAP, such installation revenue
       is recognised over the expected customer relationship period.

       Under U.S. GAAP, the Group has historically applied a policy of also
       deferring attributable direct costs up to the level of associated revenue
       and recognising them over the customer relationship period. Effective 1
       January 2004, the Group changed its accounting policy under U.S. GAAP to
       expensing these costs as incurred.

       The Group has decided to change this accounting policy to reflect the way
       that the business is now being monitored and run by senior management.
       Additionally, the Group will be adopting IFRS from 1 January 2005. Under
       IFRS, only certain attributable directs costs are allowed to be deferred
       and the Group has elected that the best representation of its current
       business is to expense such costs.

       The cumulative effect of the change on the opening retained earnings of
       L72.6 million has been recorded as a charge to the current year loss for
       the period under U.S. GAAP. The effect of the change in accounting policy
       for the current year is to increase the loss for the period under U.S.
       GAAP by L68.1 million (being the net of the impact on opening retained
       earnings of L72.6 million and the reduction in the amount of costs which
       would have been deferred under the old policy in 2004 of L4.5 million).
       The disclosure below reflects the pro forma impact on loss for the
       period, under U.S. GAAP, of the change in accounting policy assuming it
       had been applied retroactively in 2002, 2003 and 2004.



<TABLE>
<CAPTION>
                                                                                                 At 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Loss for period under U.S. GAAP                                                 (614,302)     (132,749)     (122,384)    (234,487)
                                                                                ========      ========      ========     ========
Basic and diluted loss per share                                                L(0.41)       L(0.09)       L(0.08)      $(0.16)
                                                                                ========      ========      ========     ========
</TABLE>


(vii)  The Group has received warrants from certain suppliers in the ordinary
       course of business. Under U.K. GAAP, warrants are treated as financial
       assets and recorded at the lower of cost or fair value. Hence for U.K.
       GAAP purposes the warrants have been recognised at Lnil.

       At 31 December 2000, under U.S. GAAP, the warrants were recorded at fair
       value with unrecognised gains included in "Other Comprehensive Income"
       within equity shareholders' funds. As required by FAS 133 "Accounting for
       Derivative Instruments" ("FAS 133"), as amended by FAS 137 and FAS 138,
       which came into effect on 1 January 2001, the unrealised gain at 31
       December 2000 and subsequent changes in fair value are now reflected in
       the profit and loss account.

(viii) The Group has adopted FAS 141 Business Combinations and FAS 142, Goodwill
       and Other Intangible Assets. FAS 142 states that goodwill and intangible
       assets with indefinite useful lives should not be amortised but should be
       tested for impairment annually. Goodwill on acquisitions made before 1
       July 2001 continued to be amortised until 31 December 2001. Hence prior
       to 1 January 2002, the Group amortised the goodwill arising on the
       acquisition of ImagiNet over its useful economic life of 10 years.

       The Group had unamortised goodwill of L8.5 million at December 2004,
       which is no longer amortised under U.S. GAAP but is assessed for
       impairment annually. Amortisation expense related to goodwill under U.K.
       GAAP was L2.0 million in 2004. The adjustment represents the writeback of
       this amortisation.

(ix)   The Group entered into forward foreign exchange contracts for payments
       relating to its U.S. dollar denominated senior discount notes, a portion
       of which were purchased during the 12 months ended 31 December 2001. As a
       result, the Group recognised an unrealised gain on that ineffective
       portion of the hedge attributable to the purchased notes. The adjustment
       of L0.4 million in 2002 is to reverse the unrealised gain recognised in
       2001. There were no open forward contracts at the end of 2003 or 2004.

(x)    Under U.S. GAAP, long-lived assets are evaluated for impairment whenever
       events or changes in circumstances indicate that the carrying amount of a
       long-lived asset is not recoverable. On a regular basis, the undiscounted
       estimated future net cash flows associated with the asset are compared to
       the asset's carrying amount to determine if an impairment has occurred.
       If such assets are deemed impaired, an impairment loss equal to the
       amount by which the carrying amount exceeds the fair value of the assets
       is recognised. If quoted market prices for the assets are not available,
       the fair value is calculated using the present value of estimated
       expected future net cash flows. The cash flow calculations are based on
       management's best estimates, using appropriate assumptions and
       projections at the time.

       During the third quarter of 2002, the Group recorded charges of L443.8
       million under U.S. GAAP to reflect the impairment of goodwill, other
       intangible assets, network and non-network fixed assets, resulting in a
       GAAP difference of L107.2 million. The charge for the year ended 31
       December 2004, represents the charge for depreciation in respect of the
       assets that had not been impaired for U.S. GAAP purposes.


                                                                             F36

<PAGE>



b) Effects of conforming to U.S. GAAP - impact on net equity
<TABLE>
<CAPTION>
                                                                                                           At 31 December
                                                                                              -----------------------------------
                                                                                              Restated
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Equity shareholders' funds under U.K. GAAP                                                    862,698       748,094      1,433,348
U.S. GAAP adjustments:
     Deferred compensation (i) (iii)                                                          (10,766)      (10,429)     (19,982)
     Unearned compensation (i) (iii)                                                          (1,510)       (39)         (75)
     Additional paid in share capital (i) (iii)                                               12,276        10,468       20,057
     Amortisation of intangibles (i) (viii)                                                   6,016         8,043        15,410
     Warrants (vii)                                                                           1,051         381          730
     Deferred profit on sale of IRUs (v)                                                      (17,723)      (16,679)     (31,957)
     Capitalised interest, net of depreciation (ii)                                           37,879        34,167       65,465
     Impairment (x)                                                                           93,169        81,948       157,012
     Deferred profit on installations (vi)                                                    (762)         --           --
     Deferred installation revenue (vi)                                                       --            (68,687)     (131,604)
     Payroll taxes on employee share schemes (iv)                                             385           --           --
                                                                                              --------      --------     --------
Equity shareholders' funds under U.S. GAAP (xi)                                               982,713       787,267      1,508,404
                                                                                              ========      ========     ========
</TABLE>

(i) to (x) see note (a) for description of adjustments.

(xi)   Under U.S. GAAP, shares held by employee share trusts are recorded in the
       balance sheet as a deduction from shareholders' funds. Up to 31 December
       2003, under U.K. GAAP, these shares were recorded as fixed asset
       investments at cost less amounts written off. However, following the
       adoption of UTIF 38 "Accounting for ESOP Trusts" during 2004, these
       shares are now being shown as a deduction from shareholders' funds under
       U.K. GAAP, with a prior year adjustment being made to the 2003 U.K. GAAP
       Balance Sheet. As a result of the prior year adjustment, the L0.2 million
       net equity reconciling item relating to shares held by employee share
       trusts in 2003 is no longer required. The net equity reconciliation at 31
       December 2003 has been restated to reflect this.

c) Income taxes

Under U.K. GAAP, deferred income taxes are accounted for to the extent that it
is considered probable that a liability or asset will materialise in the
foreseeable future.

Under U.S. GAAP, deferred taxes are accounted for on all temporary differences
between book income and tax income and a valuation allowance is established to
reduce deferred tax assets to the amount which is more likely than not to be
realised in future tax returns. The deferred tax asset is reconciled to the U.S.
GAAP net deferred tax asset as follows:

<TABLE>
<CAPTION>
                                                                                                           At 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Deferred tax asset under U.K. GAAP                                                            --            --           --
Tax effects of timing differences:
   Tax losses:
      North Region                                                                            127,617       139,910      268,068
      Central Region                                                                          182,468       113,039      216,583
      South Region                                                                            37,996        46,308       88,726

   Capital allowances and other timing differences                                            149,562       222,081      425,507
                                                                                              --------      --------     --------
Gross deferred tax asset under U.S. GAAP                                                      497,643       521,338      998,884
Deferred tax valuation allowance                                                              (497,643)     (521,338)    (998,884)
                                                                                              --------      --------     --------
Net deferred tax asset under U.S. GAAP                                                        --            --           --
                                                                                              ========      ========     ========
</TABLE>



No deferred tax asset has been recorded and there is no U.S. GAAP tax provision.

                                                                             F37

<PAGE>



d) Cash flow statement

The Group's financial statements present cash flow statements prepared using the
principles of U.K. Accounting Standards FRS 1 (Revised), "Cash Flow Statements".
The statement prepared under FRS 1 (Revised) presents substantially the same
information as that required under U.S. Statement of Financial Accounting
Standard No. 95 ("FAS 95"). Under FRS 1 (Revised) cash flows are presented for
(i) operating activities; (ii) returns on investments and servicing of finance;
(iii) taxation; (iv) capital expenditure and financial investment; (v)
acquisitions and disposals; (vi) equity dividends paid; (vii) management of
liquid resources; and (viii) financing. FAS 95 requires presentation of cash
flows from operating, investing and financing activities. The following
statements summarise the statement of cash flows for the Group as if they had
been presented in accordance with U.S. GAAP.

<TABLE>
<CAPTION>
                                                                                                      Year ended 31 December
                                                                                              -----------------------------------
                                                                                              2003          2004         2004
                                                                                              L'000         L'000        $'000
                                                                                              --------      --------     --------
<S>                                                                                           <C>           <C>          <C>
Net cash inflow from operating activities                                                     110,543       115,203      220,729
Net cash used in investing activities                                                         (143,005)     (124,696)    (238,918)
Net cash provided by financing activities                                                     (142,845)     (334,724)    (641,332)
Effects of exchange differences on cash and cash equivalents                                  42,807        (5,449)      (10,439)
                                                                                              --------      --------     --------
Net decrease in cash and cash equivalents                                                     (132,500)     (349,666)    (669,960)
Cash and cash equivalents at beginning of period                                              934,882       802,382      1,537,364
                                                                                              --------      --------     --------
Cash and cash equivalents at end of period                                                    802,382       452,716      867,404
                                                                                              ========      ========     ========
</TABLE>


e) Equity shareholders' funds

The significant components of equity shareholders' funds under U.S. GAAP are as
follows:

<TABLE>
<CAPTION>
                                                                                                                         Total
                                                                     Ordinary shares                                     share-
                                                                  ----------------------      Paid in       Retained     holders'
                                                                  Shares        Par           capital       earnings     funds
                                                                  No'000        L'000         L'000         L'000        L'000
                                                                  --------      --------      --------      --------     --------
<S>          <C>                                                  <C>           <C>           <C>           <C>          <C>
At 1 January 2003                                                 1,507,537     37,688        2,331,912     (1,283,542)  1,086,058
Loss for period                                                   --            --            --            (136,980)    (136,980)
Stock issuance                                                    2,617         66            1,701         --           1,767
Additional paid in capital                                        --            --            (1,145)       --           (1,145)
Unearned compensation                                             --            --            --            2,011        2,011
Exchange differences                                              --            --            --            31,002       31,002
                                                                  --------      --------      --------      --------     --------
At 31 December 2003                                               1,510,154     37,754        2,332,468     (1,387,509)  982,713
Loss for period                                                   --            --            --            (194,936)    (194,936)
Stock issuance                                                    975           24            546           --           570
Additional paid in capital                                        --            --            (1,808)       --           (1,808)
Unearned compensation                                             --            --            --            1,471        1,471
Grant of shares from Group Quest                                  --            --            --            55           55
Exchange differences                                              --            --            --            (798)        (798)
                                                                  --------      --------      --------      --------     --------
At 31 December 2004                                               1,511,129     37,778        2,331,206     (1,581,717)  787,267
                                                                  ========      ========      ========      ========     ========
At 31 December 2004 ($'000)                                                     72,383        4,466,591     (3,030,570)  1,508,404
                                                                  ========      ========      ========      ========     ========
</TABLE>

                                                                             F38

<PAGE>



f) New accounting standards

U.S. GAAP

In November 2004 the Financial Accounts Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4" ("SFAS 151"), which clarifies that abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage) should be recognized as a current period expense. In addition, this
Statement requires that allocation of fixed production overhead to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for fiscal years beginning after June 15, 2005. Management does
not believe that the implementation of this standard will have a material impact
on the financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS 153 "Exchanges of Non-Monetary Assets -
An Amendment to APB 29" ("SFAS 153"). APB 29 had stated that all exchanges of
non-monetary assets should be recorded at fair value except in a number of
situations, including where the exchange is in relation to similarly productive
assets. SFAS 153 amends APB 29 to eliminate the exception for non-monetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges for non-monetary assets that do not have commercial substance. A
non-monetary transaction has commercial substance where the future cash flows of
the business will be expected to change significantly as a result of the
exchange. The provisions of this statement will be effective for non-monetary
exchanges occurring in fiscal periods beginning after June 15, 2005. Management
does not believe that the implementation of this standard will have a material
impact on the financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS 123 (Revised) "Share Based Payments"
("SFAS 123(R)"), which required companies to expense the value of employee stock
option schemes and similar awards based on the grant date fair value of the
award. SFAS 123(R) eliminates the option to use APB 25's intrinsic method of
accounting for valuation of share options and similar awards as provided by SFAS
123 as originally issued. SFAS 123 (R) is effective for public companies for the
interim period beginning after June 15 2005. Under the revised standard there
are three transition methods available, the modified prospective model, the
modified prospective model with restatement of prior interim results or the
modified prospective model. Management is currently assessing the impact of this
standard on the financial position, results of operations or cash flows.

In November 2004, the Task Force issued EITF Issue No, 03-13, "Applying the
conditions in Paragraph 42 of SFAS 144 in Determining Whether to Report
Discontinued Operations" ("EITF 03-13"), which provides an approach for
evaluating whether the criteria in paragraph 42 of FAS 144 have been met for
classifying as a discontinued operations a component of an entity that either
has been disposed of or is classified as held for sale. EITF 03-13 is effective
for fiscal periods beginning after December 15, 2004. Management does not
believe that the implementation will have a material impact on the financial
position, results of operations or cash flows.

In October 2004, the EITF issued EITF 04-10 "Determining whether to Aggregate
Operating Segments that do not meet the Quantitative Thresholds" ("EITF 04-10").
EITF 04-10 states that operating segments, as defined by SFAS 131, "Disclosure
about Segments of an Enterprise and Related Information," (SFAS 131) that do not
meet the quantitative thresholds within SFAS 131, can be aggregated only if
aggregation is consistent with the objective and basic principles of SFAS 131,
that the segments have similar economic characteristics, and the segments share
a majority of the aggregation criteria listed in SFAS 131. EITF 04-10 will be
effective when a new FASB Statement of Position being discussed on a related
issue that will provide guidance in determining whether two or more operating
segments have similar economic characteristics becomes effective, although early
adoption is permitted. Management has assessed the impact of EITF 04-10 and
believes the impact is not material.



U.K. GAAP

The following Financial Reporting Standards have recently been issued by the
ASB. These accounting standards all mirror International Financial Reporting
Standards and will be adopted by the Group as part of the transition to IFRS:
FRS 21 (IAS 10) "Events after the balance sheet date"; FRS 22 (IAS 33) "Earnings
per share"; FRS 23 (IAS 21) "The effects of changes in foreign exchange rates";
FRS 24 (IAS 29) "Financial reporting in hyperinflationary economies"; FRS 25
(IAS 32) "Financial instruments: presentation and disclosure"; and FRS 26 (IAS
39) "Financial instruments: measurement".



IFRS

COLT will be required to report under IFRS for quarterly reporting from the
quarter ending 31 March 2005 and in the 2005 Annual Report. The Group has
undertaken a project to manage the transition from existing U.K. GAAP to IFRS.
The major areas of difference which will impact the Group's profit and loss
account or balance sheet are described in the Financial Review.

                                                                             F39

<PAGE>







g) Share option plans

At 31 December 2004, the Group had certain options outstanding under its share
plans. As permitted by SFAS 123 "Accounting for Stock-Based Compensation", the
Group elected not to adopt the recognition provisions of the standard and to
continue to apply the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", in accounting for its share options.
Had compensation expense for share options and awards been determined in
accordance with SFAS 123, the Group's loss for the period and basic and diluted
loss per share would have been as follows:

<TABLE>
<CAPTION>
                                                                                                 Year ended 31 December
                                                                                -------------------------------------------------
                                                                                2002          2003          2004         2004
                                                                                L'000         L'000         L'000        $'000
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Loss for period after exceptional items:
As reported                                                                     (611,130)     (136,980)     (194,936)    (373,497)
Add (less): Compensation charge (credit) in respect
   of SAYE scheme reflected in the profit and loss account                      792           711           (337)        (646)
Less: Share based compensation charge calculated
   under the Black-Scholes model                                                (16,870)      (16,777)      (10,406)     (19,938)
                                                                                --------      --------      --------     --------
Adjusted pro forma loss for the period                                          (627,208)     (153,046)     (205,679)    (394,081)
                                                                                ========      ========      ========     ========
Basic and diluted loss per share
   As reported                                                                  L(0.41)       L(0.09)       L(0.13)      $(0.25)
   As adjusted                                                                  L(0.42)       L(0.10)       L(0.14)      $(0.26)
</TABLE>

Solely for the purposes of providing the disclosures required by SFAS No. 123,
the fair value of each grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: volatility
40% - 108%, risk free interest rate prevailing at the time of grant 3.8% - 7.4%,
expected lives of options 5 to 7 years and dividend yield 0%.



                                                                             F40

<PAGE>




27. Subsidiary undertakings

The Company is the holding company of the Group and has the following principal
operating subsidiary undertakings, each of which is a private Company registered
in its country of operation. The Company holds 100% of the allotted capital of
all of its operating subsidiaries through intermediate holding companies and
their results are included in the consolidated financial statements.



<TABLE>
<CAPTION>
Name                                                Country of operation        Principal activities

<S>                                                 <C>                         <C>
COLT Telecommunications (unlimited company)         United Kingdom              Telecommunications and internet services provider

COLT Telecom GmbH                                   Germany                     Telecommunications and internet services provider

COLT Telecommunications France SAS                  France                      Telecommunications and internet services provider

COLT Telecom AG                                     Switzerland                 Telecommunications and internet services provider

COLT Telecom SpA                                    Italy                       Telecommunications and internet services provider

COLT Telecom Espana SA                              Spain                       Telecommunications and internet services provider

COLT Telecom BV                                     The Netherlands             Telecommunications and internet services provider

COLT Telecom SA                                     Belgium                     Telecommunications and internet services provider

COLT Telecom Austria GmbH                           Austria                     Telecommunications and internet services provider

COLT Telecom AB                                     Sweden                      Telecommunications services provider

COLT Internet U.S Corp.                             USA                         Intragroup internet services provider

COLT Telecom U.S. Corp.                             USA                         Intragroup telecommunications services provider

COLT Telecom A/S                                    Denmark                     Telecommunications and internet services provider

COLT Telecom A/S                                    Norway                      Telecommunications and internet services provider

COLT Telecom - Servicos de Telecommunicoes,         Portugal                    Telecommunications and internet services provider
               Unipessoal Lda

COLT Telecom Ireland Limited                        Ireland                     Telecommunications and internet services provider

COLT Telecom Finland OY                             Finland                     Telecommunications and internet services provider

COLT Technology Services India Private Limited      India                       Intra group support services
</TABLE>

                                                                             F41

<PAGE>



2004 Quarterly group financial results (unaudited)

<TABLE>
<CAPTION>
Group Profit and Loss Account
(after exceptional items)                                         Q1            Q2            Q3            Q4           Total
                                                                  L'000         L'000         L'000         L'000        L'000
                                                                  --------      --------      --------      --------     --------
<S>                                                               <C>           <C>           <C>           <C>          <C>
Turnover                                                          301,110       301,233       303,710       307,967      1,214,020

Cost of sales
     Interconnect and network                                     (198,090)     (205,028)     (207,813)     (202,797)    (813,728)
     Network depreciation                                         (46,808)      (45,736)      (46,611)      (52,814)     (191,969)
                                                                  --------      --------      --------      --------     --------
                                                                  (244,898)     (250,764)     (254,424)     (255,611)    (1,005,697)
                                                                  --------      --------      --------      --------     --------
Gross profit                                                      56,212        50,469        49,286        52,356       208,323

Operating expenses
     Selling, general and administrative                          (56,555)      (57,946)      (62,522)      (69,610)     (246,633)
     Other depreciation and amortisation                          (7,846)       (6,946)       (7,337)       (8,390)      (30,519)
                                                                  --------      --------      --------      --------     --------
                                                                  (64,401)      (64,892)      (69,859)      (78,000)     (277,152)
                                                                  --------      --------      --------      --------     --------
Operating loss                                                    (8,189)       (14,423)      (20,573)      (25,644)     (68,829)

Other income (expense)
   Interest receivable                                            5,863         5,174         5,600         4,364        21,001
   Interest payable and similar charges                           (17,612)      (16,983)      (16,882)      (15,335)     (66,812)
   Gain on purchase of debt                                       --            --            205           --           205
   Exchange gain (loss)                                           152           (34)          104           (218)        4
                                                                  --------      --------      --------      --------     --------
                                                                  (11,597)      (11,843)      (10,973)      (11,189)     (45,602)
                                                                  --------      --------      --------      --------     --------
Loss on ordinary activities before taxation                       (19,786)      (26,266)      (31,546)      (36,833)     (114,431)
Taxation                                                          --            --            --            --           --
                                                                  --------      --------      --------      --------     --------
Loss for period                                                   (19,786)      (26,266)      (31,546)      (36,833)     (114,431)
                                                                  --------      --------      --------      --------     --------
Basic and diluted loss per share                                  L(0.01)       L(0.02)       L(0.02)       L(0.02)      L(0.08)
                                                                  ========      ========      ========      ========     ========



Other data:

Turnover growth
   Year-to-year                                                   11%           3%            3%            1%           4%
   Quarter-to-quarter                                             -2%           0%            1%            1%           n/a

Gross profit margin (i)                                           19%           17%           16%           17%          17%


<FN>
(i) Gross profit includes exceptional items.
</FN>
</TABLE>

For further information on exceptional items see note 7.

                                                                             F42

<PAGE>



2004 Operating statistics (unaudited)

<TABLE>
<CAPTION>
                                                                                Q1            Q2            Q3           Q4
                                                                                --------      --------      --------     --------
<S>                                                                             <C>           <C>           <C>          <C>
Customers (at end of period) (i)
   North Region                                                                 5,796         5,736         5,724        5,740
   Central Region                                                               7,213         7,929         7,960        7,870
   South Region                                                                 5,813         5,940         6,041        6,204
                                                                                --------      --------      --------     --------
                                                                                18,822        19,605        19,725       19,814
Customers (at end of period)  (i)
   Corporate                                                                    17,841        18,432        18,518       18,614
   Wholesale                                                                    981           1,173         1,207        1,200
                                                                                --------      --------      --------     --------
                                                                                18,822        19,605        19,725       19,814

Switched minutes (million) (for quarter)
   North Region                                                                 1,605         1,489         1,425        1,421
   Central Region                                                               3,752         3,593         3,580        3,875
   South Region                                                                 1,092         1,114         1,060        1,301
                                                                                --------      --------      --------     --------
                                                                                6,449         6,196         6,065        6,597

Private wire VGEs (000) (at end of quarter)  (ii)
   North Region                                                                 11,179        11,737        12,619       12,710
   Central Region                                                               11,993        13,013        15,623       15,795
   South Region                                                                 5,298         5,642         6,431        7,859
                                                                                --------      --------      --------     --------
                                                                                28,470        30,392        34,673       36,364


Headcount (at end of quarter)   (iii)
   North Region                                                                 1,536         1,568         1,544        1,489
   Central Region                                                               1,370         1,361         1,330        1,271
   South Region                                                                 928           928           929          908
   India                                                                        --            --            86           201
                                                                                --------      --------      --------     --------
                                                                                3,834         3,857         3,889        3,869
</TABLE>

South Region comprises France, Italy, Portugal and Spain. North Region comprises
UK, Ireland, The Netherlands, Belgium, Denmark, and Sweden. Central Region
comprises Germany, Austria and Switzerland

(i)   Customers represent the number of customers who purchase network and data
      solutions products.

(ii)  Non-switched circuits are measured in Voice Grade Equivalents (VGEs). VGEs
      are the comparable number of voice circuits, of 64 kilobits per second,
      each approximately equivalent in capacity to the non-switched circuit
      being measured.

(iii) Headcount comprises active employees excluding temporary and contract
      workers.


                                                                             F43

<PAGE>




Five year summary

<TABLE>
<CAPTION>
Group Profit and Loss Account
(after exceptional items)                                         2000          2001          2002          2003         2004
                                                                  L'000         L'000         L'000         L'000        L'000
                                                                  --------      --------      --------      --------     --------
<S>                                                               <C>           <C>           <C>           <C>          <C>
Turnover (i)                                                      686,977       905,687       1,027,258     1,166,318    1,214,020

Cost of sales
   Interconnect and network                                       (478,215)     (704,906)     (731,935)     (766,942)    (813,728)
   Network depreciation                                           (88,689)      (236,764)     (720,009)     (204,417)    (191,969)
                                                                  --------      --------      --------      --------     --------
                                                                  (566,904)     (941,670)     (1,451,944)   (971,359)    (1,005,697)
                                                                  --------      --------      --------      --------     --------
Gross profit (loss)                                               120,073       (35,983)      (424,686)     194,959      208,323
Operating expenses
   Selling, general and administrative                            (181,674)     (264,981)     (261,029)     (233,475)    (246,633)
   Other depreciation and amortisation                            (23,312)      (58,967)      (92,879)      (38,531)     (30,519)
                                                                  --------      --------      --------      --------     --------
                                                                  (204,986)     (323,948)     (353,908)     (272,006)    (277,152)
                                                                  --------      --------      --------      --------     --------
Operating loss                                                    (84,913)      (359,931)     (778,594)     (77,047)     (68,829)
Other income (expense)
   Interest receivable                                            80,500        60,727        38,108        26,718       21,001
   Gain on purchase of debt                                       --            58,774        101,668       7,589        205
   Amounts written off investment in own shares                   --            (2,757)       (409)         --           --
   Interest payable and similar charges                           (104,794)     (111,952)     (96,300)      (88,295)     (66,812)
   Exchange gain (loss)                                           (7,653)       (5,230)       17,245        6,388        4
                                                                  --------      --------      --------      --------     --------
                                                                  (31,947)      (438)         60,312        (47,600)     (45,602)
                                                                  --------      --------      --------      --------     --------
Loss on ordinary activities before taxation                       (116,860)     (360,369)     (718,282)     (124,647)    (114,431)
Taxation                                                          --            --            --            --           --
                                                                  --------      --------      --------      --------     --------
Loss for period                                                   (116,860)     (360,369)     (718,282)     (124,647)    (114,431)
                                                                  ========      ========      ========      ========     ========
Basic and diluted loss per share                                  L(0.17)       L(0.48)       L(0.48)       L(0.08)      L(0.08)
                                                                  ========      ========      ========      ========     ========

Operating loss after exceptional items                            (84,913)      (359,931)     (778,594)     (77,047)     (68,829)
Exceptional items:
   Interconnect and network                                       --            62,382        18,320        --           --
   Network depreciation                                           --            73,371        508,000       --           --
   Selling, general and administrative                            --            27,870        18,934        (2,453)      --
   Other depreciation and amortisation                            --            11,955        43,000        --           --
                                                                  --------      --------      --------      --------     --------
Operating loss before exceptional items                           (84,913)      (184,353)     (190,340)     (79,500)     (68,829)
Gross profit on infrastructure sales (i)                          (18,990)      (1,414)       --            --           --
                                                                  --------      --------      --------      --------     --------
Operating loss before exceptional items and
   infrastructure sales                                           (103,903)     (185,767)     (190,340)     (79,500)     (68,829)
                                                                  ========      ========      ========      ========     ========


<FN>
(i)   Turnover in 2001 includes infrastructure sales of L3.8 million (2000: L46.2 million) which had associated cost of sales of
      L2.4 million (2000: L27.2 million). There were no infrastructure sales in 2002, 2003 or 2004.
</FN>
</TABLE>


                                                                             F44

<PAGE>




Five year summary


<TABLE>
<CAPTION>
Group Balance Sheet                                                                           At 31 December
                                                                  ---------------------------------------------------------------
                                                                  2000          2001          2002          2003         2004
                                                                  L'000         L'000         L'000         L'000        L'000
                                                                  --------      --------      --------      --------     --------
<S>                                                               <C>           <C>           <C>           <C>          <C>
Fixed assets                                                      1,328,408     1,816,109     1,389,654     1,353,778    1,260,819
Current assets                                                    2,023,780     1,611,683     1,199,276     1,069,065    699,868
                                                                  --------      --------      --------      --------     --------
Total assets                                                      3,352,188     3,427,792     2,588,930     2,422,843    1,960,687
                                                                  ========      ========      ========      ========     ========

Equity shareholders' funds                                        1,501,857     1,624,359     955,010       862,698      748,094
Creditors                                                         1,850,331     1,742,027     1,546,552     1,497,285    1,163,885
Provisions for liabilities and charges                            --            61,406        87,368        62,860       48,708
                                                                  --------      --------      --------      --------     --------
Total liabilities, capital and reserves                           3,352,188     3,427,792     2,588,930     2,422,843    1,960,687
                                                                  ========      ========      ========      ========     ========


Operating Statistics (unaudited)                                  2000          2001          2002          2003         2004
                                                                  --------      --------      --------      --------     --------
Customers (at end of year)                                        7,388         11,386        15,523        19,565       19,814
Switched minutes for year (M)                                     15,758        20,248        20,040        21,897       25,307
Private wire VGEs (at end of year) (`000)                         8,486         15,312        20,423        26,613       36,364
Headcount (at end of year)                                        4,012         5,345         4,684         3,866        3,869
</TABLE>





                                                                             F45