Use these links to rapidly review the documentTABLE OF CONTENTS



SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 20-F

|(Mark One) |                                                                                                                             
|---------- | ----------------------------------------------------------------------------------------------------------------------------
|o          | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934                              
|OR        
|ý          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended 31 March 2005
|OR        
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                    

Commission file number: 333-110042

eircomGroup plc(Exact name of Registrant as specified in its charters)

eircomFunding
Valentia TelecommunicationseircomLimited(Additional Registrants)

England and Wales(Jurisdiction of incorporation or organisation)

114 St. Stephen's Green West
Dublin 2
Ireland(Address of principal executive offices)

Securities
registered or to be registered pursuant to Section 12(b) of the Act:

Title
of class / Name of each exchange on which registered

None / NA

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

None

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

7.25% Senior Notes due 2013 issued by Valentia Telecommunications
8.25% Senior Subordinated Notes due 2013 issued byeircomFunding
Guarantee of 7.25% Senior Notes due 2013 fromeircomLimited
Guarantee of 8.25% Senior Subordinated Notes due 2013 fromeircomGroup plc
Guarantee of 8.25% Senior Subordinated Notes due 2013 fromeircomLimited
Guarantee of 8.25% Senior Subordinated Notes due 2013 from Valentia Telecommunications

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:

Ordinary Shares of €0.10 each: 751,312,987
Convertible Preference Shares of €0.50 each: 158,583,333
Redeemable Preference Shares of €0.50 each: 531,870
Trancheable Redeemable Preference Shares of €0.50 each: 671,083
Non-Voting Deferred Shares of €0.001 each: 6,474,488,800
Sterling Deferred Shares of £1 each: 50,000

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.

ý Yes                o No

Indicate by check mark which financial statement item the Registrant has elected to follow:

o Item
17                ý Item 18



---





|                    |          |                             | PRESENTATION OF FINANCIAL AND OTHER INFORMATION                              |       | 2  
|------------------- | -------- | --------------------------- | ---------------------------------------------------------------------------- | ----- | ---
|PART I              |          | 5                          
|                    | ITEM 1   |                             | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        |       | 5  
|                    | ITEM 2   |                             | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |       | 5  
|                    | ITEM 3   |                             | KEY INFORMATION                                                              |       | 6  
|                    | ITEM 4   |                             | INFORMATION ON THE COMPANY                                                   |       | 22 
|                    | ITEM 5   |                             | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |       | 75 
|                    | ITEM 6   |                             | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   |       | 112
|                    | ITEM 7   |                             | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |       | 136
|                    | ITEM 8   |                             | FINANCIAL INFORMATION                                                        |       | 144
|                    | ITEM 9   |                             | THE OFFER AND LISTING                                                        |       | 147
|                    | ITEM 10  |                             | ADDITIONAL INFORMATION                                                       |       | 148
|                    | ITEM 11  |                             | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |       | 191
|                    | ITEM 12  |                             | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |       | 192
|PART II             |          | 193                        
|                    | ITEM 13  |                             | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |       | 193
|                    | ITEM 14  |                             | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |       | 193
|                    | ITEM 15  |                             | CONTROLS AND PROCEDURES                                                      |       | 193
|                    | ITEM 16A |                             | AUDIT COMMITTEE FINANCIAL EXPERT                                             |       | 194
|                    | ITEM 16B |                             | CODE OF ETHICS                                                               |       | 194
|                    | ITEM 16C |                             | PRINCIPAL ACCOUNTANTS FEES AND SERVICES                                      |       | 194
|                    | ITEM 16D |                             | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |       | 195
|                    | ITEM 16E |                             | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |       | 195
|PART III            |          | 195                        
|                    | ITEM 17  |                             | FINANCIAL STATEMENTS                                                         |       | 195
|                    | ITEM 18  |                             | FINANCIAL STATEMENTS                                                         |       | 195
|                    | ITEM 19  |                             | EXHIBITS                                                                     |       | 196
|                    |          | SIGNATURE                   |                                                                              | 198  
|                    |          | GLOSSARY OF TECHNICAL TERMS |                                                                              | 199  
|ACCOUNTANTS REPORTS |          |                            
|                    |          | eircomGROUP PLC             |                                                                              | F-1  
|                    |          | VALENTIA TELECOMMUNICATIONS |                                                                              | F-74 
|                    |          | eircomLIMITED               |                                                                              | F-137
|                    |          | eircomFUNDING               |                                                                              | F-194

---





PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Certain Conventions and Financial Statement Presentation

References in this document to "eircomGroup" or the "Company" refer to eircomGroup plc,
the ultimate parent company of Valentia Telecommunications,eircomFunding andeircom. References in this document to "eircom" refer to eircomLimited, an Irish limited company and a
wholly-owned subsidiary of Valentia Telecommunications and eircomGroup. References in this document to "we", "us", "our", "the Group" and similar terms refer to: eircomand its subsidiaries when discussing events on or prior to 1 November 2001, the date eircomwas acquired by Valentia Telecommunications; Valentia
Telecommunications and its subsidiaries when discussing events that occurred on or after
2 November 2001 and on or before 8 July 2003, andeircomGroup and its subsidiaries when discussing events that occurred on or after
9 July 2003. References in this document to "we believe" and "we expect" are references to the Directors' beliefs and expectations. References in this document to numbers of "employees" refer
to numbers of full-time equivalent employees.

Unless
otherwise indicated, financial information in this document has been prepared in accordance with generally accepted accounting principles in the United Kingdom ("UK GAAP"). UK
GAAP differs in certain significant respects from generally accepted accounting principles in the United States ("U.S. GAAP"). A discussion of the principal differences relevant to, and consolidated
financial information of,eircomGroup and a reconciliation to U.S. GAAP of net profit or loss attributable to group shareholders for the financial
years ended 31 March 2003, 31 March 2004 and 31 March 2005 and shareholder's equity as at 31 March 2004 and 31 March 2005 is set forth in note 34 to the
consolidated financial information contained in Item 18 "Financial Statements". In November 2003, Senior Notes (see Item 10B "Additional InformationMaterial Contracts") and Senior
Subordinated Notes (see Item 10B "Additional InformationMaterial Contracts") of the Group were registered with the Securities and Exchange Commission ("SEC"). As SEC registrants, Valentia
Telecommunications andeircomFunding, subsidiaries ofeircomGroup and the issuers of the Senior Notes
and the Senior Subordinated Notes, are required to provide a reconciliation to U.S. GAAP for their year-end financial statements. Valentia Telecommunications and eircomFunding do not intend to prepare
or publish such U.S. GAAP reconciliations if, in the future, they are not SEC registrants.eircomGroup plc andeircom, a subsidiary ofeircomGroup plc, as guarantors of the Senior Notes and Senior Subordinated Notes are required to provide a reconciliation to U.S. GAAP for their year-end financial statements. eircomGroup plc andeircomdo not intend to prepare or
publish such U.S. GAAP reconciliations if, in the future, they are not guarantors of the Notes or if, in the future, Valentia Telecommunications and eircomFunding are not SEC Registrants.

We
present our financial information in euro, which is our reporting currency.

Some
financial information in this document has been rounded and, as a result, the numerical figures shown as totals in this document may vary slightly from the exact arithmetic
aggregation of the figures that precede them.

This
document contains references to EBITDA. "EBITDA" means earnings from continuing operations before interest, taxes, depreciation and amortisation. Although EBITDA is not a measure of
operating income, operating performance or liquidity under UK GAAP, it is presented because it is used by some investors to determine a company's historical ability to service indebtedness and fund
ongoing capital expenditure and because some of the covenants in the Group's debt agreements are based on similar measures. EBITDA should not, however, be considered in isolation or as a substitute
for operating income as determined by UK GAAP, or as an indicator of operating performance, or of cash flows from operating activities as determined in accordance with UK GAAP. Furthermore, EBITDA is
derived from the Group's UK GAAP financial statements. This document contains a quantitative reconciliation of EBITDA to the closest UK GAAP measure.

2

---



Note on Information Sources

We operate in an industry in which it is difficult in certain cases to obtain precise industry and market information. Unless the source is otherwise stated, the
industry and market data in this document have been derived from our management records. The non-financial operating data included in this document have been extracted without material
adjustment from our management records. Where stated, the market and competitive position data in this document have been obtained from quarterly and other information published by the Commission for
Communications Regulation ("ComReg"), the Irish telecommunications regulator, or from other third-party sources. None of such data has been independently verified by eircomGroup.

Non Incorporation of Website Information

The contents of our website referred to in this document do not form part of this document.

Cautionary Note Regarding Forward-Looking Statements

This document includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or
comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding
the intentions, beliefs or current expectations ofeircomGroup concerning, amongst other things, the results of operations, financial condition,
liquidity, prospects, growth, strategies and dividend policy of the Group and the industries in which it operates.

By
their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition, liquidity, dividend policy and the development of the industries in
which it operates may differ materially from the impression created by the forward-looking statements contained in this document. In addition, even if the results of operations, financial condition,
liquidity and dividend policy of the Group, and the development of the industries in which it operates, are consistent with the forward-looking statements contained in this document, those results or
developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to:



3

---





You
are advised to read this document in its entirety, and, in particular, the sections of this document entitled Item 3B "Key InformationRisk Factors", Item 4D "Information
on the CompanyOur Business", Item 4E "Information on the
CompanyRegulation", Item 5 "Operating and Financial Review and Prospects" and Item 18 "Financial Statements" for a further discussion of the factors that could affect the Group's future
performance and the industries in which it operates. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this document may not occur.

Other
than in accordance with the Group's legal or regulatory obligations, we undertake no obligation to update or revise publicly any forward-looking statement, whether as a result of
new information, future events or otherwise.

All
subsequent written and oral forward looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements
referred to above and contained elsewhere in this Form 20-F.

4

---



PART I

ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

This item is not applicable.

ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE

This item is not applicable.

5

---



ITEM 3  KEY INFORMATION

A.    SELECTED FINANCIAL INFORMATION

On 21 July 2003,eircomGroup plc (successor) became the ultimate holding company of the Group, by
acquiring the entire issued share capital of Valentia Telecommunications and its subsidiaries in a share for share exchange (theeircomGroup
Acquisition). This acquisition has been accounted for in accordance with the principles of merger accounting. Under FRS 6 "Acquisitions and Mergers" merger accounting is permitted to be used provided
that the conditions set out in FRS 6 are met, including that merger accounting is not prohibited by the Companies Act. On 2 November 2001, Valentia Telecommunications' offer to acquire all of
the shares ofeircomLimited became unconditional and we account for the acquisition ofeircomfrom that
date.eircomand its consolidated subsidiaries prior to the acquisition are referred to as the "predecessor". eircomGroup and Valentia Telecommunications
and their consolidated subsidiaries, from and after the acquisition of eircom, are referred to as the "successor".

The
table below sets out summary historical consolidated financial information foreircomGroup.

We
have derived the summary historical consolidated financial information ofeircomGroup from its audited historical consolidated
financial statements as of 31 March 2005, 31 March 2004 and 31 March 2003 and for the financial years ended 31 March 2005, 31 March 2004 and 31 March 2003 and
for the financial period 2 November 2001 to 31 March 2002, and from the audited historical consolidated financial statements of its predecessor for the financial period 1 April
2001 to 1 November 2001, and for the financial year ended 31 March 2001.

Unless
otherwise indicated, the financial information in this document has been prepared in accordance with UK GAAP. UK GAAP differs in certain significant respects from U.S. GAAP. A
discussion of the principal differences relevant to the financial statements ofeircomGroup and a reconciliation to U.S. GAAP of net (loss)/profit
attributable to Group shareholders for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 and shareholder's equity as at 31 March 2004 and
31 March 2005
is set forth in note 34 to the consolidated financial statements ofeircomGroup contained in Item 18 "Financial Statements".

The
financial information included in this document for the financial period from 1 April 2001 to 1 November 2001 reflects the consolidated operations of our predecessor
business,eircom, for those periods. This historical financial information is not directly comparable to the historical financial information for the
financial period from 2 November 2001 to 31 March 2002, the financial year ended 31 March 2003 and the financial year ended 31 March 2004 and the financial year ended
31 March 2005 in a number of important respects, including as a result of:



The eircomGroup Acquisition has been accounted for in accordance with the principles of merger accounting as if it had occurred on
2 November 2001.

The
summary historical financial information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with Item 5 "Operating
and Financial Review and Prospects" and Item 18 "Financial Statements".

6

---



eircomGroup plc

|                                                                                                         |  | Predecessor(1) |   | Successor |  
|-------------------------------------------------------------------------------------------------------- |  | -------------- | - | --------- | -
|
|Consolidated Profit and Loss Data: Amounts in accordance with UK GAAP Continuing operations              |  |                |   |           |  
|Turnover                                                                                                 |  | 1,540          |   | 946       |  
|Cost of sales                                                                                            |  | (365           | ) | (294      | )
|                                                                                                         |  |                |   |           |  
|Gross profit                                                                                             |  | 1,175          |   | 652       |  
|                                                                                                         | 
|Operating costs before depreciation, goodwill amortised and operating exceptional (charges)/credits      |  | (726           | ) | (433      | )
|Depreciation                                                                                             |  | (346           | ) | (213      | )
|Exceptional fixed asset impairments                                                                      |  |               |   | (49       | )
|Operating exceptional (charges)/credits                                                                  |  | (10            | ) | (93       | )
|Goodwill amortised on subsidiary undertakings                                                            |  | (5             | ) | (5        | )
|                                                                                                         | 
|Total operating costs                                                                                    |  | (1,087         | ) | (793      | )
|Group operating profit/(loss) before group share of associated undertaking                               |  | 88             |   | (141      | )
|Group's share of operating (losses)/profits of associated undertakings                                   |  |               |   |          |  
|Goodwill amortised on associated undertakings                                                            |  |               |   | (2        | )
|                                                                                                         | 
|Operating profit/(loss) from:                                                                            |  |                |   |           |  
|Continuing operations                                                                                    |  | 88             |   | (143      | )
|Discontinued operations                                                                                  |  | 90             |   | 23        |  
|                                                                                                         | 
|Group operating profit/(loss)                                                                            |  | 178            |   | (120      | )
|Non-operating exceptional items(2)                                                                       |  | (100           | ) | (60       | )
|Amounts written off investments                                                                          |  |               |   | (12       | )
|Interest payable and similar charges (net)                                                               |  | (12            | ) | (7        | )
|Exceptional interest payable and similar charges                                                         |  |               |   |          |  
|                                                                                                         |  |                |   |           |  
|Profit/(loss) on ordinary activities before taxation and minority interests                              |  | 66             |   | (199      | )
|Taxation credit/(charge) on profit/(loss) on ordinary activities                                         |  | 9              |   | 43        |  
|Minority interests                                                                                       |  | (6             | ) | (2        | )
|                                                                                                         |  |                |   |           |  
|Profit/(loss) after taxation and minority interest                                                       |  | 69             |   | (158      | )
|Dividendin specieon the Demerger of mobile business                                                      |  |               |   | (176      | )
|Dividend Paid and Payable (including dividends and other appropriations in respect of non-equity shares) |  | (90            | ) | (11       | )
|                                                                                                         |  |                |   |           |  
|Loss absorbed for the financial period                                                                   |  | (21            | ) | (345      | )
|                                                                                                         |  |                |   |           |  
|Basic and diluted EPS (€)                                                                                |  | 0.03           |   | (0.07     | )
|Amounts in accordance with U.S. GAAP                                                                     |  |                |   |           |  
|U.S. GAAP net income/(loss) consists of (loss)/income from:                                              |  |                |   |           |  
|Continuing operations                                                                                    |  | (325           | ) | (272      | )
|Discontinued operations                                                                                  |  | 35             |   | (46       | )
|Net income/(loss)                                                                                        |  | (290           | ) | (318      | )
|Operating (loss)/profit from continuing operations                                                       |  | (322           | ) | (317      | )
|Basic and diluted earnings/(loss) per share (€)                                                          |  |                |   |           |  
|Continuing operations                                                                                    |  | (0.16          | ) | (0.13     | )
|Discontinued operations                                                                                  |  | 0.02           |   | (0.02     | )

7

---



|                                                  |  | Predecessor |  | Successor
|------------------------------------------------- |  | ----------- |  | ---------
|
|Consolidated Balance Sheet Data:                  |  |             |  |          
|Amounts in accordance with UK GAAP                |  |             |  |          
|Cash in bank and at hand(3)                       |  | 150         |  | 316      
|Total fixed and current assets                    |  | 3,214       |  | 4,352    
|Total net assets                                  |  | 1,620       |  | 812      
|Total debt(4)                                     |  | 340         |  | 2,414    
|Equity shareholders' funds                        |  | 1,610       |  | 560      
|Non-equity shareholders' funds                    |  |            |  | 252      
|                                                  |  |             |  |          
|Total shareholders' funds                         |  | 1,610       |  | 812      
|                                                  |  |             |  |          
|Amounts in accordance with U.S. GAAP Total Equity |  | 1,434       |  | 604      
|                                                  |  |             |  |          

|                                             |  | Predecessor |  | Successor
|-------------------------------------------- |  | ----------- |  | ---------
|
|Other Financial Data:                        |  |             |  |          
|EBITDA from continuing operations(5)         |  | 463         |  | 128      
|Net cash inflow from operating activities    |  | 575         |  | 172      
|Capital expenditure and financial investment |  | 410         |  | 191      

---

|                                                                                     |  | Predecessor |   | Successor
|------------------------------------------------------------------------------------ |  | ----------- | - | ---------
|
|Exceptional gain on the disposal of fixed assets                                     |  | 24          |   | 2        
|Exceptional provision for exit from certain international and multi-media activities |  | (113        | ) | (3       
|Exceptional gain on exit from subsidiaries                                           |  |            |   |         
|Exceptional cost arising on demerger of mobile business                              |  | (11         | ) | (59      
|                                                                                     |  |             |   |          
|Total non-operating exceptional items                                                |  | (100        | ) | (60      
|                                                                                     |  |             |   |          

---

8

---





|                                                 |  | Predecessor |   | Successor
|------------------------------------------------ |  | ----------- | - | ---------
|
|Group operating profit/(loss)                    |  | 178         |   | (120     
|Operating profit from discontinued operations    |  | (90         | ) | (23      
|Depreciation                                     |  | 346         |   | 213      
|Exceptional fixed asset impairments              |  |            |   | 49       
|Goodwill amortised on associated undertakings    |  |            |   | 2        
|Goodwill amortised on subsidiary undertakings    |  | 5           |   | 5        
|Exceptional gain on the disposal of fixed assets |  | 24          |   | 2        
|                                                 |  |             |   |          
|EBITDA from continuing operations(1)             |  | 463         |   | 128      
|                                                 |  |             |   |          

---

EBITDA
is not a measure of operating profit, operating performance or liquidity under UK GAAP. We include EBITDA because we understand it is used by some investors to determine a
company's historical ability to service indebtedness and fund ongoing capital expenditure, and because some of the covenants in our debt agreements are based on similar measures. Nevertheless, this
measure should not be considered in isolation or as a substitute for operating income as determined by UK GAAP, or as an indicator of our operating performance, or of cash flows from operating
activities as determined in accordance with UK GAAP.
See note 24 of the consolidated financial statements ofeircomGroup contained in Item 18 "Financial Statements" for a reconciliation of operating
profit to net cash inflow from operations.

Exchange Rate Information

The following chart shows, for the period from 1 January 2000 through 31 May 2005, the high, low, period average and period end noon buying rates in
the City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York expressed as dollars per €1.00. The euro did not exist as a
currency prior to 1 January 1999.

Ireland
is a participant in the European Monetary Union. In accordance with the Maastricht Treaty, the euro was launched as the single European currency on 1 January 1999. Upon
the launch of

9

---



the
euro, the exchange rate for the Irish punt was irrevocably fixed at IRP 0.787564 = €1.00, and on 1 January 2002, the Irish punt was replaced as the lawful currency of
Ireland by the euro.

U.S. dollars per €1.00High

Low

Average(1)

Period endYear2000

1.0335

0.8270

0.9303

0.93882001

0.9535

0.8370

0.8903

0.88222002

1.0485

0.8594

0.9495

1.04852003

1.2597

1.0361

1.1411

1.25972004

1.3625

1.1801

1.2438

1.3538MonthDecember 2004

1.3621

1.3224

1.3406

1.3538January 2005

1.3476

1.2954

1.3123

1.3049February 2005

1.3274

1.2773

1.3013

1.3274March 2005

1.3465

1.2877

1.3185

1.2969April 2005

1.3093

1.2819

1.2943

1.2919May 2005

1.2936

1.2349

1.2697

1.2349


---

The noon buying rate of the euro on 31 May 2005 was $1.2349 = €1.00.

The
above rates may differ from the actual rates used in the preparation of the consolidated financial statements and other financial information appearing in this document. Our
inclusion of these exchange rates is not meant to suggest that the euro amounts actually represent such dollar amounts or that such amounts could have been converted into dollars at any particular
rate, if at all.

10

---



B. RISK FACTORS

Risks Relating to Our Business

Increasing competition in the fixed-line telecommunications market makes us vulnerable to further market share loss

The Irish fixed-line telecommunications market, the market in which we operate, is competitive, and we believe that continuing regulatory initiatives
will make it increasingly so. Since 2000, we have been required to provide carrier pre-selection, which allows customers to choose another authorised operator as the default carrier for
some or all calls, and geographic and non-geographic number portability, which allows customers to change to another authorised operator without changing their telephone number. Additional
regulatory measures were introduced, including carrier pre-selection enhancements, which allow other authorised operators to offer customers connected to our network a bundled product
consisting of line rental and call services with a single bill, and partial private circuits, which allow other authorised operators to use our network to provide connectivity from their customers'
premises to their point of connection with our network. We were required to provide single billing through wholesale line rental ("WLR") in June 2003, partial private circuits in July
2003 and carrier pre-selection enhancements in September 2003. These regulatory initiatives have increased the ease with which our customers can move to other authorised operators.

We
have had significant success in winning back lost customers in the past. Since carrier pre-selection was introduced in January 2000, we estimate, based on our
internal traffic analysis system, that we have succeeded in winning back approximately 59% of customers who had moved to other authorised operators. However, restrictive guidelines introduced by
ComReg in September 2003 on conducting win-back sales activities when a customer chooses an alternative operator (which, for example, prohibit us from contacting a former customer
for at least a three month period from the date of the loss of that customer) have made it harder for us to regain lost business. Since the liberalisation of the Irish fixed-line
telecommunications market, our market share, based on turnover, has decreased. Prior to the liberalisation, we held a virtual monopoly in the market. In the first year following liberalisation,
according to quarterly data published by ComReg, our market share, based on turnover, decreased to approximately 93% at 31 December
1999. At 31 December 2004, our market share, based on turnover, was approximately 79%. Due to the regulatory measures described above and increasing competition, we are vulnerable to further
loss of market share in the future.

Competition
in our business could also lead to:



Our turnover and profitability will be adversely affected as the rate of growth in the Irish fixed-line telecommunications
market continues to decline as a result of increasing mobile substitution or otherwise

In
their Quarterly Reports, ComReg publish market revenues for the fixed line market, and in their latest report covering the quarter from January to March 2005, ComReg has
adopted a revised categorisation of revenues and have re-stated fixed line revenues for quarter 1 2004 to quarter 4 2004. Under the revised categorisation, the latest ComReg publication
states fixed line revenues for quarter 1

11

---



2005
as €504 million and re-states quarter 1 2004 revenues as €496 million, implying a 2.4% increase over a twelve month period. However,
previously published quarterly revenues indicated annual decreases of about 4% for recent quarters compared to the same quarter of the prior year. We are in discussion with ComReg to understand the
changes made. Pending resolution of these discussions, our view is that revenue in the fixed line market is declining at approximately 2% per annum, and that our share of the fixed line market
revenues continues to be about 79%, as it has been over recent years.

The
ComReg Quarterly Reports indicate that annualised total fixed-line revenues fell from approximately 60% of total telecoms revenue in 2002 to approximately 50% in year
ended March 2005, primarily as a result of an increase in mobile revenues. We believe that the decline in the fixed-line market overall, as well as a decline in revenues in the
fixed-line voice sector, has been caused by increasing competition, particularly from mobile operators. Although the effects of fixed-to-mobile substitution are
difficult to quantify, we believe it has had a negative impact on growth in the fixed-line market and will continue to do so, as a growing number of customers not only place more calls
from a mobile telephone instead of a fixed-line, but choose to forego having a fixed-line installed at home in favour of using a mobile phone. We believe that the
fixed-line market will continue to slow or decline, and there may continue to be periods of flat or negative growth, making it more difficult for us to increase turnover or even leading to
a decrease in turnover.

If ComReg changes the terms of the retail price cap it has imposed, our ability to adjust our pricing may be further restricted and, as a
result, our turnover and operating profit may decline

In February
2003, ComReg changed the cap it imposes on a specified basket of our retail products and services, from a permitted annual change in average prices equal to the Irish
consumer price index ("CPI") minus 8%, to a permitted annual change equal to CPI minus 0%. ComReg also made other changes, including eliminating the sub-caps it had previously imposed on
individual services within the basket. ComReg stated in its "Response to Consultation and Consultation on Draft Decision" relating to the Market Analysis of Retail Fixed narrowband access markets that
we are now fully rebalanced, and proposed to impose a sub cap on PSTN line rental of CPI minus CPI (i.e. no increase in nominal pricing) for one year effective from the date of the decision. In
subsequent years this will be at the rate of CPI minus 0%. ComReg have indicated in the Market Analysis of Retail
Voice calls that the current price cap will continue until the markets are next reviewed for Significant Market Power, ("SMP") designation and remedies.

We have a significant amount of indebtedness, which may impair our operating and financial flexibility and could adversely affect our
business and financial position and our ability to pay dividends

We
have a substantial amount of debt and significant debt service obligations. As of 31 March 2005, we had gross outstanding indebtedness of
€2.310 billion. Through Valentia Telecommunications, we have unused commitments of €150 million under our Senior Credit Facility (see Item 10B "Additional
InformationMaterial Contracts"). We anticipate that our substantial leverage will continue for the foreseeable future.

Our
substantial indebtedness will have important consequences for stakeholders. For example, it:



12

---





The
Senior Credit Facility, the Senior Notes and the Senior Subordinated Notes contain a number of financial, operating and other obligations that limit our operating and financial
flexibility. Our ability to comply with these obligations depends on the future performance of our business.

In
addition, interest on debt under our Senior Credit Facility is calculated on a floating rate basis. With effect from 1 April 2004 we have €750 million of
unhedged floating rate debt under our Senior Credit Facility, with interest rates at 1.5% over EURIBOR. An increase in interest rates would increase our interest expense under the Senior Credit
Facility which would in turn reduce the funds available to make payments on our Senior Notes and Senior Subordinated Notes and any other debt we have. It would also reduce the funds available to
finance our operations and future business opportunities and to pay dividends, with potentially further adverse effects as described above.

We are dependent on increased turnover from data services, which is an increasingly competitive market

We are dependent upon increased turnover from data services to offset the impact of the declining market for fixed-line voice services on our
operating results and to maintain our long term profitability. If demand for Internet access and usage does not grow, if our customers do not adopt our more expensive and faster forms of Internet
access, such as ADSL, or if our competitors offer cheaper or more attractive services, we may not be able to grow our data services turnover. We have been experiencing increased competitive pressure
on our narrowband Internet access data revenues following the ComReg direction to introduce a wholesale fixed rate internet access call origination, or FRIACO, product to encourage competition in the
Internet access services market. FRIACO allows our competitors to introduce new forms of low-cost narrowband Internet access services, including unmetered access for a fixed monthly
subscription. Our broadband services are subject to competition based on a wholesale version of our own service (bitstream), from services provided by competitors over other technologies such as
wireless or satellite, and from services built by competitors that are based on unbundled local loops and co-location. We are experiencing significant migration from dial-up
Internet access to flat-rate tariff access services based on FRIACO and to ADSL services. In addition, we may face increased competition in this market from mobile companies following the
implementation of third generation ("3G") technology, which will allow mobile operators to offer higher rate data services to their subscribers through their mobile networks.

Changes in accounting principles (particularly the introduction of International Financial Reporting Standards (IFRS)) may materially
affect our financial results and our ability to pay dividends

The
group prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United Kingdom (UK GAAP). As part of the European
Commissioner's plan to develop a single European capital market, the application of IFRS is mandatory for the consolidated financial statements of all listed European Union companies for reporting
periods beginning on or after 1 January 2005. The Regulation passed by the European union requires that IFRS compliant financial statements be produced by eircomfor the financial periods ending
30 September 2005 and 31 March 2006. Under this regulation, 1 April 2005 is the transition
date to IFRS foreircom.

We
initiated a programme to change our accounting policies and practices to be IFRS compliant by 2006. A dedicated project team has been assembled and separate work streams have been
established to address each accounting difference that will require significant effort to implement. We,

13

---



however,
believe that we will be able to meet the financial reporting requirements arising during the year ending 31 March 2006.

The
principal changes foreircom, which we have identified to date, arising from the change from UK GAAP to IFRS will be:



However,
it is not at this time possible to quantify the impact of adopting IFRS on our financial results for the financial year ending 31 March 2006. We currently expect that
implementation of IFRS may have a negative effect on our financial results, including distributable reserves and our ability to pay dividends.

Our pension deficit may (if it continues) reduce our cash flows, profitability, financial condition, net assets, distributable reserves
and our ability to pay dividends

As at 31 March 2005, we had a net pension deficit (net of deferred tax) of €578 million of which
€510 million (net of deferred tax) is not currently recognised in our financial statements as a reduction in distributable reserves, determined in accordance with Financial
Reporting Standard No. 17, "Retirement Benefits" ("FRS 17"). As permitted under the transitional rules for implementing FRS 17, €510 million of this net pension deficit
is not currently recognised in the balance sheet but the deficit is disclosed in note 28 to the consolidated financial statements ofeircomGroup
contained in Item 18 "Financial Statements". If the deficit persists or increases in future periods (which is dependent, amongst other things, on changes in the valuation of publicly traded equities
and interest rates), we may need to increase our pension contributions, which would have a negative impact on our cash flows, profitability, financial condition, net assets and distributable reserves
and could impact on our ability to pay dividends. An actuarial review was completed as at 31 March 2005, which indicated that the actuarial valuation of the assets attributable to the pension
fund was sufficient to meet more than 100% of the value of the scheme's accrued liabilities making due allowances for future increases on salaries and pensions. The actuary has recommended an increase
in the employer contribution rate from 8.2% to 10% of pensionable emoluments (approximately €5 million per annum).

Under
current UK GAAP, we would be required to fully implement FRS 17 in our financial year ending 31 March 2006, at which time we would be required to recognise the full amount
of any unrecognised surplus or deficit in our consolidated financial statements. If a deficit determined in accordance with FRS 17 continues to exist at this time, we would be required to recognise
this deficit as a reduction in our net assets and our ability to pay dividends would be reduced by the amount of that unrecognised deficit or eliminated entirely. The Profit and Loss charge for
pensions under IAS19 for the year ended 31 March 2005 is approximately €57 million. All other things being
equal, the expected charge for the financial year ended 31 March 2006 will be less than €90 million.

However,
as described in the Risk Factor entitled "Changes in accounting principles (particularly the introduction of International Financial Reporting Standards (IFRS) may materially
affect our

14

---



financial
results and our ability to pay dividends", we will prepare our financial statements for the financial year ending 31 March 2006 and thereafter in accordance with IFRS, rather than
current UK GAAP (including FRS 17). The accounting treatment for a pension surplus or deficit under IFRS is different from FRS 17 and is addressed in International Accounting Standard 19 ("IAS 19").
The accounting treatment for first time adoption of IFRS is addressed in IFRS 1 which sets out how IAS 19 should be applied on first time adoption of IFRS. The adoption of IAS 19 as it currently
stands allows the recognition of the net actuarial loss element of a pension deficit as a realised loss in the profit and loss account (and distributable reserves) to be spread over the average
remaining working lives of employees in the scheme, provided the necessary actuarial information is available, rather than as a single reduction in distributable reserves as would be the case with FRS
17. Our distributable reserves, and consequently our ability to pay dividends, would be reduced to the extent that the deficit is required to be recognised at the end of each financial year. If we
have a significant pension deficit in 2006 (which is dependent, amongst other things, on changes in the valuation of publicly traded equities and interest rates), depending on the accounting treatment
adopted at that time, we may (unless we are able to take steps to increase distributable reserves within the Group) be unable to pay any dividends.

In order to maintain or improve our profitability, we need to implement a further reduction in our existing workforce, which may be
difficult to implement

In order to maintain or improve our profitability, we need to continue to reduce our existing workforce. Our ability to do so, however, is limited by statutory
protections enjoyed by our employees and our collective agreements with trade unions. Accordingly, we are focusing on reducing our workforce through, among other things, voluntary severance and early
retirement programmes. We have reduced the average number of employees from 9,129 for the financial year ended 31 March 2003 to 8,306 for the financial year ended 31 March 2004 and to
7,595 for the financial year ended 31 March 2005. This decline in average headcount reflects the impact of our voluntary severance, as well as the reduction of employees in connection with our
discontinuation, disposal and exit of various businesses, and outsourcing certain activities through Managed Service contracts. Although we intend to continue to offer voluntary severance and early
retirement programs to our employees on a targeted basis, there can be no assurance that we will be able to implement further sizeable reductions.

Unless
we are able to achieve a sizeable reduction in our existing workforce over the next few years, our profitability is likely to decline. In addition, the measures that we implement
to reduce employee numbers may entail significant costs affecting our earnings. We created a provision of €412 million in the financial year ended 31 March 2000 to
finance our restructuring
programme, which has been used principally to pay for staff exits. Included within this provision is a net deficit on an annuity plan of €78 million offered as part of the
restructuring programme which is expected to be utilised over a period of 8 years. The remainder of the restructuring provision, of €8 million at 31 March 2004,
was utilised by 30 June 2004.

Further
anticipated staff reductions in future years will impact our earnings.

Changing technologies and markets could require us to make substantial additional investments, increase competition and have a negative
impact on our turnover

We operate in an industry characterised by rapid technological and market changes. We must anticipate and adapt to these changes and introduce, on a timely basis,
competitively priced products and services that meet constantly changing industry standards and customer preferences. As new technologies are developed, we may have to implement these new technologies
at a substantial cost to us in order to remain competitive. In addition, our competitors may implement new technologies, products or service initiatives before we do, allowing these competitors to
provide lower-priced or better-quality services than we provide. In particular, the widespread adoption of Voice over IP ("VoIP"), services based on broadband access technologies may negatively impact
our revenues from

15

---



circuit
switched voice services. If this occurs, it could hamper our ability to compete effectively and, as a result, decrease our turnover and operating profits.

Our profitability may suffer if we are unable successfully to enter new markets, such as the markets for mobile and other
non-fixed line telecommunications services

As part of our strategy, we look to identify and exploit opportunities for future growth. One market that we believe may offer significant opportunities is the
market for mobile telecommunications services. Up until May 2004, we were prevented from entering the mobile telecommunications market by our agreements with Vodafone Group plc, which we
entered into in connection with the demerger of Eircell. We are working to identify value creating opportunities for a re-entry to the Irish mobile market, by acquisition or otherwise, taking account
of the market situation, our disciplined expenditure programme, regulatory developments and the willingness of other authorised operators to enter into commercial arrangements. We may also, if we
determine it to be in our interests, enter into other non-fixed line telecommunications businesses such as wireless telecommunications. In each case, we may be required to invest
substantial funds and other resources or enter into strategic alliances with other authorised operators in order to enter and compete in these markets. We may not have the resources necessary for such
investment or find suitable partners nor can we assure you that any businesses we enter into in the future will perform as well as we might expect or perform at all.

The Government of Ireland may use its position as a customer in the Irish fixed-line telecommunications market to promote
competition in the market in a manner that is unfavourable to us

The
Government of Ireland is a significant customer of ours through its various agencies. We provide a range of services to the Government under several contracts with differing renewal
dates. Press reports have suggested that the Government may seek to use its service requirements to promote competition in the fixed-line telecommunications market. While we will compete
for renewal of Government business as those contracts come up for tender or renewal, if the Government were to transfer a significant portion of its business to other authorised operators, our
turnover may decline, which would adversely affect our profitability.

We are dependent on Ireland for substantially all of our turnover and, if growth in the Irish economy slows, it could have a negative
effect on our turnover and profitability

Substantially all of our turnover is generated in Ireland. Demand for our products and services in Ireland is influenced by a number of factors, including the
strength of the Irish economy. If economic growth in Ireland slows, it could have a material negative effect on our turnover and profitability.

A change in our tax residence could have a negative effect on our profitability

Although we are incorporated in England and Wales, our directors seek, and intend to continue to seek, to ensure that our affairs are conducted in such a manner
that we are resident in Ireland for Irish and UK tax purposes and for the purposes of the United Kingdom-Ireland double tax treaty. The UK tax authorities have confirmed that, based on the activities
and circumstances of our subsidiaries as represented, we will not be liable to UK tax under the UK "controlled foreign companies" tax regime in respect of our subsidiaries.

It
is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority or the renegotiation of the United Kingdom-Ireland double tax
treaty, or as a result of any change in the conduct of our affairs following a review by our directors or a change in the activities or circumstances of our subsidiaries, we could become, or be
regarded as having become, resident in the United Kingdom or elsewhere or become liable to UK tax under the UK "controlled foreign company" tax regime.

16

---



Should
we cease to be an Irish tax resident, we may be subject to a charge to Irish capital gains tax on our assets, and our change of residence might cause some or all of our
subsidiaries to cease to be Irish tax resident which could make them also subject to a charge to Irish capital gains tax on their assets, other than Irish trading assets. This could also interfere
with the manner in which interest costs of Valentia Telecommunications andeircomFunding are utilised for Irish tax purposes. This could also mean that
dividends paid between companies in the Group could give rise to taxation as opposed to the current position whereby dividends paid by one Irish resident company to another Irish resident company do
not give rise to a liability to Irish taxation.

It may not be possible to effect service of process upon us or enforce court judgements against us or our Directors

We are incorporated under the laws of England and Wales and resident in Ireland and the majority of our Directors are citizens or residents of Ireland.
Additionally, a substantial portion of the assets of such persons and many of our assets are located in Ireland. As a result, it may not be possible to effect service of process outside England or
Ireland against us or our Directors or enforce the judgement of a non-English or non-Irish court against us or our Directors. There is doubt as to the enforceability in England
and Ireland, in original actions or in actions for enforcement of judgements of U.S. courts, of civil liabilities predicated upon U.S. federal securities laws.

Risks Relating to Regulatory and Licensing Matters

The provision of telecommunications services in Ireland is subject to extensive regulation. The interpretation of existing regulations in
a manner unfavourable to us, or the adoption of new policies or regulations that are unfavourable to us, could disrupt our business operations and could cause our operating profit to
decline

The
telecommunications services that we provide are subject to extensive regulation. ComReg oversees the manner in which we provide many of our retail and wholesale services and
regulates the prices at
which they are provided. In addition, the Minister for Communication, Marine and Natural Resources ("the Minister") may, in the interests of proper and effective regulation of the telecommunications
market, give policy directions to ComReg to be followed by ComReg in the exercise of its regulatory functions. ComReg is obligated to pursue a policy of fostering increased competition in the Irish
telecommunications market, and requires us to provide specified wholesale services to other authorised operators in order to allow these operators to compete in the retail market. Providing these
wholesale services has resulted in a loss of our market share in the retail fixed-line market, which we believe is likely to continue to decline. ComReg is also in the process of
introducing new requirements to foster further competition, which could lead to further market share loss. We expect that other authorised operators will seek to exploit these new requirements to
increase their market share, but we do not know to what extent these actions will impact us.

ComReg recently issued new pricing directions over our wholesale services, which may negatively impact our turnover and operating profit

ComReg requires us to provide wholesale services to other authorised operators and regulates the prices at which we offer these services. For example, the pricing
of unbundled local loop access services, as well as the pricing of interconnect services which generate most of our wholesale revenues, generally must be based on the long-run incremental
costs of providing them, together with a permissible rate of return on our capital.

In November
2004 ComReg directed that the monthly rental foreircom's Unbundled Loop Metallic Path (ULMP) product would be set at
€14.65 per month from 1 December 2004 for a period of twelve months, with increases in subsequent years limited to no more than the level of CPI. See Item 4D "Information on the
Company, Our Business, Tariffs".

17

---



The
pricing for shared access toeircom's unbundled loops was not addressed in the ComReg decision on fully unbundled loops
in November 2004. ComReg is currently consulting on this pricing and published a draft direction in March 2005 proposing a monthly rental price of €0.39. We have
responded to these proposals rejecting them and are awaiting a response from ComReg.

Consistent
with the Minister's 26 March 2004 policy direction to ComReg, on 31 March 2004 we launched our enhanced carrier pre-selection single billing through
WLR product. On 31 March 2004, ComReg directed that from 1 April 2004 prices for the WLR product were to be set at the retail price less 10% and this margin still applies in June
2005. In March 2005 ComReg published a draft direction on the market analysis for the Retail Fixed Narrowband Access Markets. ComReg states that it intends to continue with the application of
the retail minus price control for WLR for the period of the Market Review.

Proposed
or directed changes to the prices of our wholesale products and services may negatively impact our revenue, profit and retail market share.

ComReg is considering whether to introduce a price cap on our wholesale services, including interconnect services. Although we cannot
predict the terms of any wholesale price cap ComReg may adopt, a wholesale price cap may restrict our ability to make changes to our wholesale prices and consequently may negatively impact our
turnover and operating profit

Currently,
our wholesale interconnect tariffs are determined by us and submitted to ComReg for review and approval. Typically, the initial rates we set are subject to change as they are
reviewed by ComReg, with a final rate set with retrospective effect. In May 2003, ComReg stated that it believed in principle that a wholesale price cap should be introduced and that it would
consult further in a separate paper on this matter shortly. In August 2003 ComReg further noted that it found the responses received in regards to the consultation helpful and where appropriate
would factor the responses into its analysis. ComReg has also recently commenced a bottom-up review of the costings of our core network. The outcome of this review may serve as an input to
the setting of a wholesale price cap by ComReg. We believe that a price cap approach to wholesale prices is in principle a more favourable approach than the current approach that combines setting
interim rates, finalising rates after year-end and making retrospective payments, if requested, based on final rates. However, ComReg could establish price caps on these wholesale services
in a manner that could restrict our ability to make a profit on the provision of these services which would adversely affect our turnover and operating profit. ComReg has proposed moving to a price
cap for interconnect services in the consultation on market analysis for Interconnection markets but acknowledges that the annual review regime may have to continue in the short term.

If ComReg reduces our leased line prices or adopts new regulation of leased lines that is unfavourable to us, our turnover and operating
profit may decline

We are required to submit proposed prices or price changes for leased lines to ComReg for approval. Our leased line prices were last amended in June 2000.
ComReg has indicated on a number of occasions that it intends to review leased line prices and from time to time has sought cost and market share data in relation to leased line prices.

ComReg
has issued a number of directions requiring us to transfer leased lines with minimum interruption in service at prevailing wholesale rates if a retail customer wishes to switch to
another authorised operator for leased line services. ComReg issued the most recent direction on 15 January 2004 and the process to allow the transfer of leased lines from retail to wholesale
customers has been implemented.

18

---



Carrier pre-selection enhancements requiring us to provide single billing facilities and restrictions on our customer
win-back activities could result in a loss of market share and a decline in our turnover and operating profit

Since
2000, we have been required to provide carrier pre-selection ("CPS") for voice services to other authorised operators, which allows customers to select more easily the
services of our competitors. In July 2002, ComReg required us to introduce carrier pre-selection enhancements, including measures that allow other authorised operators to combine
line rental and call services in a single bill. Until now, customers of our competitors have generally received two bills: one from us for line rental and one from the other operator for calls.

In
January 2003 ComReg directed the implementation of single billing products: Single Billing Products through Wholesale Line Rental (SB-WLR), Agency Rebilling
(SB-AR) and Wholesale Ancillary Services (WAS). Under SB-WLR we are obliged to offer other authorised operators a wholesale version of retail line rental with all calls being
carried through CPS. SB-AR is an agreement for onward billing to the end-user. WAS services permit call tracking, call barring, voicemail, call waiting, three way calling and
alarm/reminder call. These changes may make the services of our competitors more attractive to customers

On
24 September 2003, ComReg directed a change to the industry code of practice to establish a "no contact" period of three months for all win-back activities other
than win-back activities relating to single-billing through WLR services, to which a "no contact" period of four months applies. The directed three month "no contact" period for CPS, which
applies to all authorised operators, was due to be reviewed by ComReg within 18 months of the original direction, i.e. by March 2005. However, ComReg have not indicated whether they will
review this arrangement. We have raised serious concerns regarding the legal basis of ComReg's direction. The proposed amended CPS code of practice outlined in ComReg's direction has been suspended by
ComReg because other operators refused to sign up to it. In light of industry concerns, ComReg published a consultation entitled "Amendment of Certain Terms and Conditions of Operators' General
Authorisation" in August 2004. This consultation proposed to include the CPS code of practice in the
General Authorisation. We responded to this consultation in October 2004 and to date there has been no further response from ComReg. Our policy is to comply with the industry code of practice
while continuing to consistently raise concerns regarding the legal basis of the code with ComReg.

If
we are found to be in violation of applicable laws and regulations in relation to our win-back activity, we could be subject to financial penalties and ComReg could
further restrict our procedures or initiate enforcement proceedings. Any or all of these recent developments could result in further loss of market share and a decline in our turnover and operating
profit.

Our universal service obligations could have a negative impact on our profitability

Under European Union directives that have been implemented into Irish law, ComReg is required to promote the availability of specified telephony services to all
users in Ireland, regardless of their geographical position, at an affordable price. We are the only telecommunications provider in Ireland obligated to provide these services, known as universal
service obligations ("USO"), and we are required to do so even if the service is uneconomic from our perspective. Our USO requires us to provide basic voice services, standard fax and
low-speed data services and reasonable access to public pay phones and directory enquiry services as well as services adapted for disabled users. In addition USO services are required to
be provided at geographically averaged prices throughout Ireland.

We
are not reimbursed for any of the net cost of providing these services. There is a statutory provision that permits ComReg to establish a fund that would allow us to recover part of
the costs of meeting our USO if ComReg determines that the net cost of meeting our USO is an unfair burden on us. We have completed an independent study of the net cost of USO on the Company and we
are

19

---



considering
seeking the establishment of such a fund in the current year. If such a fund is not established it will have neutral impact on the current operating profit. However if the losses we incur
from satisfying our USO increase and a USO fund is not established, our operating profit may be negatively impacted.

As a result of government and regulatory initiatives, we may be subject to increased competition in broadband, which may negatively impact
our turnover and our profitability

The Irish government has taken a number of initiatives in the context of the national development plan to promote investment in broadband infrastructure in
Ireland. This includes the development of
Metropolitan Area Networks ("MANs"), which can provide wholesale broadband capacity in certain cities and towns around Ireland. In June 2004 the Government awarded a 15 year contract to
E-net (an authorised operator in the electronic communications industry) to operate a wholesale, operator neutral service through the MANs. In addition, national connectivity is now also
available through the backbone network developed by the State funded Electricity Supply Board and Bord Gais. If the effect of government investment is to assist other competitors in building their own
networks, we may suffer a competitive disadvantage.

Ministerial
policy directions issued to ComReg in February 2003 outline a number of key policy priorities for ComReg, including broadband development. Regulatory measures
introduced in 2003 require us to offer certain wholesale products such as partial private circuits at a regulated price. Such measures facilitate offerings by other authorised operators of competing
retail broadband services.

Under
the New Regulatory Framework ComReg has also proposed the introduction of new retail price constraints for Broadband and a fixed money amount margin squeeze between retail and
wholesale Bitstream prices. We have appealed this Decision to the Appeals Panel and are awaiting further clarification. The outcome of the appeal may have an impact on the timing of our retail
broadband proposition development, specifically in terms of price changes designed to further stimulate the market. This arises because the proposed regulatory approach to broadband pricing may
require us to offer one or more of our wholesale bitstream products at prices we believe to be uneconomic.

In
January 2004, ComReg directed us to offer an ADSL bitstream port transfer service, which will allow a customer with an existing retail ADSL service to switch to another
authorised operator without a significant break in service.

ComReg
also recently directed us to provide an in-situ leased line transfer facility where an end customer to whom we provide a line wishes to switch to another authorised
operator.

Other
developments by Government include:



Regulatory investigations and litigation may lead to fines or other penalties

We are regularly involved in litigation and regulatory enquiries and investigations involving our operations. ComReg and other regulatory bodies regularly make
enquiries and conduct investigations concerning our compliance with applicable laws and regulations. On 17 October 2002, ComReg,

20

---



determined
that we were not in compliance with our obligations under the voice telephony regulations by providing telephone services to specific customers at prices which were not in accordance with
the specific terms and conditions of our discount schemes and published prices. No penalties were levied on us as a result of this determination. By agreement with ComReg and at its direction, we put
internal controls in place that we believe will prevent this from re-occurring and an independent audit of the related internal controls has been conducted. The final audit findings report
including management comments and our statement of compliance were submitted to ComReg on 9 March 2005. If ComReg concludes that we are not complying with its obligations, ComReg could begin an
enforcement action. If we are found to be in violation of applicable laws and regulations, it may become subject to substantial criminal and civil penalties and fines.

On
14 February 2005 we lodged an appeal with the Electronic Communications Appeal Panel ("Appeals Panel") against the ComReg direction which directed us to provide a fit for
purpose response to Operators' requests for the development of a number of Local Loop Unbundling ("LLU") processes to support combined ordering of LLU and Geographic Number Portability (GNP), bulk
ordering of LLU and migration from other wholesale products to LLU. On 15 February 2005 ComReg issued an enforcement order, compelling us to comply with the direction. On 17 February
2005, the High Court granted us a stay and leave for Judicial Review of ComReg's enforcement action. The judicial review hearing in the High Court finished at the end of May and a decision is expected
shortly. If we are unsuccessful in our judicial review of ComReg's enforcement order, ComReg may commence High Court proceedings against us seeking financial penalties or other remedies.

Given
the inherent unpredictability of litigation, it is possible that an adverse outcome in some matters could, from time to time, have a material adverse effect on our operating
results or cash flows in certain quarterly or annual periods.

Planning licence fees, if applicable to us, may adversely affect our profitability

Under Irish planning legislation introduced in 2003, where a licence is granted by a planning authority to a person to erect, construct, place and maintain
overhead cables or wires on, over or along a public road, a fee is payable to the planning authority for every year or part of a year for which the licence is granted. This fee could be determined to
apply to our networks, which encompass overhead wires and poles. If it is determined that the licence fee is applicable to our networks and is enforced on an annual basis, it may adversely affect our
profitability.

21

---





ITEM 4  INFORMATION ON THE COMPANY

eircomGroup plc

Valentia Holdings Limited was incorporated in England and Wales on 9 July 2003 under the Companies Act 1985 as a private company limited by shares with
registered number 04827199. Valentia Holdings Limited changed its name toeircomGroup Limited on 26 February 2004. It was
re-registered as a public limited company under Section 43 of the Companies Act 1985 on 8 March 2004.

The
registered number ofeircomGroup plc is 4827199. Its registered office is at 1 Park Row, Leeds LS1 5AB; telephone
number +44 113 244 5000; fax number + 44 113 244 8000. The head office ofeircomGroup plc is at 114
St. Stephen's Green West, Dublin 2.

Valentia Telecommunications

Valentia Telecommunications was incorporated in Ireland as a private company with limited liability on 14 December 1998 under the Companies Acts, 1963 to
2001. On 28 July 2003, it was re-registered as Valentia Telecommunications, a public unlimited company with a share capital. It is Irish domiciled and is governed by the Companies
Acts, 1963 to 2003.

The
registered number of Valentia Telecommunications is 298420. Its registered office is at 114, St. Stephen's Green West, Dublin 2; telephone number +353 1 671 4444; fax number +353 1
671 6916.

eircomLimited

eircomLimited was incorporated in Ireland as Bord Telecom Eireann on 15 December 1983. It was incorporated
as a limited company by the Irish government under the Companies Acts, 1963 to 1983 by virtue of the Postal and Telecommunications Services Act, 1983.

On
20 December 1996, it was re-registered as a public limited company. On 6 September 1999, Bord Telecom Eireann public limited company was re-named eircompublic limited company. On
26 February 2002, the company was re-registered as a private company with limited liability named eircomLimited. It is an Irish domiciled company and is governed by the Companies Acts, 1963 to
2003.

The
registered number ofeircomLimited is 98789. Its registered office is at 114, St. Stephen's Green West, Dublin 2; telephone number
+353 1 671 4444; fax number +353 1 671 6916.

eircomFunding

eircomFunding was incorporated in Ireland on 15 July 2002 as a public limited company under the Companies
Acts, 1963 to 2001. On 28 July 2003, it was re-registered aseircomFunding, a public unlimited company with a share capital. It is
Irish domiciled and is governed by the Companies Acts, 1963 to 2003.

The
registered number ofeircomFunding is 359251. Its registered office is at 114, St. Stephen's Green West, Dublin 2; telephone number
+353 1 671 4444; fax number +353 1 671 6916.

A.HISTORY AND DEVELOPMENT OF THE COMPANY

The Irish telecommunications market was opened to significant competition in December 1998, andeircomwas
listed on the Irish, London and New York stock exchanges in connection with its original initial public offering in July 1999. In May 2001, eircomcompleted the demerger of its mobile
telecommunications business Eircell, which was acquired by Vodafone Group plc, with eircom's then shareholders receiving shares in Vodafone Group plc. In November 2001, the offer by Valentia
Telecommunications to acquire all of
the shares ineircombecame unconditional.eircomwas delisted

22

---



from
the Irish, London and New York stock exchanges in December 2001 and re-registered as a private company in February 2002.

Shortly
before the acquisition of the entire share capital ofeircomby Valentia Telecommunications, we had begun a transformation and
restructuring programme to consolidate our operations around our core fixed-line business. As part of this restructuring, we exited several businesses. We also exited from our remaining
63% stake in Golden Pages, a directory services business, and our loss-making multimedia activities, including internet software and on-line content development. We also
reduced our presence in the United Kingdom. See Item 4D "Information on the CompanyOur BusinessDisposals and Discontinued Operations".

In March
2004,eircomGroup plc in an Initial Public Offering (the "IPO") issued new ordinary shares and the eircomEmployee Share Ownership Trust ("ESOT")
subscribed for new ordinary shares pursuant to a rights issue (the "ESOT Ordinary Share Rights Issue").
Simultaneously certain of our shareholders offered their ordinary shares (equating to more than 50% of the ordinary shares ineircomGroup plc) to
institutional and other sophisticated investors outside the United States and to qualified institutional buyers in the United States pursuant on the exemption from the registration requirements of the
Securities Act of 1933 (the "Securities Act").eircomGroup plc's shares were listed on the London and Irish Stock Exchanges on 24 March 2004. We
amended the terms of our Senior Notes and Senior Subordinated Notes primarily to provide greater flexibility to pay dividends to our shareholders and on 18 March 2004 we entered into the
current Senior Credit Facility (of which €1.25 billion was drawn down) to refinance certain existing indebtedness and to pay certain fees, costs and expenses associated with the
IPO (See Item 10B "Additional InformationMaterial Contracts").

Reorganisation and Refinancing

Beginning in July 2003, we engaged in a series of transactions whereby we reorganised our corporate structure, issued bonds, refinanced and discharged debt
and funded a dividend.

In July
2003, Valentia Holdings Limited (noweircomGroup plc) became the holding company for the Group through its acquisition of
the entire issued share capital of Valentia Telecommunications in exchange for an issue of shares of Valentia Holdings Limited. As an English company, Valentia Holdings Limited had greater flexibility
under the laws of England and Wales to make distributions following the reorganisation than would have been the case for Valentia Telecommunications, an Irish company, due in part to the availability
of merger relief under English law. Valentia Telecommunications re-registered as an unlimited public company in Ireland on 28 July 2003.

On
6 August 2003, we refinanced substantially all of our existing indebtedness. In connection with the refinancing, Valentia Telecommunications issued
€550 million aggregate principal amount of 7.25% Senior Notes due 2013 ("Senior Notes") andeircomFunding issued
€285 million aggregate principal amount of 8.25% Senior Subordinated Notes due 2013 and $250 million aggregate principal amount of 8.25% Senior Subordinated Notes due
2013 ("Senior Subordinated Notes"). The Senior Notes and Senior Subordinated Notes are listed on the Irish Stock Exchange and the Luxembourg Stock Exchange. In addition, Valentia Telecommunications
entered into the new Senior Credit Facility of which €1.25 billion was drawn down.

Valentia
Telecommunications used a portion of the proceeds from the issuing of the Senior Notes and Senior Subordinated Notes and the funds drawn down under the new Senior Credit
Facility in order to discharge its indebtedness under its prior credit facility and to pay transaction costs. In addition, Valentia Telecommunications used available cash, including cash held within
the Group, to fund a dividend of €512 million toeircomGroup, utilising the reserves arising on cancellation of Valentia
Telecommunications' share premium and the issue and cancellation of ordinary shares.eircomGroup used this dividend to declare and pay dividends to its
shareholders of €446 million and to redeem certain preference shares for €66 million.

23

---



Initial Public Offering

On 26 February 2004 Valentia Holdings Limited changed its name toeircomGroup Limited, and
re-registered as a public limited company (eircomGroup plc) on 8 March 2004. Shortly thereafter eircomGroup plc in an Initial Public Offering (the
"IPO") issued new ordinary shares and theeircomEmployee Share Ownership Trust ("ESOT") subscribed for new ordinary shares pursuant to a rights issue (the "ESOT Ordinary Share Rights Issue"). Simultaneously certain of our shareholders offered their
ordinary shares (equating to more than 50% of the ordinary shares ineircomGroup plc) to institutional and other sophisticated investors outside the
United States and to qualified institutional buyers in the United States pursuant on the exemption from the registration requirements of the Securities Act of 1933 (the "Securities Act"). eircomGroup
plc's shares were listed on the London and Irish Stock Exchanges on 24 March 2004. We amended the terms of our Senior Notes and
Senior
Subordinated Notes primarily to provide greater flexibility to pay dividends to our shareholders and on 18 March 2004 we entered into the current Senior Credit Facility (of which
€1.25 billion was drawn down) to refinance certain existing indebtedness and to pay certain fees, costs and expenses associated with the IPO (See Item 10B "Additional
InformationMaterial Contracts").

Note on Information Sources

eircomGroup operates in an industry in which it is difficult in certain cases to obtain precise industry and
market information. Unless the source is otherwise stated, the industry and market data in this document have been derived from our management records. The non-financial operating data
included in this document have been extracted without material adjustment from our management records. Where stated, the market and competitive position data in this document have been obtained from
quarterly and other information published by ComReg, or from other third party sources. None of such data has been independently verified byeircomGroup.

B.ORGANISATIONAL STRUCTURE

Corporate Structure

The following chart provides a simplified overview of the corporate structure of our Group and does not include all of our subsidiaries. All of our operating
subsidiaries are held beloweircom.

CHART

24

---



Principal Subsidiary Undertakings and Associated Undertakings

The following are the principal subsidiary undertakings and the associated undertakings ofeircomGroup as of 31
March 2005.

|Name                                                   |  | Proportion of Share
Capital Held |  | Nature of
Business                                   |  | Registered Office and Country of
Incorporation                      
|------------------------------------------------------ |  | -------------------------------- |  | ---------------------------------------------------- |  | --------------------------------------------------------------------
|Principal Subsidiary Undertakings                      |  |                                  |  |                                                      |  |                                                                     
|Valentia Telecommunications
(unlimited public company) |  | 100%                             |  | Holding company                                      |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|eircomLimited                                          |  | 100%                             |  | Provision of telecommunications and related services |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|eircomFunding (unlimited public company)               |  | 100%                             |  | Financing company                                    |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|Irish Telecommunications Investments Limited           |  | 100%                             |  | Telecommunications financing and treasury management |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|eircom(U.S.) Limited                                   |  | 100%                             |  | Marketing of telecom services in USA                 |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|Osprey Property Limited                                |  | 100%                             |  | Property development company                         |  | Leitrim House, Upper Stephen's Street, Dublin 8.                    
|Eirtrade Services Limited                              |  | 100%                             |  | Provision of electronic trading services             |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|Indigo Group Limited                                   |  | 100%                             |  | Provision of internet services                       |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|eircom(UK) Limited                                     |  | 100%                             |  | Provision of telecommunications and related services |  | South Quay Plaza II, 183 Marsh Wall, London E14 9SH, United Kingdom.
|Lan Communications Limited                             |  | 100%                             |  | Systems integrator                                   |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|eircomInvestments BV                                   |  | 100%                             |  | Investment holding company                           |  | Strawinskylaan 3105 1077 ZX, Amsterdam, The Netherlands.            
|Eircable Limited                                       |  | 100%                             |  | Investment holding company                           |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|eircomHoldings Limited                                 |  | 100%                             |  | Investment holding company                           |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|Continuous Communications Systems Limited              |  | 100%                             |  | Communications contractors                           |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|eircom(Infonet Ireland) Limited                        |  | 100%                             |  | Provision of global data services                    |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|GoFree Limited                                         |  | 100%                             |  | Property investment company                          |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|eircomNet BV                                           |  | 100%                             |  | Investment holding company                           |  | Strawinskylaan 3105 1077 ZX, Amsterdam, The Netherlands.            
|eircomInternational Networks Limited                   |  | 100%                             |  | Provision of telecommunications and related services |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                    
|                                                       |  |                                  |  |                                                      |  |                                                                     

25

---



|eircomPhonewatch Limited             |  | 100% |  | Installation, monitoring and maintenance of residential security systems |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                        
|------------------------------------ |  | ---- |  | ------------------------------------------------------------------------ |  | ------------------------------------------------------------------------
|Associated Undertakings              |  |      |  |                                                                          |  |                                                                         
|eircomEnterprise Fund Limited        |  | 50%  |  | Seed capital company and early stage fund company                        |  | 114 St. Stephen's Green West, Dublin 2, Ireland.                        
|Beacon Integrated Solutions Limited  |  | 49%  |  | Information technology consultancy                                       |  | Howley's Quay, Limerick, Ireland.                                       
|Telecom Engineering Services Limited |  | 35%  |  | Telecommunications engineering services                                  |  | Unit 14, Cherry Orchard Industrial Estate, Dublin 10, Ireland.          
|Altion Limited                       |  | 33%  |  | Telecommunications software solutions                                    |  | AIB Investment Building, Percy Place, Dublin 4, Ireland.                
|Buy4Now Limited                      |  | 22%  |  | E-commerce software developer                                            |  | 9 The Mall, Beacon Road, Sandyford Industrial Estate, Dublin 18, Ireland

C.PROPERTY

The Group occupies approximately 1,292 properties. The tenure of these properties may be summarised as follows:



Covenants
and other restrictions exist with respect to several of the Group's principal establishments listed below; some of which may affect the Group's ability to sell or otherwise
dispose of such properties.

The
properties are used for the following functions:

Function

Number of
propertiesTelephone exchanges

1,094Area engineering headquarters

43Offices

24Mast/radio sites

72Cable stations

1Other

58


26

---



eircom, in partnership with Commissioners of Public Works ("the Commissioners"), in Ireland has
secured planning permission for a mixed-use residential and commercial development on the site which we jointly own (freehold) with the Commissioners at St. John's Rd., Dublin 8.
In March 2005 we acquired the Commissioners' interest in approximately 15% of the site. We intend to develop up to 250,000 sq. ft. of office space, as part of our plan to consolidate our Dublin
leased office portfolio for our own use. The remaining 85% of the site has been sold jointly with the Commissioners and realised approximately €41.5 million in cash for eircom(before costs).

Osprey
Property Limited has been incorporated to manage the development sites within theeircomproperty portfolio.

The
Group owns or occupies the following principal establishments:

|Property                            |  | Area (Buildings,
gross sq.m.) |  | Tenure                                                   |  | Use                                   
|----------------------------------- |  | ----------------------------- |  | -------------------------------------------------------- |  | --------------------------------------
|Dame Court, Dublin                  |  | 8,592                         |  | Freehold                                                 |  | International exchange                
|Adelaide Rd., Dublin                |  | 5,360                         |  | Freehold                                                 |  | International exchange                
|Citywest, Dublin                    |  | 8,326                         |  | Leasehold: 999 year lease from 1 March 1998              |  | Network Management Centre             
|Crown Alley, Dublin                 |  | 5,225                         |  | (1) Freehold (2) 150 year lease from 25 March 1889       |  | National exchange & ISP hub           
|Clondalkin, Dublin                  |  | 6,219                         |  | Freehold                                                 |  | Logistics Centre                      
|Mervue, Galway                      |  | 9,791                         |  | Freehold                                                 |  | National exchange, office & depot     
|Templehill, Cork                    |  | 2,465                         |  | Freehold                                                 |  | Engineering depot                     
|Dame Lane, Dublin                   |  | 1,518                         |  | Freehold                                                 |  | Office                                
|Beggars Bush, Dublin                |  | 1,908                         |  | Leasehold: 63 years from 7 November 1968                 |  | National exchange                     
|Churchfield, Cork                   |  | 11,771                        |  | Leasehold: Two Leases, both 99 years from 1 October 1973 |  | National exchange & office            
|Roches St., Limerick                |  | 5,495                         |  | Leasehold:                                               |  | National exchange & office            
|                                    |  |                               |  | (1) 983 years from 25 March 1799                         |  |                                       
|                                    |  |                               |  | (2) Two Leases: both 995 years from 25 March 1803        |  |                                       
|                                    |  |                               |  | (3) 900 years from 1 May 1831                            |  |                                       
|                                    |  |                               |  | (4) 900 years from 25 March 1883                         |  |                                       
|                                    |  |                               |  | (5) 140 years from 1 December 1947                       |  |                                       
|Quaker Rd., Cork                    |  | 2,334                         |  | Freehold                                                 |  | National exchange                     
|Summerhill, Dublin                  |  | 1,686                         |  | Freehold                                                 |  | National exchange                     
|Priory Park, Dublin                 |  | 2,367                         |  | Two Leases:                                              |  | National exchange                     
|                                    |  |                               |  | (1) 999 years from 25 March 1935                         |  |                                       
|                                    |  |                               |  | (2) 999 years from 1 September 1946                      |  |                                       
|Blanchardstown (Grove Road), Dublin |  | 3,221                         |  | Freehold                                                 |  | National exchange                     
|St. Stephens Green, Dublin          |  | 7,360                         |  | Leasehold:
35 years from 1981                            |  | OfficeCorporate Headquarters         
|Telephone House, Dublin             |  | 9,095                         |  | Leasehold:
44 years from 1971                            |  | OfficeOperator Services 999 Facility)

D.OUR BUSINESS

Introduction

We are the principal provider of fixed-line telecommunications services in Ireland. According to quarterly data published by ComReg, we had a market
share throughout the three years ended 31 December 2004 of approximately 79% of the Irish fixed-line market, based on turnover. As the incumbent fixed-line
telecommunications provider, we have the most extensive fixed-line telecommunications network in Ireland in terms of both capacity and geographic reach, and our competitors rely heavily on
our infrastructure. We are also the leading Internet service provider, ("ISP"), in Ireland with approximately 602,000 subscribers as of 31 March 2005. As of 31 March 2005, we had
approximately 2 million fixed-line telephone access channels in service, of which approximately 1.6 million were PSTN lines and approximately 0.4 million were ISDN
channels. As of 31 March 2005, approximately 128,000 PSTN lines that were enabled for simultaneous support of PSTN and ADSL

27

---



bitstream,
permitting simultaneous, high-speed transmission of voice and data over our network, had been taken up by retail and wholesale customers. We had turnover of approximately
€1.6 billion in the financial year ended 31 March 2005 and total fixed and current assets of approximately €3.5 billion as of 31 March 2005.

We
offer residential and business customers a wide range of retail services and products, including:



We
also offer other authorised operators wholesale services and products, including:



Capital Expenditure

During the financial year ended 31 March 2005, we had cash outflows relating to capital expenditure on plant, equipment and property of
€194 million net of grants of €nil million. This capital expenditure was used primarily to grow and renew our existing network in order to improve our service
and customer satisfaction. In the financial years ended 31 March 2004 and 2003, we had cash outflows relating to capital expenditure of €208 million, net of grants of
€1 million, and €197 million net of grants of €nil million, respectively, which were used primarily to modernise our
fixed-line network. Over the next few years, we expect to continue to pursue a focused and disciplined capital expenditure programme, and to maintain levels of capital expenditure on our
operations broadly in line with current levels. As technology develops, we will review the opportunities to invest in new technology to improve services and reduce costs. We plan to continue to use
this capital expenditure primarily to grow and renew our existing network in order to improve our services and customer satisfaction. However, regulatory requirements or technical innovations
implemented by our competitors may require us to increase our capital expenditure. In addition, with the funds realised from the sale of property, additional capital expenditure will be committed in
the future to property improvements.

We
expect to fund our current capital expenditure requirements from internally generated funds and through existing financing arrangements (including the Senior Credit Facility).

28

---



Our Strengths

We believe we have a number of strengths, including the following:

We are the leading provider of fixed-line telecommunications services in Ireland with strong brand recognition

eircomis the recognised name for fixed-line telecommunications services in Ireland. Despite the opening of the Irish
fixed-line telecommunications market to full competition in 1998, which led to an initial decline in both our market share and turnover, we have largely been able to defend our market
share. According to quarterly data published by ComReg, throughout the four-year period ended 31 December 2004, we had a market share of approximately 79%, based on turnover.

We have the most extensive network infrastructure in Ireland, and are the principal provider of wholesale services to other authorised
operators

We
believe that our access network reaches approximately 99% of the population in Ireland. Our position in the wholesale market derives from the extent of our network. Our
fixed-line retail competitors rely heavily on our network, which gives us a strong position to market fixed-line wholesale and network services to other domestic and
international authorised operators. Our position in the wholesale market provides us with an opportunity to retain the wholesale component of any business lost to competitors at the retail level.

We are a leading integrated communications provider of voice, data and Internet services with the network to offer broadband and other value-added
services

Our
network enables us to provide customers with a wide range of integrated communications services, including voice and narrowband and broadband data traffic services. We are the
principal provider of
data services in Ireland and continue to strengthen our data services capabilities. Data traffic services are an important source of turnover and we believe that they will become increasingly
important in future years.

For
the financial year ended 31 March 2005, 31 March 2004 and 31 March 2003, we carried approximately 5.0 billion, 5.9 billion and 5.3 billion
dial-up data minutes, respectively, for our retail customers. We are the leading Internet service provider, or ISP, in Ireland, through eircom.net and Indigo, with approximately 602,000 subscribers as
of 31 March 2005.

We
offer a portfolio of advanced data services, including Business IP+, ATM, and frame relay, which allow multi-site customers to share data services among different sites.

In April
2003, we launched our new low-cost retail ADSL service, which has generated increased customer demand. On 1 March 2004, we restructured both our retail
and wholesale broadband product portfolios and introduced new retail and wholesale products priced below our previous entry level offerings. We continued to promote ADSL with our "Summer Surf"
campaign which began on 1 June 2004 and to stimulate market demand both with new products and with promotional offers. From September 2004 through March 2005, we ran our free
trial promotion allowing potential customers to trial our ADSL offerings for two months free of charge with no obligation to continue at the end of the trial period. Total ADSL and bitstream lines at
31 March 2005 were approximately 128,000. A further promotional campaign including two months free rental was launched on 4 April 2005. On 16 June 2005 we announced the
introduction of a "time based' broadband product. The product is aimed a lighter internet users who have yet to experience broadband. We expect the product to be available to customers
from July 2005. In addition, in order to stimulate traffic and protect our turnover, we are continuing to introduce and promote new retail services and products including new calls and access
bundles, digital enhanced cordless technology phones ("DECT") phones, short

29

---



messaging
services ("SMS"), call management services, business IP services, WiFi and tiered flat rate internet access. We are also continuing to introduce and promote new wholesale services and
products, including ADSL bitstream access to support broadband services and FRIACO to support tiered flat-rate charging for Internet access.



Our business is strongly cash generative, with group EBITDA from continuing operations of €532 million in the financial year ended
31 March 2005, €562 million in the financial year ended 31 March 2004 and
€524 million in the financial year ended 31 March 2003. We have maintained our cash flows against competitive and regulatory pressures by increasing operational
efficiencies and reducing costs through a group-wide restructuring programme. Going forward, we plan to maintain our current cash flow levels by continuing to exercise strict cost controls
and reducing headcount. In addition, while historically we have invested heavily in our core network, we have reduced capital expenditure in recent years, primarily as a result of better efficiency in
our network expenditure, the exiting of our mobile telecommunications business and the exiting or curtailing of our business activities in other non-core areas. Over the next few years, we
anticipate that capital expenditure on operations will be broadly in line with current levels.



Our strong management team has extensive experience operating in the telecommunications industry as well as other industries, including technology and media,
financial services and airlines. See Item 6 "Directors, Senior Management and Employees" for more information about the experience of our management team. The management team has demonstrated its
skill in such areas as reducing costs and increasing efficiencies across our business, defending market position, rolling out new commercial offerings such as ADSL and working effectively with ComReg.
Our management team also has sophisticated commercial and financial expertise gained through completing a number of complex transactions, including our exits from our mobile telecommunications
business, Eircell, and our directory services business, Golden Pages, the acquisition of the entire share capital ofeircomby Valentia
Telecommunications and our reorganisation and refinancing and the admission in March 2004 ofeircomGroup plc's ordinary shares to the official
list of the Irish Stock Exchange and of the UK Listing Authority and to trading on the market for listed securities of the London Stock Exchange ("Admission" or "Listing") described in Item 4
"Information on the Company".

Group Strategy

Our goal is the creation of shareholder value by maintaining market leadership, driving operating improvements, developing proven growth opportunities and
maintaining a disciplined approach to capital investments. The key elements of our strategy are;



We aim to maintain our leadership position in our core fixed-line market by:



30

---





We will continue to focus on improving underlying cash generation in our operations by reducing our operating costs and maintaining control of our investment
expenditure through further reductions in headcount and a disciplined expenditure programme.



We will continue to reduce our level of indebtedness over time to support our ability to pay dividends to our shareholders and achieve investment grade status for
the Group in the medium to long term.



Our strategy is to promote broadband to sustain our competitive advantage in data and grow revenues by:



We are working to identify value creating opportunities for a re-entry to the Irish mobile market, by acquisition or otherwise, taking account of the market
situation, our disciplined expenditure programme, regulatory developments and the willingness of other authorised operators to enter into commercial arrangements.



Our network investment program is focussed on improving service levels, delivering efficiencies, providing Broadband and securing the platform for future growth
opportunities especially in the data area.

Products and Services

We provide products and services on a retail basis to residential and business customers in Ireland and on a wholesale basis to other authorised operators. For a
breakdown of total revenues by category of activity for each of the last three financial years, see Item 5 "Operating and Financial Review and Prospects".

31

---



The principal retail and wholesale products and services that we offer are:

|  |                                                     |                                                                      |                                       |                                                 |                                                  |                                                     |                                                 
|- | --------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------- | ----------------------------------------------- | ------------------------------------------------ | --------------------------------------------------- | ------------------------------------------------
|  | Retail                                              |                                                                      |                                       |                                                 | Wholesale                                       
| | PSTN, ISDN and ADSL access (rental and connections) |                                                                      |                                      | ADSL bitstream                                 
| | PSTN and ISDN traffic (voice and data), including:  |                                                                      |                                      | Interconnect                                   
|  |                                                    | Basic voice traffic                                                  |                                       |                                                 |                                                 | Domestic interconnect services                     
|  |                                                    | Advanced voice services such as:                                     |                                       |                                                 |                                                 | International interconnect services                
|  |                                                     |                                                                      | Freefone                              |                                                 |                                                  |                                                     |                                                 
|  |                                                     |                                                                      | Cost-shared and premium rate services |                                                 |                                                 | Wholesale leased lines and partial private circuits
|  |                                                    | Virtual private networks                                             |                                       |                                                 |                                                  |                                                    
|  |                                                    | eircomTeleconferencing                                               |                                       |                                                | Unbundled local loops                           
|  |                                                    | eircomChargecard                                                     |                                       |                                                 |                                                  |                                                    
|  |                                                    | Fixed-line Short Messaging Services                                  |                                       |                                                | Flat-rate Internet Access Call Origination,     
|  |                                                    | Internet services, including retail tiered flat-rate Internet access |                                       |                                                | Geographic and non-geographic number portability
| | Data communications, including:                     |                                                                      |                                      | Carrier pre-selection and carrier pre-selection
|  |                                                    | National and international leased lines                              |                                       |                                                 | enhancements, including:                        
|  |                                                    | IP services                                                          |                                       |                                                 |                                                 | carrier pre-selection                              
|  |                                                    | Switched data services, such as                                      |                                       |                                                 |                                                 | carrier pre-selection single billing through WLR,  
|  |                                                     |                                                                      | Frame relay                           |                                                 |                                                  |                                                    | carrier pre-selection agency re-billing         
|  |                                                     |                                                                      | ATM                                   |                                                 |                                                  |                                                    | carrier pre-selection single billing through WLR
|  |                                                     |                                                                      | Packet switching                      |                                                 |                                                  |                                                     | ancillary services                              
|  |                                                    | ISP and Managed data networking services                             |                                       |                                                 |                                                  |                                                    
|  |                                                    | Hosting                                                              |                                       |                                                | Fixed-line SMS                                  
|  |                                                    | Wi-Fi services                                                       |                                       |                                                 |                                                  |                                                    
|  |                                                     |                                                                      |                                       |                                                 |                                                 | Other services, including:                         
| | Value Added Services:                               |                                                                      |                                       |                                                | Narrowband access                               
|  |                                                    | eircom Phone Services                                                |                                       |                                                 |                                                 | Mast access                                        
|  |                                                    | Customer-focused content packages                                    |                                       |                                                 |                                                 | Signalling connect control point                   
|  |                                                    | Consumer Devices                                                     |                                       |                                                 |                                                  |                                                    
| | Other services, including:                          |                                                                      |                                       |                                                 |                                                 
|  |                                                    | Customer premises equipment                                          |                                       |                                                 |                                                  |                                                    
|  |                                                    | Public payphones                                                     |                                       |                                                 |                                                  |                                                    
|  |                                                    | Operator services                                                    |                                       |                                                 |                                                  |                                                    
|  |                                                    | Supply and monitoring of alarm systems                               |                                       |                                                 |                                                  |                                                    



We provide the majority of our residential and business customers in Ireland with access services through copper wires that connect the customer's premises to the
nearest exchange in our network. A small number of our business customers are provided access services through fibre optic cables. Our turnover from access services is derived from monthly line rental
fees and connection charges.

We
provide access through PSTN, ISDN and ADSL lines. Each PSTN telephone line provides a single access channel and is connected to our fixed-line network through our local
digital exchanges. Each ISDN line provides up to 30 channels over a single physical connection. We offer two levels of ISDN service: basic rate access, which is provided over our copper access loop,
consists of two access channels and is mainly used by residential customers and small businesses; and primary full or fractional rate access, which is provided over a fibre or radio connection,
consists of between 16 and 30 access channels and is primarily used by larger businesses. As of 31 March 2005, we had approximately 1.5 million active PSTN lines, approximately
0.4 million ISDN channels and approximately 97,000 ADSL lines used by our retail customers.

32

---



The
following table shows selected information relating to our PSTN and ISDN channels as of the dates indicated:

As of 31 March2003

2004

2005(in thousands)Retail access channelsPSTN access lines(1)

1,586

1,578

1,491ISDN access channels(2)

328

360

361Total retail access channels

1,914

1,938

1,852ADSL

3

31

97


---

While the number of PSTN/IDSN channels provided through its retail business reduced from 1.938 million to 1.852 million in the year
ending 31 March 2005, the overall number of PSTN/IDSN channels provided byeircomincreased from 1.959 million to 1.988 million
when account is taken of the take-up of approximately 120,000 WLR lines by other operators during the year. We believe that demand for ISDN access will slow in the future as data growth is
increasingly served by
other new data services; for example, as we encourage data users to migrate to ADSL. We will continue to promote ISDN access as an upgrade to PSTN, as a two-line voice/data service. We
expect that PSTN access volumes in the future will be flat or decline slightly, due to migration to ISDN and as a result of voice traffic being carried on mobile lines.



We offer local, national, fixed-to-mobile, international and advanced voice services to residential and business customers throughout
Ireland at tariffs that vary depending on a number of factors, including the duration of the call, the distance between the points of origin and destination, the time of day and the day of the week
the call is made and any discount package selected by the customer. In addition, traffic market share figures published in their most recent quarterly reports are not complete as they exclude Internet
minutes. We continue to operate a model to estimate market share including inputs for (i) our retail volumes, (ii) minutes provided by other authorised operators through CPS, CA and CS
and (iii) minutes provided by other authorised operators through direct connection. We estimate based on our internal traffic analysis system, that our share of the fixed-line
traffic market was approximately 76% for the full month of March 2004 and had declined to approximately 71% for the full month of March 2005.

33

---



The
following table shows selected information relating to our fixed-line voice traffic for the periods indicated:

Financial Year Ended 31 March2003

2004

2005(in millions)Basic voice traffic minutesDomesticLocal(1)(10)

4,013

3,642

3,203National(2)

1,297

1,136

1,019Fixed-to-mobile(3)

1,226

1,241

1,174International(4)

593

533

478Total basic voice traffic

7,129

6,552

5,874Advanced voice traffic minutesFreefone traffic(5)

288

323

276Virtual private networks(6)

239

288

323Premium rate services(7)

28

23

23Other advanced voice services

98

79

55Total advanced voice traffic

653

713

677Total voice traffic(8)(9)

7,782

7,265

6,551


---

Basic voice traffic.We provide comprehensive national calling services to residential and business customers
throughout Ireland, as well as a full range of outgoing international fixed-line calling services.

Since
the market was fully opened to competition in December 1998, we have faced a marked increase in competition in the consumer and corporate traffic market. We have introduced
a number of measures, including discount programmes and direct marketing, designed to defend our traffic market share. We expect that our traffic levels will continue to decline as competitors
increase their market share and fixed-to-mobile substitution increases.

34

---



Although
we expect continuing price pressure, we seek to stimulate traffic demand by offering call management services, including voicemail, call forwarding, three-way
calling and teleconferencing. We have introduced a charge for call management services, which took effect in July 2000, and have increased these rates in April 2002, in March 2003
and again in February 2004. We have experienced significant growth in the volume of our call management services in recent years and, with approximately 552,600 customers now using call
answering, our call completion rate was approximately 74% for the year ended 31 March 2005 compared to 73% for the year ending 31 March 2004 and 71% for the year ended March 2003.

Advanced voice services.We offer a wide range of advanced voice services, including Freefone, cost-shared and
premium rate numbers, virtual private networks,eircomchargecard and SMS.

Freefone, cost-shared and premium rate services.We offer a range of services to meet the needs of the growing
telemarketing sector in Ireland. Our current portfolio of telemarketing services includes:





Virtual private networks.Virtual private networks are designed to provide high usage, multi-site customers with
a feature-rich, cost effective method of linking all their locations together over public networks (PSTN and ISDN). A virtual private network can include both national and international
locations. Although primarily a voice solution, virtual private networks also support ISDN applications, such as data transfer and video conferencing. Virtual private networks provide our corporate
customers with many of the features of private exchanges, including desk-to-desk dialling and call forwarding. Virtual private networks are attractive to customers because they
are carried on the public telephone network and do not require dedicated lines. Consequently, they can be a cost-effective alternative to private exchanges operating over leased lines.

We
charge for our virtual private network services on the basis of site, line and traffic charges, in addition to an initial network configuration charge. Traffic charges for virtual
private network services are among the lowest of the telephone rates we offer.

eircom Teleconference.eircomTeleconference allows our customers to bring
large or small groups of people together on one telephone call. The service is accessed by dialling a dedicatedeircomTeleconference access number and
entering personal PIN codes to activate the call. The benefits ofeircomTeleconference include cost savings realised through reduced travel expenses
and more effective use of time, in addition to reducing the stress and frustration caused by constant business travel.eircomTeleconference calls can
be booked in advance or accessed on demand, and may be hosted by an operator on request.

35

---



eircom Chargecard.eircomChargecard allows a customer to make calls from
many locations around the world and have the cost of the calls billed to a telephone account or credit card in Ireland. The service is accessed by dialling the appropriate eircomdirect code and keying
in a security number.eircomChargecard can be used in more than 40
countries, including the United Kingdom and the United States.

Fixed-line short messaging service.In addition to these voice services, we also offer our new SMS services. SMS
enables us to provide a text-messaging facility between fixed and mobile networks. We anticipate growing demand for this service in light of the rapid growth in the mobile text messaging
market and as phones with SMS capability are adopted for fixed-line use. To develop this business we launched an SMS-enabled DECT phone at the end of June 2002. Since
the launch, we estimate that customers have purchased approximately 309,000 SMS-enabled DECT phones from us and other vendors.

Internet services.We are the leading ISP, in the Irish market for narrowband, or dial-up, Internet access,
through our ISPs,eircom.net and Indigo. Our retail customers access our ISPs or those of other providers through:



Our
customers are also able to use ISDN access channels to send and receive data directly.

Following
the introduction of our wholesale FRIACO service, which allows ISPs to offer flat-rate Internet access, we introduced bundled or tiered services under the "1893"
access code that include a specified number of hours of usage per month for a fixed monthly payment. We launched our retail tiered flat-rate service on 4 September 2003. At
31 March 2005, we had a base of over 82,000 flat-rate customers. We are developing our product portfolio with a view to migrating customers from dial-up narrowband
services to tiered flat-rate services and broadband ADSL services. While we expect this strategy to increase our revenue from data communications, it has resulted in a reduction in the
growth in narrowband Internet access minutes and revenues as customers migrate to Flat rate and ADSL services. Our ADSL services are described under "PSTN, ISDN and ADSL AccessRental and
connections" below.

36

---



The
following table shows selected information relating to our narrowband data traffic for the periods indicated:

Financial Year Ended 31 March2003

2004

2005(in millions of minutes)PSTN"1891" Internet access

1,101

813

536Freeserve access (including geographic and "1892")(1)(3)

2,458

2,941

2,353"1893" FRIACO



266

811ISDN(2)

1,752

1,870

1,352Total narrowband data minutes

5,311

5,890

5,052


---



We launched our broadband products in May 2002 and currently have an extensive range of broadband services targeted at residential and business customers.
At present, we provide five fixed-line ADSL services, two of which are aimed at the residential market with the remaining three targeted at the business market. All of our DSL
fixed-line packages are based on Rate Adaptive Asymmetric DSL, or ADSL, technology. ADSL is called asymmetric because a greater bandwidth is provided for the downstream transmission of
data from the server to the client, compared to the return direction. Rate-adaptive ADSL is an ADSL technology that
automatically determines the maximum rate at which signals can be transmitted on a given customer phone line and adjusts the delivery rate accordingly. The table below summarises our current
fixed-line broadband offerings, as of 16 June 2005. This summary table includes the recent upgrading of download speeds as mentioned below:

|Product Name      |  | Download speed |  | Upload speed |  | Monthly Download allowance |  | Contention Ratio |  | Monthly rental
|----------------- |  | -------------- |  | ------------ |  | -------------------------- |  | ---------------- |  | --------------
|Home Starter      |  | 1 Mbps         |  | 128kbit/s    |  | 8 Gb                       |  | 48:1             |  | €33.05(2)     
|Home Plus         |  | 2 Mbps         |  | 128kbit/s    |  | 16 Gb                      |  | 24:1             |  | €45.00(2)     
|Business Starter  |  | 2 Mbps         |  | 128kbit/s    |  | 20 Gb                      |  | 24:1             |  | €45.00(2)     
|Business Plus     |  | 3 Mbps         |  | 256kbit/s    |  | 40 Gb                      |  | 24:1             |  | €89.00(2)     
|Business Enhanced |  | 4 Mbps         |  | 256kbit/s    |  | Unlimited                  |  | 24:1             |  | €169.00(2)    
|Time              |  | 1Mbps          |  | 128kbit/s    |  | 20 hours usage             |  | 48:1             |  | €20.65(2)     

---

We have been developing the market through a continuous series of promotional offers combined with strong sales and marketing activities.:



37

---







We are the principal provider of data communications services in Ireland. We offer a wide range of national and international data communications services,
including leased lines, Internet access, Internet protocol, or IP, networks and switched data services. We continue to increase our broadband capability in the local access network by deploying a
combination of copper, fibre, radio and ADSL technologies.

38

---



National and International leased lines.We provide national and international leased lines in Ireland to retail customers.
Leased lines are fixed point-to-point connections between locations and are used for high-volume voice, data or multimedia transmission. Our leased lines are used
principally by our business customers to establish their own private networks.

Our
leased line customers pay an initial installation charge and a recurring fee based on the type, length and capacity of the line and the duration of the contract. We offer a
comprehensive range of digital leased line capacities, generally including speeds of up to 155 Mbit/s. In recent years, our leased line revenues have declined significantly, primarily due to increased
competition in the leased line market that has been driven by lower infrastructure costs. As competition continues to increase, we expect that our leased line prices will decline. Leased lines are not
currently subject to the retail tariff price caps. However, our prices are required to be cost-oriented and are subject to review by ComReg. See "Tariffs", below. There is currently a
trend for migration from analogue and lower capacity digital lines to higher capacity digital lines (e.g. 2Mbps) and migration of some customers to other managed data services such as Business IP+.

The
following table shows the number of our national and international retail leased lines for business customers as of the period ends indicated:

As of 31 March2003

2004

2005Retail leased linesNational leased lines

18,844

17,720

15,932International leased lines

489

371

263Total retail leased lines

19,333

18,091

16,195


We have experienced a reduction in our Retail leased line base as a result of competition and as a result of restructuring data networks by our
customers to smaller numbers of higher capacity lines or to other data communications services such as ATM, Frame Relay, BIP or DSL. In addition, in the year ending 31 March 2005, a group of
250 circuits was recategorised from Retail to Wholesale and there was an in-situ transfer of approximately 300 leased lines when one of our corporate customers outsourced their network to
one of our competitors.

IP services.IP is the protocol by which data is sent from one computer to another on the Internet. In October 2001,
we launchedeircomBusiness IP+, a new suite of managed IP services for corporate customers.eircomBusiness IP+ is an IP virtual private network that allows customers to use our IP network to share data among multiple customer sites. We enhanced this product in March 2003 with the addition
of managed Internet and remote access services. The managed Internet service provides a Business IP+ customer with an Internet connection directly from their IP network and allows all sites on the
customer's network to access this gateway through the Internet. The remote access service allows the customer to dial into the customer's Business IP network via the Internet. Access can be via PSTN,
ISDN, mobile or ADSL, and connections can be established from Ireland or from abroad. We have added DSL access toeircomBusiness IP+ with a new access
option called Business IP Reach to allow homeworkers and small sites to connect to their company wide-area network.

We
have launched a Metro Ethernet service in Dublin allowing companies to connect their sites at up to 1 Gb/s speeds. We plan to integrate ethernet and gigabit ethernet access with the eircomBusiness IP+
service.

We
plan to offer voice-over-IP services, or VOIP, this year across all our marketsgovernment, corporate, business and consumer. These services will
be delivered over oureircomBusiness IP+ andeircomBroadband services.

39

---



Switched data services.We offer a range of switched data services to retail customers and other authorised operators,
including frame relay, ATM and packet switched services. We offer the products to retail customers and on a wholesale basis to other authorised operators at the same price.



ISP and managed data networking services.Through Lan Communications and eircom.net, we
provide a range of managed data networking services, including maintenance and management across multiple network types and multiple
vendors, equipment provision and installation, network monitoring, event and fault management and performance reporting and analysis. We also provide a range of internet services including
e-mail, domain names, e-commerce and security

Hosting.We provide equipment and resources to enable businesses to set up their own customised website. Our services include
managed hosting, virtual hosting and co-location.

Wi-Fi services.Wi-Fi stands for "wireless fidelity" and refers to a high-frequency
wireless local area network. The Wi-Fi technology is rapidly gaining acceptance for public wireless services and use within businesses as an alternative to a wired LAN and can also be
installed for a home network. Our Wi-Fi service is branded as "eircomwireless broadband" and enables customers with a laptop or personal
digital assistant, or PDA, equipped with a Wi-Fi (802.11b/g) card, to connect to the Internet. Commercial launch of our Wi-Fi service occurred in January 2004. Our
current footprint extends to 250 hotspots and we intend to continue to increase this footprint.

In February
2005, we launched two new "Hotspot in a Box" services, Hotspot Agent and Hotspot Host. With the Hotspot Agent, the venue pays €65 per month (excluding
VAT), for the wireless broadband service, and resells access at a margin. The Hotspot Host costs €95 per month (excluding VAT), and wireless broadband access is provided for free via
30 minute vouchers.

40

---



At
a hotspot, customers can purchase pre-paid scratch cards which come in two types, unlimited access for a one hour time span costing €10 (including VAT) and
unlimited access for a twenty-four hour time span costing €20 (including VAT).

We
also provide unlimited wireless broadband access for €12.10 per month (including VAT) when purchased with aneircombroadband service, for €30.25 per month (including VAT) when purchased with a PSTN or ISDN line, and for €79.86 per month (including VAT) for a standalone subscription.

Value Added Services.We provide the following value added services to our customers:

eircom Phone Services (ePS).We provide a range of phone services including eircommessaging, which supports the collection of both voice and text messages and allows household occupants to have individual mailboxes on a shared
telephone line. Other phone services include call-forwarding, call waiting call tracking, three-way calling, ringback and caller display.

Consumer Devices.We sell consumer devices, including wireless laptops and MP3 players but predominantly DECT cordless
phones, through over 150 retailers in Ireland.eircombranded DECT cordless phones offer consumers an excellent quality digital telephone unit that
utilises our call management services, includingeircommessaging and call forwarding.

Customer-focused Content Packages. eircomnet launched three new content packages in 2005 for eircomresidential broadband customers. These packages include
"eircomnet entertainment pass",
providing access to premium broadband news and entertainment; "Junior Britannica", an Internet-based information source designed to be used by students, educators, and parents; and "Sky Sports
Broadband", providing access to premium sports content.



Customer premises equipment.We are a leading provider of telecommunications equipment and related post-sales
maintenance and service for residential and business customers in Ireland. In common with most European Union member states, the market in Ireland for such equipment and systems is characterised by
intense competition and low profit margins. We believe, however, that the supply and servicing of customer premises equipment is an essential element of providing a full service to our customers.

The
customer premises equipment market for business and corporate customers is increasingly driven by service offerings, including consulting, design, implementation and, for business
and corporate customers, maintenance services. These services attract higher margins and offer the opportunity for competitive differentiation. Corporate, Government and high-end Business
customer requirements for both voice and data are serviced through our wholly-owned subsidiary Lan Communications Limited whileeircomBusiness Systems
services the Small and Medium Enterprise (SME) market. Lan Communications is Ireland's largest voice, data and security services company selling and supporting traditional CPE-based voice
and data solutions and playing a
leading role in the development of converged solutions for customers.eircomBusiness Systems sell and support a broad range of Key Systems and are the
Irish market leaders in this space. Through Lan Communications andeircomBusiness Systems we have supply agreements and certified partner relationships
with leading global technology companies such as Nortel Networks and Cisco.

Public payphone services.Our public payphone services consist of providing public payphones in Ireland and developing
related applications and card services. As of 31 March 2005, we operated a network of approximately 6,050 payphones across Ireland.

41

---



In
response to declining demand for public payphones and, in order to enhance the attractiveness of payphone services, in recent years we have:



We
are also focusing on maintenance and development of our managed-site payphone business. In addition, while we have a regulatory obligation to provide public payphones
within Ireland, we are focusing on reducing our costs in this area of our business.

Operator services.We provide operator assisted telephone services and a directory enquiry business (11811 for national
enquiries, 11818 for UK and International enquiries) to customers on all networks, both fixed and mobile. We also provide national emergency services to fixed-line and mobile customers in
Ireland. In May 1999 Conduit Europe launched its 11850 directory enquiry services. We estimate, based on our internal traffic analysis and customer based research, that our 11811 and 11818
services held a market share of approximately 74% of the total market for directory enquiry
services at 31 March 2005. Despite increasing competition, we have been able to generate turnover growth through call volume growth and introduction of call-completion services.

Supply and monitoring of alarm systems.We provide and install wire-free and wired alarm systems, most of which
are monitored through our subsidiary Phonewatch. In order to keep costs as low as possible, Phonewatch outsources the majority of alarm installations to its dealer network, with the remainder being
installed by its own technicians. Based on our records, at 31 March 2005, Phonewatch had a monitored alarm base of approximately 44,350 systems and an estimated market share of 35% of the
residential monitoring and maintenance market. Phonewatch also provides monitored medical alert systems.



We are required by ComReg to provide wholesale products and services to other authorised operators, and as at 31 March 2005 the prices and terms on which
we offer the majority of our wholesale products are regulated under the reference interconnect offer, or RIO, the access reference offer, or ARO, and the ADSL bitstream offer. For more information
about the regulation of our wholesale products, see Item 4E "Information on the CompanyRegulation". While most of our wholesale products and services carry low margins, our position in
the wholesale market provides us with an opportunity to retain the wholesale component of any business lost to competitors at a retail level.

The
following table shows selected information relating to our PSTN WLR and ISDN WLR channels as of the dates indicated:

As of 31 March2003

2004

2005(in thousands)WLR access channelsPSTN WLR





103ISDN WLR





11Total WLR access channels





114


42

---







ADSL bitstream is a broadband access product that we offer to other authorised operators. It consists of a high-speed access link to the customer's
premises, which we create by installing ADSL equipment and configuring our local access network. As of 31 March 2005, 6 operators had purchased this service for a total of approximately 31,000
(wholesale) lines. In April 2003, we introduced a new rate-adaptive ADSL bitstream product at a significantly reduced price. On 1 March 2004, we restructured our wholesale
bitstream product portfolio. We currently offer a range of ATM and IP based services at a variety of speeds and levels of contention and on 4 April 2005 we increased the maximum speed from
2Mbit/s to 4Mbit/s. We expect the availability of these products will promote further growth in both wholesale and retail broadband markets. We are required under relevant regulations to provide ADSL
bitstream access to other authorised operators and to publish an ADSL bitstream offer describing the ADSL bitstream services we offer. On 16 June 2005, we announced the introduction of a time
based bitstream product, to be available to customers from 7 July 2005.

The
following table shows selected information relating to our Bitstream Product for the dates indicated:

As of 31 March2003

2004

2005(in thousands)ADSL and Bitstream lines



7

31




Since the Irish telecommunications market was fully opened to competition in 1998, we have become the major provider of interconnect services in Ireland. Our
interconnect services include both the physical link of our telecommunications network with that of other authorised operators, and the traffic that passes over the link. We provide interconnect
services to the other authorised operators in Ireland and to international operators for incoming international calls.

ComReg
has designated us as having Significant Market Power ("SMP") in the fixed telephony market, and therefore we are obligated under the relevant regulations to provide interconnect
services to other domestic authorised operators and to publish a RIO. We also provide interconnect services to international customers for incoming international calls at settlement rates we negotiate
with them.

Domestic interconnect services.Our domestic interconnect services include:



43

---





We
have a dedicated account management team to market our domestic wholesale services. As of 31 March 2005, we had entered into 22 interconnect agreements with other authorised
operators in Ireland.



We
have a dedicated account management team to market our international interconnect services. As of 31 March 2005, we had approximately 50 bilateral agreements in 38 countries.

The
following table shows selected information relating to domestic and international interconnect traffic for the periods indicated:

Financial Year Ended 31 March2003

2004

2005(in millions)Wholesale interconnect minutesDomesticCall origination

2,031

2,253

2,654Call termination

2,771

2,809

3,196Transit to mobile/fixed

914

655

577Ancillary(1)(2)(3)

185

249

301OAO International Outbound

153

153

136Foreign terminating traffic(4)

783

931

1,152Total wholesale interconnect minutes

6,837

7,050

8,016


---



We provide other authorised operators with leased lines and interconnect paths, which are dedicated leased lines connecting our network to that of another
authorised operator. The following

44

---



table
shows the number of leased lines including partial private circuits in place as of the periods indicated:

As of 31 March2003

2004

2005Leased linesNational leased lines

7,730

6,863

6,904Partial Private Circuits



16

742International leased lines(1)

283

171

131Interconnect paths

2,688

2,567

2,173Total leased lines

10,701

9,617

9,950


---

ComReg requires that we enter into service level agreements for the provision of wholesale leased lines and interconnect paths. These agreements
contain penalties to which we may be subject for delays in processing applications for the installation of leased lines and for late delivery of leased lines or interconnect paths. Although we had to
pay penalties under these agreements in the past, the penalties were not material, and we have initiated quality controls and automated management systems that have substantially improved our
performance in recent years. Our support systems now provide full visibility of all steps from ordering services to actual delivery. We were directed by ComReg to provide an in situ transfer facility
if an end customer to whom we provide a leased line wishes to switch to another operator.

Partial
private circuits are partial leased lines that connect a customer's premises to the point of connection between our network and that of another authorised operator. Other
authorised operators that possess a core network can use partial private circuits, which are priced off a different tariff schedule, as a substitute for wholesale leased lines. ComReg required us to
introduce this product in February 2003.



We are obliged to provide unbundled local loop access services to Other Authorised Operators ("OAOs") and to publish an ARO, which describes the access services
we offer. Unbundled local loop access requires the physical co-location of infrastructure owned by other authorised operators on our premises in order to permit such operators to access
our unbundled local loop services. To date, there has been little market demand for our unbundled local loop services, for which only 3 other authorised operators had subscribed as of 31 March
2005. The prices at which we offer unbundled local loop services have been an area of contention between ourselves and ComReg. The prices of these services are regulated through our Access Reference
Offer, or ARO. In November 2004 ComReg directed that the monthly rental for our unbundled loop metallic path ("ULMP" product) would be set at €14.65 per month from 1
December 2004 for a period of twelve months, with increases in subsequent years limited to no more than the level of CPI.

The
pricing for shared access to our unbundled local loops was not addressed in the November 2004 ComReg direction. ComReg is currently consulting on this pricing and published a
draft direction in March 2005 proposing that no copper costs remain to be recovered from the shared access service. The current price of €7.52 per month recovers approximately
50% of the costs of a copper loop whereas in its draft direction ComReg proposes a rental price of €0.39 per month. We have responded to these proposals rejecting them and are awaiting
a response from ComReg.

45

---



We
have been granted a judicial review of recent ComReg directions with respect to certain issues relating to the process for providing its ULMP product to wholesale customers. The
judicial review hearing in the High Court finished at the end of May and a decision is expected shortly.



FRIACO is an unmetered interconnect service that provides capacity from originating customers to the point of connection of an operator. This service is used by
other authorised operators who are also Internet service providers, or ISPs, to enable them to offer bundled or unmetered Internet access. It is also used by other authorised operators to offer
capacity for onward resale to other ISPs. We introduced FRIACO in June 2003.



ComReg requires us to provide geographic and non-geographic number portability. Geographic number portability allows a customer with a telephone
number that was assigned based on geographic location to change to another authorised operator without changing the telephone number. Non-geographic number portability provides the same
option to customers with numbers that are standard throughout the country, including Freefone and premium rate service numbers.



Carrier pre-selection.Carrier pre-selection allows other authorised operators to compete with us in
the provision of call origination services without having to develop a local access infrastructure, by allowing customers to choose another authorised operator as the default carrier for some or all
calls. ComReg introduced carrier pre-selection in January 2000 and in 2004 required us to introduce carrier pre-selection enhancements, including single billing through
WLR, agency re-billing and specified other ancillary services.

Carrier pre-selection single billing through WLR..Carrier pre-selection single billing through WLR
allows an operator to resell our access service and provide the customer with a single bill for access and call services. We maintain and repair the access line, which remains connected to our switch
network, and bill the operator for the line. The operator bills the end customer for the operator's bundled service. This service is only available if the end customer has made a carrier
pre-selection for all call types with the relevant operator.

Carrier pre-selection agency re-billing.Agency re-billing enables an operator to bill
the end customer for all services delivered over a particular line. As with single billing through WLR, the end customer must have made a carrier pre-selection for all call types with the
relevant authorised operator. However, unlike single billing through WLR, we are party to the contract with the end customer, and the re-billing operator acts as our agent, so we remain
subject to credit risk with respect to the end customer.

Carrier pre-selection single billing through WLR ancillary services.Ancillary services that we are required to
make available to all other authorised operators include voicemail, call tracking, call barring, call waiting, three-way calling, alarm/reminder calls and similar services. We anticipate
significant demand for some of these services as other authorised operators seek to match our retail offerings.



Fixed-line SMS enables fixed-line operators to provide a text-messaging facility between fixed and mobile networks. We
anticipate a demand for this service in light of the rapid growth in the mobile text messaging market. Text messaging enabled phones or other equipment are required for the service. We

46

---



introduced
fixed-line SMS in early 2003. While we expect this service to grow as the penetration of text messaging enabled phones increases, initial demand has been weak. In the financial
year ended 31 March 2005, customers sent approximately 7.2 million text messages from retail fixed-lines to fixed-line and mobile users. Since launching
SMS-enabled DECT phones in June 2002, we estimate that retail customers have purchased over 309,000 SMS-enabled DECT phones from us and other vendors.



Narrowband access.Narrowband Internet access bundles FRIACO witheircomIP
transport to provide a complete solution for ISPs that wish to offer bundled or tiered services under the "1893" access code without having to invest in their own IP transport network solution. The
termination of calls and the transmission to the ISPs is our responsibility.

Mast access.We offer mobile network operators shared access to our facilities at selected locations. We anticipate growth in
the provision of mast access as growth in mobile services creates demand for additional mobile network call sites and 3G licensees seek to utilise infrastructure, including our own, to meet their
rollout commitments. We have offered this product since demerging the Eircell business in May 2001.

Signalling connect control point.Signalling connect control point refers to the roaming signalling service which enables a
mobile operator's customers roaming abroad to make and receive calls on the networks of their mobile operator's roaming partners and to enable customers of such roaming partners to make and receive
calls when roaming on the mobile operator network in Ireland. We introduced the roaming signalling service in January 2003.

Seasonality

Our interconnect traffic volumes tend to decline during March, April and December, as a result of a decline in business traffic over the Easter and Christmas
holiday periods. We also tend to experience relatively higher traffic volumes in the spring and winter months, other than December and April, of each year. We do not believe this seasonality has a
material impact on our business.

Tariffs

The majority of our revenue is related to tariffs which are regulated, directly or indirectly, by various mechanisms overseen by ComReg. We set retail prices with
the goal of maximising our long-term profits, while maintaining competitive prices that comply with relevant regulations. In general, different mechanisms are used to regulate retail
tariffs than are used to regulate wholesale tariffs.



The principal means of regulating our retail prices is through a price cap imposed by ComReg on a specified basket of our retail products and services. In recent
years, we have attempted to rebalance our retail prices to more accurately reflect our costs, in particular by increasing rental prices for PSTN access lines, while maintaining or reducing most call
prices.

From
January 2000 through February 2003, we were subject to a retail price cap, imposed by ComReg, of the CPI minus 8%. This restriction required reductions in the price of
a specified basket of our retail products and services, including PSTN and ISDN connections and line rental, local and national calls, operator calls, public payphone calls and directory enquiry
calls. The retail price cap also included a number of sub-caps on individual products and services within the basket.

In February
2003, ComReg announced a new retail price cap of the CPI minus 0% without any sub-caps. The elimination of sub-caps increased our flexibility
to rebalance our tariffs so that they

47

---



better
reflect our costs. Fixed-to-mobile calls were added to the basket, while directory enquiry calls were removed. ComReg has indicated in the recent draft decision relating
to the Market Analysis of Retail Voice calls that the current price cap will continue until markets are next reviewed for SMP designation and remedies. ComReg has based its market assessment on a time
horizon of about two years. ComReg also state in the Market Analysis that we are now fully rebalanced and propose to impose a sub cap on PSTN line rental of CPI minus CPI (i.e. no increase in nominal
pricing) for one year from the date of the final decision notice. In any subsequent years this will be at the rate of CPI minus 0%.

ComReg
also removed price controls on the telephone bills of the lowest income quartile of residential customers and replaced these with a vulnerable user scheme. We launched our
Vulnerable User Scheme in June 2003. The scheme limits increases in the size of the median telephone bill for all customers availing of the scheme to CPI plus 0%.



Since the introduction of the current price cap and elimination of retail sub-caps, we have increased PSTN line rental charges by over 23%. As
previously stated, ComReg believe that we are now fully rebalanced and are proposing to impose a sub cap on PSTN line rental of CPI minus CPI (i.e. no increase in nominal pricing) for one year from
the date of the final decision relating to its market analysis for the Retail Fixed Narrowband Access Markets. In any subsequent years this will be at the rate of CPI minus 0%. We have not adjusted
ISDN line rental charges nor have we adjusted PSTN and ISDN connection prices, except for special offers, the most recent of which ran from 1 April 2005 through 31 May 2005 on PSTN
in-situ connections.

We
seek to set initial connection charges low enough to encourage new users to join our network. Migration charges are set to encourage existing customers to switch to our more
profitable access services. For example, we encourage customers to migrate from PSTN to ISDN access or ADSL access.

The
Customer Acquisition Programme was set up in late 2004 with the objective of growing our consumer line base by a net of 30,000 lines per annum for 3 years, roughly 2.7% per
annum of the consumer line base. Recent promotions take a 'triple play' approach combining PSTN, Broadband and Sky TV, with free connections to all three.

The
following table sets forth our subscription and connection tariffs as of 31 March 2005:

PSTN

Basic
ISDN(2)

Primary
ISDNBusiness and residential(1)Connection

€
107.43

€
202.47

€
3,299.00Monthly rental

€
19.98

€
30.99

€
264.11


---



We currently offer a range of ADSL retail services, which differ with respect to data speed, upload and download limits and contention, which is the extent to
which access is available when the number of users logged on exceeds capacity. In April 2003 we launchedeircomBroadband Starter, our
low-cost ADSL service aimed at the residential and low end business markets.. On 1 March 2004, we restructured our retail broadband product portfolio including introducing a new
lower priced Home Starter product. In April 2005, we increased the download speed and the monthly download limits on all our retail products.

48

---



At
present we have two products aimed at the residential market, Home Starter and Home Plus with a maximum download speed of 2 Mb/s. We offer three products to the business market,
Business Starter, Business Plus and Business Enhanced, with a maximum speed of up to 4 Mb/s.

On
16 June 2005, we announced the introduction of a 'time based' broadband product. The product is aimed a lighter internet users who have yet to experience broadband. We expect
the product to be available to customers from July 2005.

The
following table sets forth our ADSL tariffs as of 31 March 2005:

Connection
standard(1)

Connection
self install(1)

Monthly
Rental(1)Home Starter(2)

€
165.00

€
81.81

€
33.05Home Starter Plus(2)

€
165.00

€
81.81

€
45.00Business Starter(2)

€
165.00

€
81.81

€
45.00Business Plus(2)

€
165.00

€
81.81

€
89.00Business Enhanced(2)

€
165.00

€
81.81

€
169.00Time(3)


N/A

€
81.81

€
20.65


---

Market demand for our ADSL services has grown substantially in the last two years following a number of price promotions including a Retail 'Free
Trial' promotion. We reached our publicly announced target of 100,000 working lines by the end of 2004 in November 2004.

The
Retail Free Trial promotion applied to orders for the Home Starter/Home Plus and Business starter products from 24 August 2004 through 31 March 2005.

We
are currently running the following promotions:





49

---



We
expect to launch further retail promotions in support ofeircombroadband time and other retail broadband products in July 2005.

We
expect the impact of these promotions and complementary wholesale promotions to further stimulate market demand for our DSL services. We use the information gained during our promotions and product
developments such as the April 2005 product upgrades in developing the standard prices and product features for our retail broadband product offerings.



On 26 May 2004 we launched our retail satellite broadband service, which meanseircomcan offer a broadband
product to any customer anywhere in Ireland, regardless of location. In order to supply broadband via satellite,eircomhas linked with a third party
supplier (Mediasatellite Ireland Ltd.), for the supply of the satellite products. The range includes products for both home and business users, starting at a monthly rental of
€127.00 for a two-way service. To avail of the one-way service of €24.79 per month the customer needs to add a flat rate internet access product
fromeircom, ranging from €8.27 for off-peak users (evenings and weekends) to €24.79 for those who want all
day internet access. All prices quoted exclude VAT.



Local, national and fixed-to-mobile.When setting prices for local and national calls, we consider a
number of variables in order to generate an optimal level of turnover and to balance demand and affordability within our retail price cap. These factors include the duration of the call and the
distance between the points of origin and destination, as well as the time of day and the day of the week when the call is made and any discount package selected by the customer.

The
following table sets forth our standard traffic tariffs for local and national calls as of 31 March 2005:

Peak Rate

Evening Rate

Weekend Rate(per minute)(1)LocalCall rate per minute

€
0.0407

€
0.0104

€
0.0104NationalCall rate per minute

€
0.0675

€
0.0407

€
0.0104


---

Our standard fixed-to-mobile traffic tariffs range from €0.0956 to €0.2412 per minute
(excluding VAT), depending on the time and day of the call and the mobile network on which the call terminates. The introduction of mobile number portability to our billing in April 2004 means
that the applicable tariff for fixed-to-mobile calls depend on the mobile network on which the call terminates. In September 2004 both Vodafone and O2
decreased their mobile termination rates, and these reductions were reflected in our standard retail prices. The Vodafone change applied to weekend calls while the O2 change applied to
day, evening and weekend calls.

International outgoing.Our standard outgoing international call tariffs and payments are based on settlement rates we
negotiate with other international carriers on a bilateral basis. The following table

50

---



sets
forth our standard retail traffic tariffs for international calls to some of the regions in which we terminate material volumes of traffic as of 31 March 2005.

|                                                                                                                           |  | Peak Rate |         | Evening Rate |   | Weekend Rate
|-------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | ------------ | - | ------------
|
|United Kingdom (Band 1excludes certain number ranges)                                                                     |  | €         | 0.1269  |              | € | 0.1193      
|United Kingdom (Band 1acertain number ranges, including mobiles)                                                          |  | €         | 0.2857  |              | € | 0.2285      
|France, Germany, Belgium and Netherlands (Band 2excludes certain number ranges, particularly mobiles)(2)                  |  | €         | 0.2000  |              | € | 0.2000      
|Denmark, Sweden, Spain, Portugal, Austria and Switzerland (Band 3excludes certain number ranges, particularly mobiles)(2) |  | €         | 0.3200  |              | € | 0.3200      
|USA and Canada (Band 5)(2)                                                                                                 |  | €         | 0.1574  |              | € | 0.1259      
|Australia, New Zealand and Japan (Band 7excludes certain number ranges, particularly mobiles)(2)                          |  |           | €0.7088 |              |   | €0.5663     

---



We offer our narrowband, or dial up, Internet services, which allow customers to access the Internet through one of our ISPs or another service provider of their
choice, on a pay-as-you-go or subscription service basis.

Customers
of our "1891" narrowband service pay a subscription fee directly to us or another ISP and in addition pay us a reduced per minute rate to connect. In this case, we do not pay
the ISP any termination fees.

Customers
of our "1892" narrowband service pay call rates broadly equivalent to local call rates and no subscription fee. We bill for these calls in the same way we would a traditional
voice call and pass on a termination fee to the customer's ISP or to the interconnecting network hosting that ISP.

We
launched our "1893" retail narrowband service in September 2003. In general, customers pay a subscription fee directly to us for a specific bundle of minutes of connection
time. Usage outside the specified bundle minutes parameters is charged on a per minute basis at 1892 call rates. The following table sets forth our standard narrowband internet traffic tariffs as of
31 March 2005.

Peak Rate

Evening Rate

Weekend Rate(per minute)(1)1891(2)

€
0.0161

€
0.0080

€
0.00801892

€
0.0419

€
0.0104

€
0.0104


---

51

---



On 4 September 2003 we launched the following 1893 Partial Flat Rate products, the pricing of which still applied at
31 March 2005:

Product

Price(1)(2)

Hourseircom.net flat rate 25

€
8.26

25 (off-peak)eircom.net flat rate 60

€
16.52

60 (off-peak)eircom.net anytime

€
24.79

150 (any time)


---



We charge connection and monthly fees for leased lines that are based upon circuit type (analogue or digital), capacity, distance and destination. Our leased line
prices are subject to periodic review by ComReg and were last amended in 2000. Discounts are available on leased lines based upon volume and the term of the supply contract. Under a ministerial
direction to ComReg issued on 26 March 2004 ComReg was obliged to review the pricing structure of our leased lines within six months of the date of issue of the policy direction. This review
took place only in the context of an analysis of the costs of providing wholesale trunk and terminating segments of leased lines. No price changes for retail leased lines were required.

ComReg
has recently completed an analysis of the market in Ireland for retail leased lines.eircomwas found to have SMP in the market for
retail leased lines up to and including 2 Mb/s. One of the remedies proposed is that we are required to set prices that are cost oriented. Such costs shall be calculated based on a costing model using
fully distributed historic costs.



We offer a range of discount packages designed to appeal to different customer groups. Approximately 55% of our accounts were on discount plans as of
31 March 2005. We offer our residential customers a 10% discount on calls to five numbers designated by them under our "Circle of Friends" plan. We also offer our residential customers slightly
greater discounts under several different "Options" plans that are dependent on volumes and calling patterns. We typically offer our business customers discounts of between 10% and 30% depending on
the level of their spending through a variety of discount plans, including "Performance", "Optimiser", "Inclusive" and "Multi-site Discount Scheme". For information about our discount
packages as a percentage of turnover, see Item 5 "Operating and Financial Review and ProspectsDiscounts".

Historically,
we have focused our discount plans on call packages and corporate network services. However, the recent resolution of a number of regulatory issues, in particular our
introduction of an enhanced carrier pre-selection single billing through WLR product on 31 March 2004, has facilitated our introduction of retail price packages bundling lines and
calls together. Our new Talktime packages were launched in June 2004, with a range of offerings for the Residential market and a number of Talktime for Business offerings primarily aimed at SME
customers. On 27 May 2005, we introduced two new Talktime packages for residential customers, offering unlimited off-peak All-Ireland calls and unlimited Anytime
All-Ireland calls.



ComReg requires our interconnect tariffs to be cost-oriented, non-discriminatory and transparent. We calculate our interconnect tariffs
based on our long run incremental costs. We are required to make

52

---



pricing
submissions to ComReg on a regular basis. These prices are subject to interim reviews by ComReg and ComReg may make retrospective adjustments as a result of these reviews. When ComReg makes
retrospective adjustments to our pricing for interconnect services, we are required to recalculate and resubmit our prices.

ComReg
is currently consulting on market analysis for interconnect markets in Ireland and issued a draft decision on 19 May 2005. It is unlikely that any of the obligations
relating to pricing of our interconnection services will be relaxed as a result of this process.

The
rate we charge for fixed-to-mobile call termination varies between €0.0597 and €0.1778 per minute depending on the time of day
and day of the week the call is made and the terminating mobile operator.



We provide leased lines to OAO's, which are used in the construction of their national networks, to connect our network to those of other authorised operators and
for resale by other authorised operators to end-users. Leased line prices charged to OAO's are directly related to the prices we charge for the retail leased lines we offer and as a result
are subject to periodic review by ComReg. We are currently required to supply leased lines to other authorised operators at an 8% discount to our retail price.



Partial private circuits are a type of leased line that terminates at a point of connection between two authorised operators' networks. We offer partial private
circuits to other authorised operators under our RIO.

Following
a review by ComReg of our cost calculations, in February 2004, we reduced our prices for partial private circuits by approximately 20%. Following a recent review by
ComReg we expect the current pricing to apply up to 31 March 2006.



The prices we charge for unbundled local loops and line sharing are regulated by ComReg and form part of our Access Reference Offer ("ARO"). Prices are set based
upon the long run incremental cost of our fixed-line access network.

In November
2004 ComReg directed that the monthly rental for our unbundled loop would be set at €14.65 per month from 1 December 2004 for a period of twelve
months. The price thereafter can increase as follows:

|Period                                        |  | € Price (Ex VAT)                                                                                         
|--------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------
|Effective 1 December 2004 to 30 November 2005 |  | €14.65                                                                                                   
|Effective 1 December 2005 to 30 November 2006 |  | No greater than €14.65 adjusted by the change in CPI in the year to 31 October 2005                      
|Effective 1 December 2006 to 30 November 2007 |  | No greater than price in the previous period adjusted by the change in CPI to the year to 31 October 2006
|Effective from 1 December 2007                |  | No greater than price in the previous period adjusted by the change in CPI to the year to 31 October 2007

53

---



The pricing for shared access to our unbundled loops was not addressed in the ComReg decision on fully unbundled loops of November 2004. ComReg is currently consulting on this
pricing and published a draft direction in March 2005 proposing that no copper costs remain to be recovered from the shared access service. The current price of €7.52 per month
recovers 50% of the costs of a copper loop whereas the price that ComReg proposes in the draft direction is €0.39. We have responded to these proposals rejecting them and are awaiting
a response from ComReg.



Carrier pre-selection single billing prices are subject to approval by ComReg. We have offered carrier pre-selection single billing
through WLR since 2 June 2003. Consistent with the Minister's 26 March 2004 policy direction to ComReg, on 31 March 2004 we launched our enhanced carrier pre-selection
single billing through WLR product. ComReg has directed that from 1 April 2004 prices for the WLR Product will be set at retail price less 10% and this margin still applies in June 2005.



ADSL bitstream prices are set out in our ADSL bitstream service price list. Since we are required to offer wholesale products capable of supporting each of our
retail ADSL services, we offer various price packages based upon the speed and contention ratio of each port provided. While ComReg does not directly set prices for ADSL, they require us to offer our
wholesale bitstream services at a price sufficiently lower than our retail ADSL services so that our competitors can achieve a profit on reselling these services.

We
currently offer a range of ATM & IP based bitstream services at a variety of speeds and levels of contention, up to a maximum speed of 4 Mbit/s. We expect the availability of
these products will promote further growth in both the wholesale and retail customer broadband markets.

On
16 June 2005, we announced the introduction of a time based bitstream product, to be available to OAO's from 7 July 2005.

Demand
for our bitstream services has been stimulated by a number of wholesale price promotions. From 18 April to 6 July 2005 we are running a bitstream promotion where the access
seeker will receive a rebate of between €150 and €383 per new connection depending on the product, in the fourth month of service. A further promotion offering a rebate
of between €115 and €130 per new connection, for certain products, in the fourth month of services will run between 7 July 2005 and 30 September 2005. The
higher level rebate reflects the higher value to us of connections to the bitstream services with higher specifications.



FRIACO prices are set out in our RIO. FRIACO is used by other authorised operators who are ISPs to enable them to offer bundled or unmetered Internet access to
their customers. It is also used by other authorised operators to offer capacity for onward sale to ISPs. The price at which we are required to offer FRIACO is set by reference to the number of ports
provided to the authorised operator, and the price that would be charged under our RIO for the projected volume of traffic for each such port.

Having
reviewed our cost information, on 21 February 2003 ComReg determined a final price to apply for six months for our FRIACO product. ComReg reserved the right to review
FRIACO pricing at six month intervals, but to date has not exercised this right.

Supply Chain Management

We have a supply chain management procurement function for the purpose of procuring the lowest economic cost and highest quality of goods and services available.
A dedicated team of procurement

54

---



professionals
work closely with our business units in connection with all capital and operational expenditure to ensure effective governance of all of our commercial and contractual negotiations. They
also participate in our finance committee. The supply chain function includes the logistics team supporting an end to end supply chain capability.

Networks

We have the most extensive fixed-line network in Ireland in terms of both capacity and geographic reach. All other authorised operators utilise our
infrastructure to some degree in providing fixed-line services.

The
demands on our fixed-line network have changed significantly in recent years, due to the type, level and pattern of traffic, which it now carries. This has resulted from
the shift in the mix of fixed-line traffic from voice to data, increased Internet usage and new traffic streams, resulting, for example, from interconnect, carrier pre-select
and number portability.

Based
on internal estimates, we believe that our access network reaches approximately 99% of the population, with 99% of our customers connected to exchanges that are
ISDN-enabled. As of 31 March 2005, we had 240 sites equipped with ADSL nodes, covering approximately 1.52 million working paths. Approximately 77% of paths
(1.17 million) connected to these nodes would be capable of carrying ADSL at speeds from 1Mb to 4Mb. The total current capacity of our network is 2.29 million PSTN channels. The access
network consists of approximately 3.7 million cable pairs. Approximately 98% of customer premises are connected to our network using copper lines, and the remainder use a mix of fibre and fixed
radio. We currently have 83 narrowband fixed wireless access sites and 25 broadband radio access sites.

We
believe that our network capital expenditure as a percentage of turnover is broadly in line with the European average for fixed operators.



Our switching network is a fully integrated and centrally managed PSTN/ISDN switching network. It is 100% digital and consists of 52 core exchanges and 1,176 edge
exchanges, enhanced by four intelligent networking nodes and an operator services node. We have also introduced service nodes for specific services, such as voicemail and fixed-line SMS.

Our
switching network is a meshed network based on a three-level hierarchy: primary, secondary and tertiary. The primary nodes, which are closest to the customer's premises, are each
interconnected with two secondary nodes for resilience purposes. The network uses high usage routes between major nodes which route traffic overflow to final choice routes during busy periods on the
network.



Our transmission network is based mainly on digital technology, consisting of digital transmission nodes connected over 228,386 fibre kilometres of
single-mode optical cable. We use a combination of technologies, including synchronous digital hierarchy ("SDH"), plesiochronous digital hierarchy ("PDH"), digital microwave radio and
pulse code modulation ("PCM"), on copper.

The
SDH network is divided into two layers, a higher and a lower layer. The higher layer connects 25 major nodes and is used to transport and groom traffic between lower layer rings. The
lower layer collects and delivers traffic at a "local" level using various technologies in various ring or linear configurations. The traffic on the network is protected where necessary by multiplex
section shared protection ring (MSSPRing), or sub network connection protection ("SNCP") schemes. SDH systems operate at rates of 155 Mbit/s, 622 Mbit/s, 2.5 Gbit/s and 10 Gbit/s. Dense wave division
multiplexing systems ranging from 16 to 160 wavelengths are deployed on high bandwidth inter-city routes. This optical network layer is used for routing and switching higher layer traffic.

55

---



The
SDH network, with its centralised network management capability, we believe provides "best in class" provision and modification of service, improved grade of service and lower
maintenance costs. We believe the combination of cable route diversity and protection schemes contribute to world-class network performance and availability, with a circuit availability measured at
99.996% for data transmitted at the 155 Mbit/s STM1 bit rate.



Our data network supports leased lines, switched data services, including frame relay, ATM and packet switched services, and IP services. We provide managed
leased line bandwidth services from 64 kbit/s to 2 Mbit/s. The ATM network consists of 37 core nodes and provides managed bandwidth up to 155 Mbit/s on a dedicated network.



Our IP network consists of 58 national points of presence ("POPs"), and 8 international POPs. The network is built around two central core nodes, which connect to
regional cores and the international nodes using redundant 622 Mbit/s links. Smaller edge nodes connect to the core using n × 2 Mbit/s (where n can be a number from one to
five), 45 Mbits/s, ATM PVCs and 155 Mbit/s links. The network supports leased line, dial-up, and ADSL access to the Internet, as well IP/MPLS VPN service. Our IP network connects directly
with over 250 Internet service providers at Internet exchange points in Dublin, London, Amsterdam and Frankfurt. Additionally, transit Internet traffic is transferred to upstream providers in London
and New York.



We have also undertaken rollout of ADSL. As of 31 March 2005, we had 240 Alcatel ADSL sites commissioned, covering approximately 1.52 million
working paths. Approximately 77% of paths (1.17 million) connected to these sites would be capable of carrying ADSL at speeds from 256 kbit/s to 512 kbit/s.



We operate a modern network management centre in Dublin, which allows us to manage our core network, including our international points of presence. Our network
management centre is a state of the art facility supported by a family of integrated network support systems and a suite of processes and procedures. These systems and processes allow us to monitor
and control the network remotely from a single location and respond promptly and appropriately to all network events.

A
team of technicians and a shift leader are generally always present at the network management centre. The network management centre is supported by expert groups within our design
areas. When on-site work is required, our staff at the network management centre dispatch a member of our field force, which consists of skilled technicians located throughout Ireland. We
are generally able to have a technician at any of our sites in Ireland within two hours of discovering a problem.



Our international network consists of two international gateway switches located in Dublin that provide connection to international networks, together with our
interests in various submarine cables and satellite systems. We have also established points of presence in London, Belfast, New York, Amsterdam and Frankfurt, which extend our fixed-line
network by connecting directly with local telecommunications networks in these locations.



We continually monitor and test new generations of network technology to identify opportunities to lower our costs and introduce new services. To this end we are
replacing our international switches

56

---



with
"Next Generation Network" nodes. We anticipate that in the future, voice and data services will be transported across a single, fully integrated network platform, or "Next Generation Network".
Such technology is now developed to the point where we consider the cost savings and revenue opportunities sufficient to justify the investment, and we are planning a migration to a Next Generation
Network over the coming years.

Sales, Marketing and Customer Care

We have a strong brand and invest in it, for example, through our sponsorship of the Irish national soccer team and the National League of the Football
Association of Ireland. The team relationship creates a considerable "brand impact" on a national scale while sponsorship of the league giveseircom"brand reach" at a regional and local community level.

We
support our sales and marketing programmes with direct marketing campaigns through a wide range of media. In addition, we have developed a broad range of discount schemes to meet the
needs of specific consumer and business segments. We also have a well-developed sales and win-back model that enables us to focus on individual market segments and to respond
quickly and flexibly to market demands and to competition.



We group our retail customers into the following categories, in order to more effectively target and service them:



We have approximately 1.22 million residential, small business and key business customers. We market and sell to our customers through customer sales and
service, telephone sales, internet sales, door-to-door canvassing and service call centres. Customer sales and services call centres deal with all inbound call questions from
customers. Staff are trained to recognise the customer's needs and sell products and services accordingly. Telephone sales and services call centres make outbound calls to customers who are targeted
using business intelligence reporting tools. The majority of our product sales relate to sales of broadband equipment and cordless phones.

We
also have a door-to-door canvassing programme that is responsible for winning back lost customers, acquiring new customers and selling broadband, and we use
email to offer products and services in cases where the customer's email address is available to us. We also use business intelligence reporting tools to target customers through mailing campaigns and
in-bill leaflets and we send all new customers and customers that we win back from competitors a welcome pack. We operate a website and we use third-party retail stores for the sale of
broadband equipment and cordless phone sales, among other things.

Our
key business accounts, which are at the high end of the small and medium business sector, are assigned managers, who pay regular visits to potential new customers. We also have
telephone account teams that deal with inbound calls from customers and engage in sales campaigns. Our sales objectives for key business accounts include sales of broadband, ISDN,
e-business and business solutions, winning back customers lost to other authorised operators and call stimulation (primarily customer premises equipment and call management services).

57

---





We assign each of our corporate and government customers a corporate account manager, who is trained to deal with the specific information and communications
technology needs of large organisations. Corporate account managers are often assisted by staff ofeircomConsult, our team focused on giving support in
the preparation of bids and proposals for the corporate, government and business markets, and our LAN Communications team, which provides technical expertise when required.



Our strategy with respect to retail customers generally is to continue to develop our sales and win-back efforts in response to the changing
competitive environment. We believe the current classification of our retail customers is appropriate for our sales and marketing strategy, and we intend to maintain this classification. We
continually seek to improve our understanding of customer segments and needs and to develop products and services to meet those needs.



We have approximately 120 wholesale customers, including approximately 58 active domestic other authorised operators and 50 international operators. We market and
sell to our wholesale customers through our account management team, which is our primary sales channel to the other authorised operators. Our account managers visit existing and new wholesale
customers regularly to sell our range of wholesale products and services. The account managers are trained to deal with the specific information and communications technology needs of our wholesale
customers and they are often assisted by our professional project management team and appropriate technical experts. The main task for our account managers is to convert customer requirements into
manageable solutions that meet customer expectations and thus translate these requirements into sales.

Staff
at our wholesale customer service centres are responsible for all data, telephony and interconnect orders placed by our wholesale customers and process orders and quotation
requests. Our highly trained customer service staff are a key component in our relationship with our wholesale customers. Positive interactions with customers are ensured through effective
communication with our customer service teams and by working closely with our sector and account managers.

The
systems we use in our wholesale customer service centres help us to deliver quality service to our customers. These include a carrier pre-select order handling system,
which processes single-line carrier pre-select orders automatically, a single billing through wholesale line rental order handling system which automatically processes the
majority of orders and an online ordering, fault reporting and tracking system for ADSL bitstream products which enables us to manage ADSL bitstream orders and faults in an efficient and timely
manner.



We intend to continue to improve our relationships with our wholesale customers by focusing on the specific business dynamics of each of our customers and
understanding the opportunities for future growth in these relationships.

Competition

The Irish telecommunications market, including the market for fixed-line voice telecommunications services, was fully opened to competition on 1
December 1998. Since market liberalisation, we have experienced a significant increase in the level of competition, and we expect that competition will continue to increase from new and
existing competitors. We also expect to see continued significant change in the mix of traffic on our fixed-line network, with a movement away from higher-margin local

58

---



and
national calls to lower-margin Internet access calls and wholesale calls, reflecting increased competition, the growth of Internet usage and the impact of mobile substitution. The changing mix is
also being driven by the migration of customers from dial-up Internet access to broadband services.

With
the introduction of carrier pre-selection and the development by competitors of their own networks, competitors are in a stronger position to compete actively for local,
national and international calls. Over the last year competitors have begun to compete strongly in the access market through the adoption of single billing through WLR. ComReg estimates that the new
entrants' share of the fixed-line market has been approximately 21%, based on turnover data supplied by other authorised operators for the three years ended 31 December 2004. ComReg
has stated that its objectives include the promotion of competition in the Irish telecommunications sector and ensuring that other authorised operators can compete in the market. We expect that the
emergence of new mobile operators and the potential emergence of mobile virtual network operators ("MVNOs") will continue to increase competition in an already competitive market.



In the residential market, our primary competitors are BT Ireland and Smart Telecom. In addition, we face competition from resellers, including Euphony, Vartec,
Hometel, Cinergi, IFA Telecom, Access Telecom, Gaelic Telecom and Swiftcall, who are active in promoting their services using mailings to potential customers, door-to-door
canvassing, canvassing in public places such as shopping centres and supermarkets and referral marketing. Resellers do not have their own network and purchase bulk minutes from other authorised
operators. We also face competition from cable TV operators who offer services over their own networks as well as through the resale of minutes from other networks.

Our
competitors may use carrier select, whereby the customer dials a specific access number before each call to access the competitor's network, and carrier pre-select,
whereby calls from a customer are automatically routed onto the competitor's network. We have an advanced win-back programme in place. We have developed a traffic analysis system that
enables us to identify many of our former customers lost to competitors. Since carrier pre-select was introduced in January 2000, we estimate based on our internal traffic analysis
system that we have succeeded in winning back approximately 59% of customers who have moved to other authorised operators. However, on 24 September 2003 ComReg adopted a new package of
measures, which applies to all authorised operators, including a direction to amend the industry code of practice to impose a three-month "no contact" period for all carrier pre-selection
win-back activities. Winback activities relating to single-billing through WLR services are subject to the previously directed "no contact" period of four months. This package also
includes an initiative on price transparency, sales practice monitoring by ComReg to ensure compliance and various enforcement measures. ComReg had indicated their intent to review this package after
18 months.

In February
2005, Smart Telecom announced a bundled offering of PSTN line rental and broadband at a very aggressive price of €35 per month and have been reported
in the press as having obtained 20,000 expressions of interest. Smart Telecom are still at the early stages of building out the infrastructure to deliver the service, based on unbundled local loop and
co-location.

In April
2005, Esat BT rebranded as BT Ireland and launched a bundled PSTN and broadband offering at €49 per month.

In
the business and corporate market, our primary competitors are BT Ireland and MCI. Both BT Ireland and MCI are able to offer customers direct access to their network, which is
especially attractive for customers with high bandwidth requirements. In this market, customer demand extends beyond traditional voice services to leased lines, high speed switched data services,
including ATM and frame relay, and managed service solutions, such as those offered byeircomBusiness IP.

In
January 2005,eircomRetail was selected by the Department of Education & Science to provide routers for all Irish
primary and secondary schools as part of the Broadband for Schools program. The

59

---



estimated
value of this contract is €1.8 million with scope for extension. The schools broadband access services contract which has an estimated value of
€16 million over a three year period was split between Digiweb, Smart Telecom, Irish Broadband, BT Ireland, Last Mile & HS Data.

The
number of mobile subscribers was reported by ComReg as 3.8 million as at 31 December 2004, corresponding to a 94% penetration rate based on population. With a current
focus on voice and SMS text messages and the continuing evolution of data services, we consider mobile operators as a major competitor to our fixed line revenues.

In
order to remain competitive in the retail market, we will continue to evolve existing products and prices to respond to customer needs and to competition. In addition, we intend to
develop new services and products that will enable growth of new revenue streams and exploit technology developments, that are attractive to our customers and help stimulate fixed-line
voice and data services. For example, our portfolio of ADSL services and the introduction of our tiered flat-rate Internet access services are recent developments that provide us with a
broad based set of services to address customers in both the consumer and business markets. We have developed other data services, including frame relay and IP services, to meet the needs of our
business customers and continue to evolve these services to meet customer needs. Subject to regulation, we also seek to develop bundled access and call packages that encourage customers to use our
services and offer them increased cost control and improved value for money. We are continuing to develop our Talktime bundled services and have recently launched a Talktime Unlimited service for
consumers. We will also continue to promote the advantages of fixed-line communications over mobile services by highlighting the superior affordability, capacity, quality and reliability
of fixed-line services.



As we enter new wholesale markets we are in the process of changing our focus from the regulated, capital-intensive products in our traditional portfolio to
broadband connectivity and network facilities management. This change in focus is in line with the maintenance of our traditional interconnect business, from which the majority of our revenue from
wholesale customers is currently derived. We also believe that broadband is one of the most significant opportunities for growth in the communications market.

In
the wholesale market, we believe our primary competitors are BT Ireland and MCI, both of whom offer domestic and international wholesale services in other countries and are growing
their presence in Ireland. E-net, ESB and Aurora are a sign that government utilities and government sponsored networks are being used to facilitate the development of competing operators.
Other competitors include Cable & Wireless, Colt Telecom and Energis. We compete primarily in wholesale leased line sales and switched data services, including ATM and frame relay. In addition,
we face competition in the transit market. We believe that we will remain competitive based on overall value for money, taking into account price, network quality, centralised service management,
geographic reach of field-based support and quality of our account and project management. We compete in the wholesale market based on the comprehensive coverage of our network and the quality of our
service.

Insurance

As an integral part of our risk management annual programme, we utilise third party insurance to mitigate a number of our residual risks. These risks include:



60

---





Insurance
cover for these risks is provided above specific self-insured deductibles and in some cases annual aggregates. This programme is renewed on an annual basis. In
addition to the above programme, we also have insurance cover for our public securities transaction risks relating to the IPO in March 2004, the issuance of the Senior Notes and Senior
Subordinated Notes in July 2003 andeircom'soriginal initial public offering in May 1999.

We
believe risks covered, risk retentions and limits of insurance indemnity are broadly in line with similar companies in the same industry sector. The insurances are in full force and
effect with all due premiums paid.

Outsourcing

We are reviewing and will continue to examine opportunities to outsource our requirements and functions in circumstances and on terms as may from time to time be
considered appropriate.

Disposals and Discontinued Operations

Shortly before the acquisition of the entire share capital ofeircomby Valentia Telecommunications, we began a
transformation and restructuring programme to consolidate our operations around our core fixed-line business. In response to changes in the telecommunications environment, we exited our
Internet software business and ceased development of our on-line content business. We also curtailed our presence in the United Kingdom.

In May
2001, we completed the demerger of our mobile telecommunications business, Eircell, which was subsequently acquired from our then shareholders by Vodafone Group plc in
exchange for shares in Vodafone Group plc. The demerger was effected by way of a distributionin specieto the then eircomshareholders during the
financial period ended 1 November 2001. The impact on the Group reserves amounted to
€176 million. In connection with the demerger, we entered into various agreements with Vodafone Group plc and Eircell, pursuant to which we agreed to provide each other with
various services and to license to each other a number of properties, and indemnified Eircell and Vodafone Group plc against various matters. We also agreed to certain non-compete
restrictions which lapsed in May 2004.

In May
2002, we exited from our remaining 63% stake in Golden Pages, our directory services business. We received a cash dividend of €191 million in
connection with our exit from the business as well as a management fee of €3 million, which was paid to us by Golden Pages.

In
connection with the transactions outlined above, we gave customary warranties and indemnities. In addition, in connection with the demerger of our mobile telecommunications business,
we indemnified Vodafone Group plc against the demerger being found to be defective or invalid. This indemnity is uncapped and unlimited in time. We also indemnified Vodafone Group plc against 50% of
any stamp or capital duty becoming payable as a result of the demerger and against any stamp or capital duties that may be owing in relation to transactions prior to and unrelated to the demerger.

Public Takeovers

There have been no pubic takeover offers by third parties in respect of our shares or by us in respect of other companies' shares during the last and current
financial year.

Patents, Licences, Industrial, Commercial or Financial Contracts or New Manufacturing Processes.

No
material portion of our business is dependent on a single or connected group of patents, licences, industrial, commercial or financial contracts or new manufacturing processes.

61

---



E.REGULATION

Overview

The basic framework for regulation of the Irish telecommunications market is laid out in a series of legislative acts, the most recent of which is the
Communications Regulation Act 2002, and related legislation, which have facilitated the development of competition, principally through the implementation of various European Union directives relating
to telecommunications.

On
25 April 2002, the European Commission adopted a new harmonised regulatory framework for all aspects of electronic communications networks and services across the European
Union. The New European Union Regulatory Framework (NRF) was implemented into Irish law on 25 July 2003.

The
NRF includes a framework directive and four other specific directives on interconnection and access, universal service and users' rights, the authorisation of operators and service
providers and data protection. The main policy objectives of the new directives are to facilitate market entry by simplifying licensing conditions and to introduce a more market-focused mechanism for
assessing and designating
operators with significant market power, by basing it on the concept of dominant position calculated in a manner consistent with competition law practice. National regulators will also have greater
flexibility to impose access and interconnect obligations according to national circumstances.

The
focus of the NRF is, over time, to allow the migration of electronic communications networks from governance by sector specific ex-ante regulation to general competition
law. In the long term the amount of regulation should lessen as competition within the sector grows. In the short to medium term, however, ex-ante sector specific regulation will remain
the predominant form of regulation. This new framework also provides operators with greater flexibility to challenge the decisions of regulators. The regulator must follow strict procedures in
imposing significant market power designations and obligations and operators have recourse to an Appeals Panel through which they can challenge certain decisions of the regulator.

The Regulatory Regime



The present legislation vests all responsibility for regulating the telecommunications sector in Ireland in a three-person Commission for Communications
Regulation, or ComReg, other than some residual functions which have been retained by the Minister, and the sector regulated by the Broadcasting Commission of Ireland. ComReg was established under the
Communications Regulation Act 2002, and is the independent regulator. The Minister may, in the interests of proper and effective regulation of the electronic communications market, give policy
directions to ComReg to be followed by ComReg in the exercise of its functions. Prior to the establishment of ComReg, the telecommunications market in Ireland was regulated by the Office of the
Director of Telecommunications Regulation, or ODTR, which was dissolved under the Communications Regulation Act 2002 that established ComReg. The chairmanship of ComReg rotates on an annual basis
between each of the three Commissioners.

ComReg
regulates electronic communications principally through a system of general authorisations, licences for radio frequency and rights of use for numbers. We operate our
telecommunications business in Ireland under this regime. Prior to 25 July 2003, the most important licence under which we operated our business was the General Telecommunications Licence. This
licence was replaced by a general authorisation on 25 July 2003, although some provisions remain in force for a transitional period, described under "The General Telecommunications Licence",
below. Through an amendment to the General Telecommunications Licence, we were awarded both narrowband and broadband wireless local loop licences, which currently remain in force and which permit us
to provide General Authorisation services by wireless telegraphy.

62

---





Our General Telecommunications Licence was issued in 1998 for a period of 15 years. On 25 July 2003 our General Telecommunications Licence was
replaced with a new general authorisation in connection with the implementation of the new European Union directives described above, although some provisions remain in force for a transitional
period.

We
were required under our General Telecommunications Licence and under the new regime to pay a yearly levy, equal to 0.2% of our relevant annual turnover, to ComReg to defray its
administrative costs. Various obligations under our General Telecommunications Licence that are triggered by our designation as having significant market power in various areas of our business, as
described more fully below, remain in force pending such designations as may be made under the new regime.

General Authorisations, Licences and Rights of Use

The New Regulatory Framework (NRF) described below, which took effect on 25 July 2003, includes a change from a system of individual licences to a scheme
of general authorisations for electronic communications networks and services, although individual licences and rights of use are still required to provide services involving the use of radio
frequency and numbering.

We
may not delegate, grant or otherwise transfer, any right, interest or entitlement in our general authorisation. ComReg has extensive powers to enforce or modify conditions to general
authorisations, licences or rights of use and to issue directions under those conditions. It is an offence to fail to comply with the conditions of a general authorisation, licence or right of use.
ComReg has the power
to request information to verify compliance with such conditions and to apply to the Irish High Court for an appropriate court order requiring compliance, including an order directing that a financial
penalty be paid to ComReg. ComReg may propose an appropriate penalty in light of the non-compliance but the court will have discretion to determine the amount of the financial penalty. In
addition, ComReg has the power to suspend or withdraw an authorisation, licence or right of use where, in its opinion, there has been a serious or repeated non-compliance with the
conditions attached to a general authorisation, licence or right of use, or a failure to meet a specific obligation relating to significant market power or universal service. ComReg may also amend
authorisations, licences and rights of use from time to time "where objectively justifiable and in a proportionate manner".

With
the exception of decisions on enforcement, decisions of ComReg are subject to a statutory right of appeal to an Appeals Panel. There is also separately, under general administrative
law, a right of judicial review of decisions of ComReg. Operators that are designated as having significant market power ("SMP") in markets specified under the NRF bear onerous obligations which are
currently set out in the aforementioned EU Directives and the corresponding transposed Irish legislation (Statutory Instruments Nos. 305, 306, 307 and 308 of 2003). Under the previous regulatory
regime SMP obligations applied in four relevant markets, fixed networks and services, mobile networks and services, leased lines and interconnect, where an operator was designated as having SMP in a
relevant market if it held 25% or more of that market.

These
SMP obligations will continue to apply to us until new designations are made under the new regime.

Under
the NRF, 18 potential markets have been identified by the European Commission as product markets in which SMP designations may be made. An operator will be designated as having SMP
in a particular market if it has a dominant position, calculated in a manner consistent with competition law practice. ComReg's implementation of this process is ongoing. Unlike the old procedure,
before ComReg can designate us as having SMP it is required to define the relevant market in accordance with the European Commission's recommendations and competition law principles. It is also
required to carry out a market analysis to determine whether or not there is effective competition

63

---



in
that market. The table below contains a list of the 18 markets identified by the EU in its Recommendation on Relevant Markets. Not all of the markets are applicable to eircomand this is indicated along
with the current status of the implementation of the market analysis process under the NRF.

|EU Regulatory FrameworkPosition at 31 March 2005
|-------------------------------------------------
|
|Retail                                           
|Fixed Network                                    
|Residential Access*                              
|Business Access*                                 
|Residential National Calls*                      
|Residential International Calls*                 
|Business National Calls*                         
|Business International Calls*                    
|Retail Leased Lines comprising:                  
|                                                 
|                                                 
|                                                 
|Wholesale                                        
|Fixed Network                                    
|Call origination                                 
|Call termination                                 
|Transit services                                 
|Unbundled access (including shared access)       
|Wholesale Broadband access i.e.bit-stream        
|Terminating segments of leased lines             
|Trunk segments of leased lines                   
|Mobile Networks                                  
|Access and call origination                      
|Call termination                                 
|International roaming                            
|Broadcasting Networks                            
|Transmission to broadcast TV & Radio             

---

ComReg has discretion, subject to European Union Commission approval, not to elect one or more of the markets identified by the EU Commission
and/or to elect additional markets that are not contained in the EU Commission recommendation and thus ComReg is attempting to define the retail calls and access market to be inclusive of residential
and non-residential users. As discussed ComReg has or is proposing to designate us with SMP in most of the markets with certain exceptions including

64

---



the
broadcasting, mobile wholesale, national leased lines above 2Mbps, and International leased line markets.

Once
an operator has been designated as an SMP operator in a market, ComReg is obliged to impose such obligations on that operator as ComReg considers appropriate. This includes a range
of obligations including transparency, price control, and cost orientation of prices.

The
table above illustrates that ComReg:



65

---







Regulation of our Products and Services



Where ComReg finds that no competition exists for a relevant service, or where the provider of a service has a dominant position in the market for the supply of
those services, it may choose to impose a price cap. The retail price cap may be imposed for a specified basket of telecommunications services offered by a relevant provider and for specified services
within that basket. The allowable percentage change under retail price caps in Ireland is tied to the percentage increase in the Irish consumer price index plus or minus a factor set periodically by
ComReg.

The
current retail price cap order came into operation on 4 February 2003 and applies solely toeircom. This order places a price
cap on tariffs charged on a specified basket of our retail products and services. The retail price cap requires that a weighted average of the prices of the products in the basket increase annually by
no more than the Irish Consumer Price Index (CPI) minus 0%. This order replaced the previous price cap which imposed a limit on increases in the relevant basket to no more than CPI minus 8%. The
current price cap also removed the sub-caps on prices for individual services in the basket which applied under the previous order.

As
part of the NRF Market Review process, in March 2005 ComReg published a Draft Decision and consultation documents relating to the fixed lines and fixed calls markets. The
consultation proposes that the retail price cap be maintained at Irish Consumer Price Index (CPI) minus 0% until markets are next reviewed for SMP designation and remedies. ComReg has based its market
assessment on a time horizon of about 2 years. However it is also proposed that there be a sub-cap on PSTN line rental of CPI minus CPI (i.e. no increase in nominal pricing) for one
year, thereafter reverting to CPI minus 0%.

The
basket items included under the current price cap are as follows:



International
calls and directory enquiry calls are not directly within the retail price cap except as part of payphone charges and the Vulnerable User Scheme (VUS) control bill.

ComReg
has introduced a code of practice for Tariff Transparency with the stated objective of ensuring that service providers present tariff information that is accurate, comprehensive
and accessible. The code of practice is designed to ensure that service providers present transparent and up to date information on standard tariffs covering access, all types of usage charges,
maintenance charges and including details of standard discounts applied and special and targeted schemes.

In
addition, ComReg is currently conducting a process aimed at improving tariff transparency in the telecommunications market. The stated objective of the exercise is to "provide a fair,
broad based comparison of alternative tariffs". In support of this process ComReg are proposing the establishment of an interactive tariff web site for consumers and are currently collecting product
and service usage data from operators, includingeircom.

66

---





As we are currently designated as having significant market power in the fixed voice telephony market, we must offer interconnect services to other authorised
operators seeking such services, by means of the publication of a reference interconnect offer, or RIO. This sets out the rates, contract terms and conditions at which we offer interconnect services.
These must be non-discriminatory and transparent. We must also ensure that our cost accounting systems are suitable for implementing our interconnect obligations. ComReg may compel us to
justify our RIO.

RIO
prices are based upon the long run incremental costs of providing interconnect services, plus a rate of return on investment. ComReg has issued various notices and decisions relating
to the methodology for calculating these prices, including the calculation of costs that may or may not be included in setting RIO prices as well as the appropriate rate of return on investment we are
permitted to have. We make regular submissions to ComReg in relation to such notices and decisions, and in particular have urged ComReg to adopt modified models as a basis for the calculation of costs
and, ultimately, RIO pricing.

On
3 February 2003, ComReg issued a Decision Notice that provides that a nominal pre-tax cost of capital of 11.5% will be used as the basis for allowing us an adequate
rate of return for regulatory purposes, including for setting RIO and various other wholesale rates, until ComReg decides otherwise. This supercedes a rate of 12% set by ComReg in 2000.

In February
2003, ComReg issued a consultation paper seeking responses from operators on a number of issues relating to interconnect services, including whether a price cap should
be introduced for interconnect services, and the method by which carrier billing and administration costs could be recovered, if at all. In May 2003, ComReg stated that it believed in principle
that a wholesale price cap should be introduced and that it would consult further in a separate paper on this matter shortly. In August 2003, ComReg further noted that it found the responses
received in regards to the consultation helpful and, where appropriate, would factor the responses into its analysis. ComReg has also recently commenced a bottom-up review of the costings
for our core network. The outcome of this review may serve as an input to the setting of a wholesale price cap by ComReg.

As
part of the implementation of the NRF, ComReg have published a draft direction on the market analysis for interconnect markets in Ireland and issued a draft decision in May
2005. It is unlikely that any of the regulatory obligations relating to pricing of our interconnection services will be relaxed as a result of this process.

Policy
directions issued by the Minister on 26 March 2004 require ComReg to review the pricing structure for interconnection and leased lines having regard to developments at
European Union level. ComReg were required to report to the Minister within six months of the date of issue of this policy direction on the areas of the interconnection and leased line sector that are
not competitive and identify what additional legislative, regulatory or enforcement measures, if any, are required. The Minister's stated goal for this initiative is to ensure that the pricing
structure for interconnection and leased lines advances competition in the telecommunications sector. ComReg reports to the Minister on an ongoing basis regarding the progress of SB-WLR.
In September 2004 there was a change of Minister. No further action on this matter has since been taken by ComReg or the Minister.

On
23 September 2004 ComReg published a Decision Notice on the finalisation of the 2002/03 Interconnect Conveyance Rates. On 22 December 2004 ComReg published a Decision
Notice on the finalisation of the 2003/04 Interconnect Conveyance Rates. The cumulative effect of these two changes was a reduction of approximately 4% in our rates.

On
22 April 2005 ComReg issued a direction toeircomwhich finalised the Number Translation Codes (NTC) rates for the
period April 2003 to April 2004. Settlement of these rates involves once off retrospective payments by us to other operators and by other operators to us.

67

---





Partial private circuits ("PPCs") are partial leased lines that connect a customer's premises to the point of connection between our network and that of another
authorised operator. Other authorised operators that own a core network can use partial private circuits, which are priced off a different tariff schedule, as a substitute for wholesale leased lines.
The price at which we provide partial private circuits is regulated by ComReg under our RIO and is required to be based on long run incremental costs. Following completion of a review by ComReg of our
cost calculations, in February 2004 we reduced our prices for partial private circuits by approximately 20%. Following a recent review by ComReg we expect the current pricing to apply up to
31 March 2006.

ComReg
has recently commenced a bottom-up review of the costings for our core network. It is expected that this review will be completed before the end of 2005. The outcome
of this review may impact the pricing of PPCs and other wholesale products that use our core network after March 2006.



Leased lines are fixed point-to-point and point-to-multi-point connections providing dedicated capacity between
locations and are used for high volume voice, data or multimedia transmission. We offer leased lines on a wholesale and on a retail basis. We are required to submit proposed prices or price changes to
ComReg for approval. The prices at which we offer leased lines must be cost oriented. Our retail leased line prices were last amended in June 2000. ComReg has indicated on a number of occasions
that it intends to review leased line prices and from time to time has sought cost and market share data in relation to leased line prices. ComReg has not indicated to us that an immediate review is
being initiated. However, under the ministerial direction to ComReg issued on 26 March 2004, ComReg is obliged to review the pricing structure of our leased lines within six months of the date
of issue of the policy direction. In September 2004 there was a change of Minister. No further action on this matter has since been taken by ComReg or the Minister.

We
are required by ComReg to offer leased lines to other authorised operators on a wholesale basis at a price equal to the retail price (including discount prices for leased line
products) less a discount of 8%. ComReg recently finalised its analysis under the NRF of the wholesale markets for Terminating Segments and Trunk Segments of Leased Lines. In a decision notice
published in March 2005, we were directed that prices we charge to any other undertaking for access to or use of a wholesale leased line of capacities up to and including 2Mbps shall be at
least 8% less than the retail price. Wholesale leased lines of capacities above 2Mbps must be offered to other operators on terms and conditions equivalent to those offered to our retail division.
Regulations relating to the markets for retail leased lines above 2Mbps and retail international leased lines were lifted. On 26 April 2005, we appealed the direction to the Appeals Panel on
the matter of the definition of boundary split and the requirement for wholesale leased lines. We are awaiting the hearing of the appeal.

ComReg
has issued a number of directions which require us to transfer leased lines with a minimum interruption in service, at prevailing wholesale terms and conditions, if a retail
customer wishes to switch to another provider for leased line services. ComReg issued the most recent direction in relation to the transfer of leased lines from retail to wholesale customers on 15
January 2004. The required process has been implemented. In April 2005 ComReg re-opened discussions with the telecoms operators to conclude its draft direction in relation to
the transfer process for OAO to OAO and OAO toeircomleased lines transfers. Finalisation of the draft direction would require us to implement a cost
oriented and efficient in-situ transfer process with corresponding tariffs within three weeks of the date of the direction. These are to be implemented one month after the date of the
final direction. The in-situ process would be implemented one month thereafter.

68

---





We are obliged to make our copper cables, or local loops, that run from customers' premises to the local exchange, available to other authorised operators. The
local exchange lines we make available are referred to as "unbundled local loops". Other authorised operators may site their equipment in or adjacent to our local exchanges so that they can use our
local access network. They are then able to use our access network to offer services direct to the customer.

We
are obliged to meet reasonable requests for full and shared unbundled access to our local loop and related facilities under transparent, fair, reasonable and
non-discriminatory conditions. We may only refuse any such requests for access on the basis of objective criteria relating to technical feasibility or the need to maintain network
integrity.

The
prices at which we offer unbundled local loop services has been an area of contention between ourselves and ComReg, including two previous legal challenges by ourselves to ComReg
directions. The prices for these services are regulated through our Access Reference Offer, or ARO. In November 2004 ComReg directed that the monthly rental for our unbundled loop metallic path
(ULMP product) would be set at €14.65 per month from 1 December 2004 for a period of twelve months, with increases in subsequent years limited to no more than the level of CPI.
See Item 4D "Information on the Company, Our Business, Tariffs".

The
pricing for shared access to our unbundled loops was not addressed in the November 2004 ComReg direction. ComReg is currently conducting a consultation on this pricing and
published a draft direction in March 2005 proposing that no copper costs remain to be recovered from the shared access service as they consider that our access prices are fully rebalanced. The
current price for shared access of
€7.52 per month recovers approximately 50% of the costs of a copper loop whereas in its draft direction ComReg proposed a rental price of €0.39 per month. We have
responded to the draft direction rejecting ComReg's proposals and are awaiting a response from ComReg.

On
14 February 2005 we lodged an appeal with the Appeals Panel against the ComReg direction which directed us to provide a fit for purpose response to Operators' requests for the
development of a number of LLU processes to support combined ordering of LLU and Geographic Number Portability (GNP), bulk ordering of LLU and migration from other wholesale products to LLU. On
15 February 2005 ComReg issued an enforcement order, compelling us to comply with the direction. On 17 February 2005 the High Court granted us a stay and leave for Judicial Review of
ComReg's enforcement action. The judicial review hearing in the High Court finished at the end of May and a decision is expected shortly.

On
31 March 2005 we had 1,424 shared access local loops and 357 fully unbundled local loops.



ADSL bitstream is a broadband access product comprising a high-speed access link to the customer's premises, which we create by installing ADSL
equipment and configuring our local access network and making it available to other authorised operators. As of 31 March 2005, 6 operators had purchased our ADSL bitstream service on a total of
approximately 31,000 lines.

We
are required to provide ADSL bitstream access to other authorised operators at regulated prices. These prices are based upon the prices at which we offer retail ADSL services, less a
margin agreed by ComReg. While ComReg does not directly set prices for ADSL, it requires us to offer our wholesale bitstream services at a price below the price at which we offer our retail ADSL
services, which enables our competitors to achieve a profit on reselling these services. We currently offer discounts on our wholesale bitstream services at prices on average 40% below those of our
comparable retail products.

69

---



In February
2005, ComReg designated us with Significant Market Power (SMP) in the Wholesale Bitstream market. Under this designation there are interim price controls set on our
wholesale bitstream services, the price being set at the retail price less a defined monetary amount depending on
the particular bitstream product. We have lodged an appeal to the Electronic Communications Appeals Panel and are awaiting the appeal to be heard.

In
January 2004 ComReg directed us to offer a bitstream port transfer product and process. This facilitates a customer with an existing ADSL service switching to another
authorised operator without the need for a significant break in service.

In April
2005 we increased the download speeds of our Bitstream products to support higher speed Retail products. In June 2005 we announced the introduction of a 'time
based' bitstream product, to be available to OAOs from 7 July 2005.



Geographic number portability permits a customer with a telephone number that was assigned based on geographic location to retain that telephone number when
changing local service providers, provided the customer's telephone line remains physically located within the same geographic area. Non-geographic number portability similarly permits
customers with numbers that are standard throughout the country, including Freefone and premium rate service customers, to migrate to another authorised operator without changing their telephone
number. Number portability was intended to remove the significant barrier to competition believed to result from customers having to change their telephone numbers if they wanted to change service
providers.

Each
operator is responsible for making its network capable of handling number portability. We and each other operator are responsible for certain individual costs in relation to this
activity, while certain other costs are shared between operators.



We are also required by ComReg to provide carrier pre-selection facilities. Carrier pre-selection allows customers on our network to
access the services of a competing network operator by pre-selecting that operator to carry every call of one or more specified type. Without carrier pre-selection, a customer
can select another authorised operator for a particular call by dialling a three or four digit access code before each call. The introduction of carrier pre-selection makes it easier for
our customers to choose competing operators to handle their calls. On 5 February 2004, ComReg published a guide for
consumers on carrier pre-selection which provides details of other authorised operators offering the service to residential and small business customers.



In July 2002, ComReg directed us to provide additional services as enhancements to carrier pre-selection, including carrier
pre-selection single billing through WLR, carrier pre-selection through agency re-billing and ancillary services.

In
January 2003 ComReg directed the implementation of single billing products: Single Billing Products through Wholesale Line Rental (SB-WLR), Agency Rebilling
(SB-AR) and Wholesale Ancillary Services (WAS). Under SB-WLR we are obliged to offer other authorised operators a wholesale version of retail line rental with all calls being
carried through CPS. SB-AR is an agreement for onward billing to the end-user. These services are designed to allow other authorised operators to combine line rental and call
services in a single bill, increasing the competitiveness of services offered by those operators.

70

---



Carrier pre-selection single billing through WLR.Carrier pre-selection single billing through WLR
allows an authorised operator to resell our access service. We maintain and repair the access line, which remains connected to our switched network, and bill the operator for the use of the line. The
operator bills the end customer for the operator's bundled service. As a prerequisite for this service, the end customer must choose the relevant operator to carry all calls using carrier
pre-selection. Carrier pre-selection single billing prices are subject to approval by ComReg.

Consistent
with the Minister's 26 March 2004 policy direction to ComReg, on 31 March 2004 we launched our enhanced carrier pre-selection single billing through
WLR product. On 31 March 2004 ComReg have directed that from 1 April 2004 prices for the WLR product will be set at retail price less 10%. This margin still applies in June 2005.
In March 2005 ComReg published a draft direction on the market analysis for the Retail Fixed Narrowband Access Markets. ComReg stated that it intends to continue with the application of the
retail minus price control for WLR for the period of the market review.

Carrier pre-selection single billing through agency re-billing.Carrier pre-selection
single billing through agency re-billing enables an operator
to bill the end customer for all services delivered over a particular line. As with carrier pre-selection single billing through WLR, a prerequisite for this service is that the end
customer must have made a carrier pre-selection for all call types with the relevant operator. We were to have agreed pricing for carrier pre-selection single billing through
agency re-billing with ComReg no later than 2 June 2003. We submitted our proposed prices to ComReg, but these prices have not yet been approved. ComReg has not proceeded to
implement this product as there was no demand. However, the original direction still holds.

Ancillary services.We are also required to make call tracking, call barring, voicemail, call waiting, three way calling and
alarm/reminder call and similar services available to all operators as ancillary services to carrier pre-selection single billing through WLR. These services are provided through the
SB-WLR product.

Restrictions on win-back activities.Following a consultation process, on 24 September 2003, ComReg
adopted a package of measures, which also apply to all other authorised operators and re-sellers, including a three-month "no contact" period for all CPS win-back activities
other than win-back activities relating to carrier pre-selection single-billing through WLR services, to which a "no contact" period of four months applies. The package also
includes an initiative on price transparency, proactive monitoring by ComReg to ensure compliance and various enforcement measures. ComReg reviews win-back procedures on an ongoing basis.
Following complaints from other authorised operators and us, and subsequent investigations by ComReg, other operators and we have on several occasions been found in breach of the CPS Code of Practice.
ComReg has on a number of occasions published details in respect of these breaches.

As
a consequence of a number of complaints from other authorised operators and subsequent findings by ComReg thateircomwas in breach of
the CPS Code of Practice, ComReg directedeircomto adopt a procedure whereby alleircomrepresentatives
who make contact in person with consumers must offer to provide written confirmation to the consumer of any rate quoted or rate comparison made during all contacts where a rate is quoted or a rate
comparison is made.eircomhas notified ComReg that it has complied with this direction.

If
we are found to be in further violation of applicable laws and regulations in relation to our winback activity, we could be subject to financial penalties and ComReg could further
restrict our procedures or initiate enforcement proceedings.

71

---





Flat rate internet access call origination, or FRIACO, is an unmetered interconnection service that provides capacity from originating customers to the point of
connection of an operator. Authorised operators that are also ISPs use this service to offer bundled or unmetered Internet access. It is also used by authorised operators to offer capacity for onward
resale to other ISPs. ComReg required us to begin providing this service in February 2003, to facilitate other authorised operators' introduction of retail offerings by June 2003. The
price at which we are required to offer this product is set by reference to the number of ports provided to the other authorised operator, and the price that would be charged under our RIO for the
projected volume of traffic for each port. Having reviewed our cost information, on 21 February 2003 ComReg determined a final price to apply for the FRIACO product for six months from this
date. ComReg reserved the right to review FRIACO pricing at six month intervals, but to date has not exercised this right.



On 14 October 2004 ComReg published a direction in which they nominated the code "076" as the code for PSTN access to VoIP services in Ireland. This was
followed on 21 March 2005 by a set of directions to enable the opening of access to this number range by 1 May 2005. The directions included a direction to eircomto set one initial price
point to facilitate the introduction of VoIP services. This price point will be known as "VoIP Local" and have per
second rates of 0.0679c, 0.0174c and 0.0174c for daytime, evening and weekend respectively, excluding VAT.



Irish and European Union law requires ComReg to promote the provision of a defined set of basic telephony services to all users in Ireland independent of their
geographical location and at an affordable price, whether or not the provision of those services is economic. ComReg satisfies these requirements, in part, by designating one or more operators as
having a Universal Service Obligation (USO) to provide these services. The universal service elements that must be provided are essentially basic voice services, standard fax and low speed data
services of specified quality and reasonable access to public payphones and directory enquiry services.

In
Ireland, we are the only operator that has been designated by ComReg as having USO. On 25 July 2003, we were designated as the sole universal service provider for a period of
three years. All of our previous obligations relating to the provision of telephone lines, payphones and directory services have
been maintained. Our obligations have been extended to include service to people with disabilities and to provide geographically averaged prices throughout Ireland, which has always been our practice.
Previously, we provided these services on a voluntary basis. ComReg has discretion to withdraw a designation, or part of it, or withdraw a designation for a particular area of Ireland and designate
another operator or operators as having USO, and may review and amend any aspect of the designation.

In March
2005 ComReg initiated a consultation on two aspects ofeircom'sUSO: the provision of access at a fixed location and the
provision of functional internet access.

With
respect to provision of access at a fixed location ComReg has proposed in a consultation paper that a threshold of €7,000 be applied when eircomconsiders requests for services that are costly to
provide. If the cost of providing service is below the threshold, eircomshould consider the request as 'reasonable' and supply service for the standard connection fee, which is currently €107.43
(ex
VAT). If the cost is above the threshold,eircomshould supply service if the customer agrees to pay the amount in excess of the threshold, and the
standard connection fee.

With
respect to provision of functional internet access, ComReg has proposed a minimum data rate of 28.8kbps with a target of 94% of telephone lines meeting this minimum data rate
by June 2006.

72

---



This
proposed data rate is consistent witheircom's investment plans. We expect ComReg to publish a final decision notice in shortly.

There
is a statutory provision that permits ComReg to establish a fund that would allow us to recover part of the costs of meeting our USO, if ComReg determines that the net cost of
meeting our USO is an unfair burden on us. We have completed an independent study of the net cost of USO on the Company and we are considering seeking the establishment of such a fund in the current
year based upon a detailed and independent study of our net USO costs.



On 10 March 2005 ComReg initiated a consultation on the contents and form of our separated accounts. We have recently submitted our response to this
consultation, which was submitted on 3 June 2005.



On 17 October 2002, ComReg determined that we were not in compliance with our obligations under the voice telephony regulations by providing telephone
services to specific customers at prices which were not in accordance with the specific terms and conditions of our discount schemes and published prices. No penalties were levied on us as a result of
this determination. By agreement with ComReg and at its direction, we put internal controls in place that we believe will prevent this from re-occurring and an independent audit of the
related internal controls has been conducted. The final audit findings report including management comments and our statement of compliance were submitted to ComReg on 9 March 2005. If ComReg
concludes that we are not complying with our obligations, ComReg could begin an enforcement action. If we are found to be in violation of applicable laws and regulations, we may become subject to
substantial criminal and civil penalties and fines.

Impending regulation

In the current calendar year we expect, based on our understanding of ComReg's ongoing work programme, that ComReg's agenda will continue to be focused on
implementing the NRF. We expect that by the end of 2005 ComReg will have completed its analysis of the fixed and mobile markets and will have informed the European Union Commission of the
ex-ante regulatory measures it intends to impose on operators which it has designated as having significant market power, or SMP, in such markets.

Competition regulation

The Irish Competition Act 2002 regulates competition generally by prohibiting anti-competitive arrangements and abuse of a dominant position. The
Irish Competition Authority is responsible for the administration and enforcement of this Act. A person guilty of an offence under the Competition Act may be liable to fines of up to the greater of
€4 million or 10% of turnover and/or imprisonment for up to five years.

The
Competition Act introduced substantial changes to the current provisions relating to criminal offences and penalties and introduced a new regulatory regime for mergers and
acquisitions.

Under
the Competition Act, the Competition Authority is given the power to:



73

---





Although
the Competition Authority has sole jurisdiction to enforce Irish competition laws, there are some areas where ComReg's powers to enforce telecommunications law may overlap with
the Competition Authority's jurisdiction. The Competition Act contains provisions for co-operation between the Competition Authority and other statutory bodies, including ComReg. Pursuant
to these provisions, ComReg and the Competition Authority entered into a co-operation agreement in December 2002.

In
addition, we are also subject to European Community competition law.



Although we principally provide telecommunications services in Ireland, we also provide some telecommunications services outside Ireland in the United Kingdom and
the United States through certain of our subsidiaries and related companies, and are accordingly subject to their laws. Prior to 25 July 2003 in the United Kingdom, through subsidiaries, we
operated under public telecommunications operator licences issued under the UK Telecommunications Act 1984. These licences enabled us to provide facilities-based telecommunications services both
within the United Kingdom and from the United Kingdom. In the United States, through a subsidiary, we have an international carrier's licence, also known as a Section 214 Licence, which allows
us to provide both facilities-based and resold telecommunications services, including voice and data services originating in the United States and terminating in countries outside the United States,
including Ireland. The UK Government has replaced the system of licensing telecommunications in the United Kingdom from 25 July 2003 with the provisions of the Communications Act 2003, and the
requirement to hold a licence has been replaced by general authorisations. Such general authorisations, broadly similar to those applicable in Ireland as described above in "General Authorisations,
Licences or Rights of Use" govern our services within and from the United Kingdom from 25 July 2003. More onerous regulatory obligations will apply to those undertakings found by the UK Office
of Communications, or Ofcom, or with respect to decisions taken before 29 December 2003, the UK Director-General of Telecommunications, to have significant market power in certain specified
markets.

In
a decision dated 28 November 2003 the Director-General of Telecommunications of Ofcom determined that our UK subsidiary,eircomUK, along with all other providers of fixed networks in the UK, has significant market power in the market for fixed geographic call termination. The Director-General further decided to require eircomUK to provide network access if reasonably requested to do so and to do so on fair and reasonable terms. The Director-General's stated view is
that any of our fixed geographic call termination charges that are not based on BT plc charges are unlikely to be fair and reasonable.

While
this measure does affect the ability ofeircomUK to set termination charges in the UK, its current effect is minimal on eircomUK. In the UK,eircommostly uses BT's network for terminating call traffic. Therefore, eircombenefits from regulatory measures imposed by Ofcom on BT which have the effect of
reducing call termination charges.

74

---



ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussions together with the consolidated financial statements ofeircomGroup,
Valentia Telecommunications andeircomand the related notes to those financial statements in Item 18 "Financial Statements". eircomGroup has prepared its
consolidated financial statements in accordance with UK GAAP. Valentia Telecommunications andeircomhave prepared their consolidated financial statements andeircomFunding has prepared its
financial statements in accordance with Irish GAAP. UK and Irish GAAP differ in certain significant respects from U.S. GAAP. A discussion of the principal differences relevant to the financial
statements ofeircomGroup, Valentia Telecommunications,eircomand eircomFunding and a reconciliation to
U.S. GAAP of net income and total equity for the financial periods discussed herein are set forth in
note 34 to the audited consolidated financial statements ofeircomGroup, in note 31 to the audited consolidated financial statements of
Valentia Telecommunications, note 31 to the audited consolidated financial statements ofeircomand note 14 to the audited financial
statements ofeircomFunding included in Item 18 "Financial Statements".

In
this section, when we say "we", "us", "our" or other similar terms, it refers to Valentia Telecommunications and its subsidiaries for the period from 1 April 2002 to
8 July 2003, andeircomGroup and its subsidiaries for the period from 9 July 2003 to 31 March 2005 unless the context otherwise
requires.

A.BASIS OF PRESENTATION OF FINANCIAL INFORMATION

We were incorporated on 9 July 2003. As part of the reorganisation and refinancing described in Item 4 "Information on the Company", we acquired Valentia
Telecommunications on 21 July 2003. Valentia Telecommunications was incorporated on 14 December 1998 and acquiredeircomon
2 November 2001.

For
the purpose of this consolidated financial information, the "Company" and the "Group" comprise, respectively, Valentia Telecommunications and its subsidiaries for the period from
1 April 2002 to 8 July 2003, andeircomGroup and its subsidiaries for the period from 9 July 2003 to 31 March 2005.

Our
business combinations have been accounted for by the acquisition method of accounting except for theeircomGroup Acquisition, which
has been accounted for in accordance with the principles of merger accounting under Financial Reporting Standard 6 "Acquisitions and Mergers" as if it had occurred on 2 November 2001.

B.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Some of the information in the review set forth below and elsewhere in this document includes forward-looking statements that involve risks and uncertainties. See
"Cautionary Note Regarding Forward-Looking Statements" and Item 3B "Key InformationRisk Factors" for a discussion of important factors that could cause actual results to differ materially
from the results described in the forward-looking statements contained in this document. The non-financial operating data included in this part have been extracted without material
adjustment from our management records.

Overview of our business

We are the principal provider of fixed-line telecommunications services in Ireland. According to quarterly data published by ComReg, we had a market
share in the Irish fixed-line market throughout the three-year period ended 31 December 2004 of approximately 79%, based on turnover. As the incumbent
fixed-line telecommunications provider, we have the most extensive fixed-line telecommunications network in Ireland in terms of both capacity and geographic reach, and our

75

---



competitors
rely heavily on our infrastructure. We are also the leading Internet service provider, or ISP, in Ireland with approximately 602,000 subscribers as of 31 March 2005. As of
31 March 2005, we had approximately 2 million fixed-line telephone access channels in service, of which approximately 1.6 million were PSTN lines and approximately
0.4 million were ISDN channels. As of 31 March 2005 we had approximately 128,000 PSTN lines which were enabled for simultaneous support of PSTN and ADSL bitstream, permitting
simultaneous, high-speed transmission of voice and data over our network, which had been taken up by retail and wholesale customers. We had turnover of €1.6 billion
in the financial year ended 31 March 2005 and total fixed and current assets of €3.5 billion as of 31 March 2005.

We
offer residential and business customers a wide range of services and products, including:



We
also offer other authorised operators wholesale services and products, including interconnect services, leased lines and switched data services, partial private circuits, unbundled
local loops, ADSL bitstream access, carrier pre-selection, single billing through WLR, agency re-billing, geographic and non-geographic number portability and
FRIACO. For a description of these services and products, see Item 4D "Information on our CompanyOur Business".

Principal Factors that Affect our Results of Operations



As the principal provider of fixed-line telecommunications services in Ireland, our performance is affected by factors affecting growth in this market
generally. According to quarterly data published by ComReg, the Irish fixed-line telecommunications market has slowed during the financial year ended 31 March 2003, declined in the
financial year ended 31 March 2004 and in the nine-months ended 31 December 2004. (We are in discussion with ComReg to understand the changes made to fixed-line
revenue classifications in the most recent ComReg report produced in June 2005. Pending resolution of these discussions, our view is that revenue in the fixed line market is declining at approximately
2% per annum.) This was primarily as a result of the substitution of mobile services and messaging services such as e-mail for fixed voice services, which, while difficult to quantify, we
believe has had a negative impact on growth in the fixed-line market. We believe that annual growth rates in this market will continue to slow, and there may continue to be quarterly or
annual periods of flat or negative growth, making it more difficult for us to increase turnover or even leading to a decrease in turnover, since our business is focused on the fixed-line
market.



The Irish telecommunications market was fully opened to competition on 1 December 1998. Competitors quickly entered the market, and we now compete with a
number of other authorised operators in the provision of voice and data services. In 2000, ComReg's predecessor introduced a number of measures to increase competition, including carrier
pre-selection and number portability. Despite increased competition and these regulatory measures, we have been able to maintain our majority market share (based on turnover) of the Irish
fixed-line market throughout recent years. ComReg estimated our revenue share for the year ended 31 December 2004 at approximately 79%.

76

---



However,
we believe that these regulatory initiatives and the overall trend towards increased competition is likely to result in a decline in our market share in the future.

In
recent years ComReg has taken a number of other measures designed to further increase the competition in the Irish telecommunications market. These initiatives include inter alia:



Ultimately,
these measures may result in further loss of our market share. For more information about these initiatives, see Item 4E "Information on the CompanyRegulation".



Our turnover is affected by changes in the mix of services we provide to retail and wholesale customers. A complete discussion of our turnover is covered under
"Results of Operations" below.



We face substantial regulatory and competitive pressures on our prices. While the Irish consumer price index (CPI) has increased by approximately 31% in Ireland
since 1997, our prices have decreased in both nominal and real terms. The provision of our services and our prices are subject to extensive regulation, including regulation of our wholesale prices and
a cap that limits the amount by which we can increase our retail prices on a specified basket of services. As a result of these regulations, the prices we charge for our wholesale and retail products
and services do not necessarily reflect the costs we incur in offering them nor the prices that we would charge in the absence of such regulations. In February 2003, ComReg changed the retail
price cap from a permitted annual change in average prices equal to the Irish consumer price index minus 8%, to a permitted annual change in average prices equal to the Irish consumer price index
minus 0%. ComReg also eliminated the sub-caps it had previously imposed on the individual services within the basket, and added fixed-to-mobile calls to the list of
services included in the basket while directory enquiry calls were removed.

To
date we have rebalanced charges through permitted increases, principally to the prices for access services as opposed to call charges. Since the elimination of retail
sub-caps, we have increased PSTN line rental charges by over 23%. Following these increases, ComReg have stated in the draft decision on Market Analysis of Retail Narrowband Access markets
thateircomis now rebalanced.
ComReg are proposing to impose a sub cap on PSTN line rental of CPI minus CPI (i.e. no increase in nominal pricing) for one year from the date of the final decision. In any subsequent years the
sub-cap would be at the rate of CPI minus 0%. In the Market Analysis of Retail Voice calls, ComReg have proposed that the current Price Cap will continue until markets are next reviewed
for SMP designation and remedies. ComReg has based its market assessment on a time horizon of about 2 years. For more information about our pricing, see Item 4D "Information on the
CompanyOur BusinessTariffs".

77

---



Consistent with the Minister's 26 March 2004 policy direction to ComReg, on 31 March 2004 we launched our enhanced carrier pre-selection single billing through
WLR product. On 31 March 2004 ComReg directed that from 1 April 2004 prices for the WLR product will be set at retail price less 10% and this margin still applies in June 2005.
In March 2005 ComReg published a draft direction on the market analysis for the Retail Fixed Narrowband Access Markets. ComReg stated that it intends to continue with the application of the
retail minus price control for WLR for the period of the market review.

Competition
in the Irish telecommunications market also creates downward pressure on our prices independent of regulatory constraints. In response to market pressures, we offer discount
packages on calls, corporate network services and leased line services to our retail customers. We launched our TalkTime discount packages in June 2004 providing customers with a range of
residential and business offerings that include standard line rental bundled with call minute and phone services allowances. On 27 May 2005 we introduced two new Talktime packages for
residential customers, offering unlimited off-peak All-Ireland calls and unlimited Anytime All-Ireland calls.

Because
of the overall decrease in the volume of fixed-line voice traffic, maintaining or increasing turnover will continue to be dependent to a significant degree on
continued increases in the volume of data traffic or services and on our ability to maintain appropriate pricing levels in the face of continued competitive and regulatory pressures on pricing.

Retail
prices will also be impacted by changes in our wholesale prices, which are subject to regulation. Recent directions have provided a degree of certainty on pricing for ULMP and WLR
wholesale access products for the immediate future while ComReg is currently consulting on pricing for our shared access product.

Wholesale
leased lines, wholesale broadband and wholesale line rental for telephony access are all priced on a retail-minus basis. Pressures for reductions in this set of wholesale
prices are likely to come mainly from requirements for retail price reductions or from re-alignment withineircom's wholesale portfolio.

Our
prices for interconnect services, unbundled loops and partial private circuits are all set on the basis of Long Run Incremental Costs (LRIC). ComReg has recently initiated a
bottom-up review of the costings for our core network, which may ultimately result in changes to the pricing of these services.

See
Item 4E "Information on the CompanyRegulation"



Like most fixed-line telecommunications operators, our business is negatively impacted by customers' use of mobile telephones as a substitute for our
services. This process is known as mobile substitution. The net impact of mobile substitution on our turnover is difficult to quantify, especially since increased use of mobile telephones also results
in additional traffic to and from our fixed-line customers.

We
are continuing to introduce new service options for our customers, such as cordless portable fixed-line handsets with "mobile"-type features, in order to make
our services more attractive relative to mobile use. We also highlight the value of our fixed-line services, such as significantly lower per minute charges for calls, compared to mobile.
Despite these initiatives, we believe that mobile substitution will continue to have a net negative impact on the fixed-line voice traffic market and our future growth.

78

---





As part of the reorganisation and refinancing described in Item 4 "Information on the Company",eircomGroup
acquired the entire issued share capital of Valentia Telecommunications in exchange for newly-issued shares ofeircomGroup. As a result, eircomGroup now
owns the entire issued share capital of Valentia Telecommunications.

This
acquisition has been accounted for in accordance with the principles of merger accounting under Financial Reporting Standard 6 "Acquisitions and Mergers".

In November
2001, Valentia Telecommunications' offer to acquire 100% of the share capital ofeircom, our Predecessor, by means of a
recommended public takeover pursuant to the Irish Takeover Rules
became unconditional. The cash offer entitled eacheircomshareholder to receive €1.365 for each eircomshare and valuedeircomat approximately €3 billion. eircomwas re-registered as a private limited company effective as of 26 February 2002.

We
accounted for the acquisition of the entire share capital ofeircomby Valentia Telecommunications using the acquisition method of
accounting. Accordingly, we allocated the purchase price for the acquisition to the assets we acquired and liabilities we assumed based upon their respective fair values, in accordance with UK and
Irish GAAP. We applied €764 million of the purchase price, representing the portion of the purchase price that was in excess of the fair market value of the net assets acquired,
to goodwill. This goodwill was subsequently reduced by €3 million to take account of certain acquisition costs that were not ultimately payable. We are amortising this goodwill
over 20 years, which is in accordance with UK and Irish GAAP.



We operate in a highly regulated and competitive pricing environment. Therefore our continued ability to reduce costs will be a key factor in maintaining or
improving our operating profit.

We
began a programme during the financial year ended 31 March 2001, prior to the acquisition of the entire share capital ofeircomby Valentia Telecommunications, to consolidate our operations around our core domestic fixed-line business and disposed of or closed most of our non-core businesses. On
11 May 2001, we also completed the demerger of our mobile telecommunications business, Eircell, witheircom's then shareholders receiving shares
in Vodafone Group plc as a result of the demerger. During the financial year ended 31 March 2003, we received a cash dividend of €192 million and a management fee of
€3 million in connection with exiting from our remaining 63% stake in Golden Pages, a directory services business, and disposed of eircomNI Limited for €3.5 million (subject to a
potential purchase price adjustment). We have also exited our
loss-making multi-media activities and curtailed our presence in the United Kingdom.

We
continue to focus on reducing operational expenditure. Employee-related expenses are a significant component of our operating expenses and a focus of our cost management has been
reducing employee headcount. We have reduced the average number of employees from to 9,129 for the financial year ended 31 March 2003, to 7,595 for the financial year ended 31 March
2005. This decline in average headcount reflects the impact of our voluntary severance, as well as the reduction of employees in connection with our discontinuation, disposal and exit of various
businesses and outsourcing certain activities through Managed Service contracts. We intend to continue to reduce our headcount to approximately 7,000 by 31 March 2008 or earlier if it is
possible to do so. We also are continuing to focus on reducing costs through our strict cost management programme and by continuing to improve our supply chain management. For more information about
our supply chain management initiatives, see Item 4D "Information on the CompanyOur Business".

79

---



We
intend to continue to pursue a focused and disciplined capital expenditure programme in the future, focusing on evolutionary improvements in our network. See "Capital expenditure and
financial investment", below.



Our operating profit has not been significantly influenced by inflation, although we are affected by inflationary pressures on wages and salaries and on property
costs. In addition, the prices at which we offer many of our services and products are regulated based on measures related to the Irish consumer price index and accordingly are directly tied to the
rate of inflation.



We operate primarily in the Irish market and have minimal operational exposure to foreign exchange rate movements. Following the offering of debt securities
in August 2003, we have $250 million in Senior Subordinated Notes that are denominated in U.S. dollars. However, all of our payment obligations in respect of the Senior Subordinated
Notes have been hedged into euro, thereby eliminating this foreign currency exposure. For further discussion of our exposure to exchange rate fluctuations, see Item 11 "Quantitative and Qualitative
Disclosures about Market Risk".

Recent DevelopmentsCompletion of Reorganisation and Refinancing, and IPO

Beginning in July 2003, we engaged in a series of transactions whereby we reorganised our corporate structure, issued new debt instruments, refinanced and
discharged existing debt and funded a dividend and redemption of certain preference shares.

In July
2003,eircomGroup became the holding company for the Group through its acquisition of the entire issued share capital of
Valentia Telecommunications and its subsidiaries in exchange for newly-issued shares ofeircomGroup. As an English company, eircomGroup had greater
flexibility under the laws of England and Wales to make distributions following the reorganisation and refinancing than would
have been the case for Valentia Telecommunications, an Irish company, due in part to the availability of merger relief under English law.

On
6 August 2003, we refinanced substantially all of our existing indebtedness. In connection with the refinancing, Valentia Telecommunications issued
€550 million aggregate principal amount of 7.25% Senior Notes due 2013 andeircomFunding issued
€285 million aggregate principal amount of 8.25% Senior Subordinated Notes due 2013 and $250 million aggregate principal amount of 8.25% Senior Subordinated Notes due
2013. In addition, Valentia Telecommunications entered into a Senior Credit Facility, being a €1.4 billion credit facility, of which €1.25 billion was
drawn down.

Valentia
Telecommunications used a portion of the proceeds from the notes offering and the funds drawn down under the Senior Credit Facility in order to discharge its indebtedness under
its prior credit facility and to pay transaction costs. In addition, Valentia Telecommunications used available cash, including cash held within the Group to fund a dividend of
€512 million toeircomGroup, utilising the reserves released on a cancellation of its share premium and the issue and
cancellation of ordinary shares.eircomGroup used this dividend to declare and pay dividends to its shareholders of
€446 million and to redeem certain preference shares for €66 million.

Initial Public Offering

On 26 February 2004 Valentia Holdings Limited changed its name toeircomGroup Limited, and
re-registered as a public limited company (eircomGroup plc) on 8 March 2004. Shortly thereafter eircomGroup plc in an Initial Public Offering (the
"IPO") issued new ordinary shares and the ESOT subscribed for new ordinary shares pursuant to a
rights issue (the "ESOT Ordinary Share Rights

80

---



Issue").
Simultaneously certain of our shareholders offered their ordinary shares (equating to more than 50% of the ordinary shares ineircomGroup plc)
to institutional and other sophisticated investors outside the United States and to qualified institutional buyers in the United States pursuant to the exemption from the registration requirements of
the Securities Act of 1933 (the "Securities Act").eircomGroup plc's shares were listed on the London and Irish Stock Exchanges on 24 March
2004. We also amended the terms of our Senior Notes and Senior Subordinated Notes primarily to provide greater flexibility to pay dividends to our shareholders and on 18 March 2004 we entered
into the current Senior Credit Facility (of which €1.25 billion was drawn down) to refinance certain existing indebtedness and to pay certain fees, costs and expenses associated
with the IPO (See Item 10B "Additional InformationMaterial Contracts").

Critical Accounting Policies

Our principal accounting policies are set out in the note 1 to the consolidated financial statements of eircomGroup contained in
Item 18 "Financial Statements". These policies conform with UK GAAP. UK GAAP differs in certain significant respects from U.S.
GAAP. A discussion of the differences relevant to the financial statements ofeircomGroup and a reconciliation of our net profit or loss attributable
to group shareholders and shareholders' equity to U.S. GAAP is set forth in note 34 to the consolidated financial statements ofeircomGroup
contained in Item 18 "Financial Statements".

We,
like virtually all other companies, use estimates and judgements that affect the reported amounts in our consolidated financial statements and accompanying notes. The most sensitive
estimates affecting our financial statements involve the following areas:



81

---





82

---





83

---





Results of Operations

The following table shows selected consolidated profit and loss data from our operations for the periods indicated.

|                                                                                                               |  | Financial
Year Ended
31 March
2003
€'m |   | Financial
Year Ended
31 March
2004
€'m |   | Financial
Year Ended
31 March
2005
€'m |  
|-------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | - | -------------------------------------- | - | -------------------------------------- | -
|Consolidated Profit and Loss Data:                                                                             |  |                                        |   |                                        |   |                                        |  
|Continuing operations                                                                                          |  |                                        |   |                                        |   |                                        |  
|Turnover                                                                                                       |  | 1,682                                  |   | 1,628                                  |   | 1,602                                  |  
|Cost of sales                                                                                                  |  | (499                                   | ) | (410                                   | ) | (378                                   | )
|                                                                                                               |  |                                        |   |                                        |   |                                        |  
|Gross profit                                                                                                   |  | 1,183                                  |   | 1,218                                  |   | 1,224                                  |  
|                                                                                                               | 
|Operating costs before depreciation impairment, goodwill amortised and operating exceptional (charges)/credits |  | (648                                   | ) | (632                                   | ) | (696                                   | )
|Exceptional operating exceptional (charges)/credits                                                            |  | (13                                    | ) | (24                                    | ) | 4                                      |  
|Depreciation                                                                                                   |  | (399                                   | ) | (368                                   | ) | (316                                   | )
|Exceptional fixed asset impairments                                                                            |  |                                       |   | (38                                    | ) |                                       |  
|Goodwill amortised on subsidiary undertakings                                                                  |  | (38                                    | ) | (38                                    | ) | (38                                    | )
|                                                                                                               | 
|Total operating costs                                                                                          |  | (1,098                                 | ) | (1,100                                 | ) | (1,046                                 | )
|                                                                                                               |  |                                        |   |                                        |   |                                        |  
|Group operating profit before group share of associated undertakings                                           |  | 85                                     |   | 118                                    |   | 178                                    |  
|Group's share of operating profits of associated undertakings                                                  |  |                                       |   |                                       |   | 1                                      |  
|                                                                                                               |  |                                        |   |                                        |   |                                        |  
|Operating profit from continuing operations                                                                    |  | 85                                     |   | 118                                    |   | 179                                    |  
|Non-operating exceptional items(1)                                                                             |  | 3                                      |   | 1                                      |   |                                       |  
|Interest payable and similar charges (net)                                                                     |  | (134                                   | ) | (157                                   | ) | (128                                   | )
|Exceptional interest payable and similar charges                                                               |  |                                       |   | (51                                    | ) | 1                                      |  
|                                                                                                               |  |                                        |   |                                        |   |                                        |  
|(Loss)/profit on ordinary activities before taxation                                                           |  | (46                                    | ) | (89                                    | ) | 52                                     |  
|Taxation credit/(charge) on (loss)/profit on ordinary activities                                               |  | 6                                      |   | (14                                    | ) | (20                                    | )
|                                                                                                               |  |                                        |   |                                        |   |                                        |  
|(Loss)/profit after taxation                                                                                   |  | (40                                    | ) | (103                                   | ) | 32                                     |  
|Dividend Paid and Proposed (including dividends and other appropriations in respect of non-equity shares)      |  | (22                                    | ) | (428                                   | ) | (103                                   | )
|                                                                                                               |  |                                        |   |                                        |   |                                        |  
|Loss absorbed for the financial year                                                                           |  | (62                                    | ) | (531                                   | ) | (71                                    | )
|                                                                                                               |  |                                        |   |                                        |   |                                        |  

---

Financial
Year Ended
31 March
2003
€'m

Financial
Year Ended
31 March
2004
€'m

Financial
Year Ended
31 March
2005
€'mExceptional gain on the disposal of fixed assets

2



Exceptional gain on exit from subsidiaries

1

1

Total non-operating exceptional items

3

1




84

---



The following table shows certain financial data from continuing operations for the years indicated, expressed in each case as a percentage of
continuing turnover:

Financial
Year Ended
31 March
2003
%

Financial
Year Ended
31 March
2004
%

Financial
Year Ended
31 March
2005
%Turnover

100

100

100Cost of sales

(30
)
(25
)
(24
)Gross profit

70

75

76Other operating costs(1)

(38
)
(39
)
(43
)32

36

33


---



The following table shows our turnover from continuing operations, analysed by major categories of products and services, and the percentage change for each
category, for the periods indicated:

|                                |  | Financial Year Ended 31 March |   | Percentage Change(1) |  
|------------------------------- |  | ----------------------------- | - | -------------------- | -
|
|Access (rental and connections) |  | 423                           |   | 489                  |  
|Voice traffic                   |  | 564                           |   | 509                  |  
|Advanced voice services traffic |  | 87                            |   | 87                   |  
|                                |  |                               |   |                      |  
|Total voice traffic             |  | 651                           |   | 596                  |  
|Data traffic                    |  | 104                           |   | 112                  |  
|                                |  |                               |   |                      |  
|Total voice and data traffic    |  | 755                           |   | 708                  |  
|Data communications             |  | 204                           |   | 195                  |  
|Interconnect services           |  | 210                           |   | 159                  |  
|Other products and services     |  | 187                           |   | 159                  |  
|                                |  |                               |   |                      |  
|Gross income                    |  | 1,779                         |   | 1,710                |  
|Discounts(2)                    |  | (97                           | ) | (82                  | )
|                                |  |                               |   |                      |  
|Total turnover                  |  | 1,682                         |   | 1,628                |  
|                                |  |                               |   |                      |  

---

Total turnover decreased by 2% in the financial year ended 31 March 2005. This was primarily due to reduced voice and data traffic volumes,
reductions in some tariffs, and a decline in turnover from data communications. This was partially offset by increased turnover from ADSL and bitstream and price increases on access products,
introduced in the last quarter of 2004 with higher PSTN line charges. In the financial year ended 31 March 2004, turnover decreased by 3%, this was primarily due to reduced voice traffic
volumes, reductions in certain tariffs, a decline in turnover from data

85

---



communications
and lower interconnect turnover derived from very low margin transit traffic. This was partially offset by price increases on access products, in particular higher PSTN line charges and
increased data traffic volumes. Part of the reduction in turnover in the financial year ended 31 March 2004 is also due to the exit of certain businesses including eircomRetail stores.



Turnover from line rental, connection and other charges consists principally of turnover from monthly subscription fees for PSTN, ISDN, ADSL and bitstream line
rentals, initial connection fees and fees for call management services. Turnover from line rental, connection and other charges depends primarily on the total number of access channels in service and
the mix of PSTN, ISDN, ADSL and bitstream lines. ISDN lines have a higher monthly subscription charge than PSTN lines.

The
following table shows rental, connection and other charges and the number of access channels in service, including public payphones, and the percentage changes for the periods
indicated:

|                                                                 |  | Financial Year Ended 31 March |  | Percentage Change(1) | 
|---------------------------------------------------------------- |  | ----------------------------- |  | -------------------- | 
|
|Total access                                                     |  |                               |  |                      | 
|Line and equipment rental                                        |  | 398                           |  | 449                  | 
|Connection and other charges                                     |  | 23                            |  | 23                   | 
|ADSL & bitstream(4)                                              |  | 2                             |  | 17                   | 
|WLR rental and connection                                        |  |                              |  |                     | 
|                                                                 |  |                               |  |                      | 
|Total access turnover                                            |  | 423                           |  | 489                  | 
|                                                                 |  |                               |  |                      | 
|Access channels (in thousands at period end, except percentages) |  |                               |  |                      | 
|PSTN(2)                                                          |  | 1,596                         |  | 1,587                | 
|PSTN WLR(4)                                                      |  |                              |  |                     | 
|                                                                 |  |                               |  |                      | 
|Total PSTN                                                       |  | 1,596                         |  | 1,587                | 
|ISDN(3)                                                          |  | 351                           |  | 372                  | 
|ISDN WLR(4)                                                      |  |                              |  |                     | 
|                                                                 |  |                               |  |                      | 
|Total ISDN                                                       |  | 351                           |  | 372                  | 
|ADSL & bitstream(5)                                              |  | 3                             |  | 39                   | 
|                                                                 |  |                               |  |                      | 
|Total access channels                                            |  | 1,950                         |  | 1,998                | 
|                                                                 |  |                               |  |                      | 

---

The increase in turnover from access was 14% in the financial year ended 31 March 2005 due primarily to an increase in ADSL and bitstream
turnover as a result of increased customer demand for the new low-cost ADSL service, and increases in PSTN line rental charges introduced in 2004. In the financial year ended
31 March 2004, access turnover increased by 16%, due primarily to increases in

86

---



PSTN
line rental charges introduced in 2004, growth in the number of ISDN channels, and an increase in ADSL and bitstream turnover as a result of increased customer demand for the new
low-cost ADSL service

Our
total PSTN lines increased by 1% in the financial years ended 31 March 2005, however the number of channels sold to retail customers decreased by 6% due to the introduction of
WLR in the period. In addition, during the year, the Customer Acquisition Programme launched in the Residential market was successful in selling approximately 24,000 access lines to new customers in
the Residential market. In the financial year ended 31 March 2004 our total PSTN lines decreased by 1% principally due to the increasing substitution of mobile phones for fixed-line
services and an increase in the number of residential customers upgrading their PSTN lines to ISDN access. The total number of ISDN channels increased by 3% in the financial year ended 31 March
2005 to approximately 383,000 due to the introduction of WLR. ISDN channels increased by 6% in the financial year ended 31 March 2004, principally due to increased demand for data, multimedia
and interactive services.

ADSL
and bitstream turnover increased significantly in the financial year ended 31 March 2005 and in the financial year ended 31 March 2004, as a result of increased
customer demand following new special promotions introduced. By 31 March 2005, the number of ADSL and bitstream lines had increased to approximately 128,000 lines up from 39,000, in the
financial year ended 31 March 2004. It should be noted, however, that since we write-off the cost of modems, connection costs and all the marketing costs of this business line as
incurred, ADSL and bitstream made a very marginal contribution after direct costs. On a fully costed basis, after depreciation of direct assets such as line cards, the ADSL and bitstream business
activity lost some €45 million in the last twelve months, a similar amount to the losses of the previous year.

The
first WLR orders from other authorised operators were received and processed during the quarter ended 30 September 2004. At 31 March 2005 approximately 103,000 PSTN
lines and approximately 11,000 ISDN channels had transferred to other authorised operators. WLR rental and connection yielded wholesale product revenues of approximately
€9 million in the financial year ended 31 March 2005 foreircom, which resulted in a reduction in line and equipment
rental revenue due to reduced eircom customer lines.



Traffic turnover derives from local, national, fixed-to-mobile and outgoing international calls, advanced voice services, and data
traffic. The amount of traffic turnover we earn depends upon a variety of factors, including:



87

---





The following table shows information relating to our total traffic turnover and our traffic volumes and the percentage change for the periods indicated:

|                                                     |  | Financial Year Ended 31 March |  | Percentage Change(1) | 
|---------------------------------------------------- |  | ----------------------------- |  | -------------------- | 
|
|Turnover(2)                                          |  |                               |  |                      | 
|Basic voice traffic turnover                         |  |                               |  |                      | 
|Domestic                                             |  |                               |  |                      | 
|Local(3)                                             |  | 133                           |  | 121                  | 
|National(4)                                          |  | 72                            |  | 56                   | 
|Fixed-to-mobile(5)                                   |  | 229                           |  | 220                  | 
|International(6)                                     |  | 130                           |  | 112                  | 
|                                                     |  |                               |  |                      | 
|Total basic voice traffic turnover                   |  | 564                           |  | 509                  | 
|Freefone(7)                                          |  | 24                            |  | 25                   | 
|Virtual private network(8)                           |  | 19                            |  | 22                   | 
|Premium rate services(9)                             |  | 30                            |  | 25                   | 
|Other advanced voice services                        |  | 14                            |  | 15                   | 
|                                                     |  |                               |  |                      | 
|Total advanced voice traffic turnover                |  | 87                            |  | 87                   | 
|                                                     |  |                               |  |                      | 
|Total voice traffic turnover                         |  | 651                           |  | 596                  | 
|Data traffic turnover                                |  |                               |  |                      | 
|PSTN data                                            |  | 61                            |  | 70                   | 
|ISDN data                                            |  | 43                            |  | 42                   | 
|                                                     |  |                               |  |                      | 
|Total data traffic turnover                          |  | 104                           |  | 112                  | 
|                                                     |  |                               |  |                      | 
|Total traffic turnover                               |  | 755                           |  | 708                  | 
|                                                     |  |                               |  |                      | 
|Traffic (in millions of minutes, except percentages) |  |                               |  |                      | 
|Voice traffic volume                                 |  |                               |  |                      | 
|Domestic traffic:                                    |  |                               |  |                      | 
|Local(3)(10)                                         |  | 4,013                         |  | 3,642                | 
|National(4)                                          |  | 1,297                         |  | 1,136                | 
|Fixed-to-mobile(5)                                   |  | 1,226                         |  | 1,241                | 
|International(6)                                     |  | 593                           |  | 533                  | 
|                                                     |  |                               |  |                      | 
|Total basic voice traffic volume                     |  | 7,129                         |  | 6,552                | 
|Freefone(7)                                          |  | 288                           |  | 323                  | 
|Virtual private network(8)                           |  | 239                           |  | 288                  | 
|Premium rate services(9)                             |  | 28                            |  | 23                   | 
|Other advanced voice services                        |  | 98                            |  | 79                   | 
|                                                     |  |                               |  |                      | 
|Total advanced voice services                        |  | 653                           |  | 713                  | 
|                                                     |  |                               |  |                      | 
|Total voice minutes                                  |  | 7,782                         |  | 7,265                | 
|Data traffic volume                                  |  |                               |  |                      | 
|PSTN data                                            |  | 3,559                         |  | 4,020                | 
|ISDN data                                            |  | 1,752                         |  | 1,870                | 
|                                                     |  |                               |  |                      | 
|Total traffic data minutes                           |  | 5,311                         |  | 5,890                | 
|                                                     |  |                               |  |                      | 
|Total traffic minutes                                |  | 13,093                        |  | 13,155               | 
|                                                     |  |                               |  |                      | 

---

88

---



Overall turnover from voice and data traffic decreased by 10% in the financial year ended 31 March 2005 and by 6% in the financial year
ended 31 March 2004.

Voice traffic.Basic voice traffic turnover decreased by 11% in the financial year ended 31 March 2005. This is due
primarily to an overall decline in traffic volumes arising from loss of market share and weakness in the traditional voice market, as well as reductions in tariffs on international and fixed to mobile
call types. In the financial year ended 31 March 2004 basic voice turnover decreased by 10% primarily due to reductions in tariffs on national and fixed-to-mobile call
types and an overall decline in traffic volumes due to loss of market share and weakness in the traditional voice market, principally due to mobile substitution. Loss of market share and weaknesses in
the market impacted local, national, fixed to mobile and international turnover, with increased volumes on fixed to mobile partially compensating for reduced tariffs.

Turnover
relating to advanced voice services decreased by 4% in the financial year ended 31 March 2005, primarily due to a decrease in Freefone and low margin premium rate
services offset partially by growth in virtual private network and other advanced voice services turnover. In the financial year ended 31 March 2004, advanced voice services turnover increased
by 1%, due to strong growth in virtual private network turnover, offset by a reduction in premium rate services turnover.

Total
voice traffic minutes decreased by 10% in the financial year ended 31 March 2005 and 6% in the financial year ended 31 March 2004, primarily due to a contraction of
the fixed-line voice market in Ireland as a result of increasing mobile substitution, as well as the loss of some market share to competitors and the introduction of WLR in the financial
year ended 31 March 2005.

Data traffic.Turnover from data traffic decreased by 14% and data minutes decreased by 14% in the financial year ended
31 March 2005. This decrease was primarily due to the migration of heavy data users to ADSL and bitstream which is an 'always on' product. Turnover from data traffic increased by 9% in the
financial year ended 31 March 2004. The increase in turnover was primarily due to 10% increased in data traffic volumes in the financial year ended 31 March 2004. The volume increase
resulted primarily from growth in Internet usage.



Data communications comprise leased lines; switched data services, including Business IP+, frame relay, ATM and packet switched data services; Wi-Fi
services; ISP services and ancillary services. Turnover from data communications is principally a function of tariffs, the terms of a customer's service level agreement and installation and monthly
rental fees.

89

---



The
following table shows information relating to turnover from data communications products and services and the number of leased lines, and the percentage changes for the periods
indicated:

|                                                           |  | Financial Year Ended 31 March |  | Percentage Change(1) | 
|---------------------------------------------------------- |  | ----------------------------- |  | -------------------- | 
|
|Data communications                                        |  |                               |  |                      | 
|Leased lines                                               |  | 150                           |  | 136                  | 
|Switched data services                                     |  | 25                            |  | 29                   | 
|ISP                                                        |  | 29                            |  | 30                   | 
|                                                           |  |                               |  |                      | 
|Total data communications turnover(2)                      |  | 204                           |  | 195                  | 
|                                                           |  |                               |  |                      | 
|Number of leased lines (at period end, except percentages) |  |                               |  |                      | 
|National leased lines                                      |  | 26,574                        |  | 24,599               | 
|Partial Private Circuits(3)                                |  |                              |  | 16                   | 
|International leased lines                                 |  | 772                           |  | 542                  | 
|Interconnect paths                                         |  | 2,688                         |  | 2,567                | 
|                                                           |  |                               |  |                      | 
|Total leased lines                                         |  | 30,034                        |  | 27,708               | 
|                                                           |  |                               |  |                      | 

---

Turnover from data communications decreased by 7% in the financial year ended 31 March 2005, primarily due to a reduction in leased line
and ISP turnover partially offset by growth in Switched Data services. In the financial year ended 31 March 2004 turnover from data communications decreased by 5% primarily due to a reduction
in leased line and ISP turnover partially offset by growth in Switched Data services.

Leased
line turnover decreased by 6% in the financial year ended 31 March 2005 and 9% in the financial year ended 31 March 2004, due to a reduction in the number of leased
lines in operation, as well as a reduction in tariffs. This was due to rationalisation of other authorised operators' networks, increased competition from international licensed operators and customer
migration from analogue leased lines to a smaller number of high capacity digital leased lines or to switched data services. Switched data services turnover increased by 7% in the financial year ended
31 March 2005 and 13% in the financial year ended 31 March 2004, mainly due to new customer acquisitions in BIP, partly offset by migration of customers from Frame Relay and ATM. BIP is
a more modern and advanced data service based on IP technology which corporate and small business customers are increasingly using due to its flexibility and efficiency.

ISP
turnover decreased by 25% in the financial year ended 31 March 2005, mainly due to customers migrating from the ISP's internet subscription dial-up products to our
flat rate and ADSL products which are now included under Data traffic and Access turnover respectively. In the financial year ended 31 March 2004 ISP turnover increased by 5% due to an increase
in our ISP internet subscription dial-up products.

90

---





Interconnect turnover arises from charges to other authorised operators for connecting to our network and comprises of, among other things, call origination
revenue, call termination revenue, transit
revenue, revenue from ancillary services and international transit revenue. Call origination revenue represents revenue from calls made by customers of other authorised operators that originate on our
network. Call termination revenue represents revenue from calls originating from the networks of other authorised operators and terminating on our network. Transit revenue represents revenue arising
from charges to other authorised operators for using our network to route their customers' calls to customers on other fixed or mobile networks. Ancillary services revenue represents revenue from
Freefone and premium rate services, Internet services, emergency services and directory enquiry services.

The
following table shows information relating to turnover and traffic from interconnect services and the percentage change for the periods indicated:

|                                                                           |  | Financial Year Ended 31 March |  | Percentage Change(1) | 
|-------------------------------------------------------------------------- |  | ----------------------------- |  | -------------------- | 
|
|Interconnect services turnover                                             |  |                               |  |                      | 
|Interconnect                                                               |  | 169                           |  | 122                  | 
|Foreign terminating traffic                                                |  | 41                            |  | 37                   | 
|                                                                           |  |                               |  |                      | 
|Total interconnect services turnover                                       |  | 210                           |  | 159                  | 
|                                                                           |  |                               |  |                      | 
|Interconnect services traffic (in millions of minutes, except percentages) |  |                               |  |                      | 
|Interconnect                                                               |  |                               |  |                      | 
|Call origination                                                           |  | 2,031                         |  | 2,253                | 
|Call termination                                                           |  | 2,771                         |  | 2,809                | 
|Transit to mobile/fixed                                                    |  | 914                           |  | 655                  | 
|Ancillary(2)(3)                                                            |  | 185                           |  | 249                  | 
|International                                                              |  | 153                           |  | 153                  | 
|                                                                           |  |                               |  |                      | 
|Total interconnect                                                         |  | 6,054                         |  | 6,119                | 
|Foreign terminating traffic                                                |  | 783                           |  | 931                  | 
|                                                                           |  |                               |  |                      | 
|Total interconnect services traffic                                        |  | 6,837                         |  | 7,050                | 
|                                                                           |  |                               |  |                      | 

---

Interconnect services turnover increased by 3%, in the financial year ended 31 March 2005 mainly due to a growth in foreign terminating
traffic, partially offset by a reduction in interconnect turnover.

Turnover
from interconnect decreased by 4%, in the financial year ended 31 March 2005, primarily due to an ongoing reduction in transit turnover which has a low margin, largely
resulting from other authorised operators (particularly mobile) directly interconnecting with each other which led to a reduction in transit volumes of 12%. The remaining reduction in interconnect
turnover was primarily due to a reduction in international turnover due to lower rates and volumes. Call origination and termination volumes increased by 18% and 14% respectively in the financial year
ended 31 March 2005 due to an increase in the number of carrier pre-select lines.

91

---



In
the financial year ended 31 March 2004, interconnect services turnover decreased by 24%. The reduction in total interconnect services was mainly due to a 28% decrease in
interconnect turnover, primarily due to a reduction in transit turnover which has a low margin, largely resulting from other authorised operators (particularly mobile) directly interconnecting with
each other which led to a reduction in transit volumes of 28%. The remaining reduction in turnover was mainly due to a reduction in international turnover due to lower rates while volumes were
maintained. Ancillary volumes grew by 35% in the financial year ended 31 March 2004, mainly due to increased interconnect freefone traffic and access to eircominternet services which attract a low
rate.

Turnover
from foreign terminating traffic increased by 27% in the financial year ended 31 March 2005, primarily as a result of increased incoming traffic to mobiles.

In
the financial year ended 31 March 2004 turnover from foreign terminating traffic decreased by 8%, primarily as a result of decreases in settlement rates in line with
international trends, which was
partially offset by an increase in volumes and the inclusion ofeircomUK volumes which are not included in the prior year.



Other products and services include our sales of customer premises equipment to corporate and business customers in eircomBusiness
Systems, directory enquiry and operator services, calling cards, public payphones, Phonewatch, Lan Communications and other turnover,
including, Infonet.

The
following table shows information relating to turnover for other services and the percentage change for the periods indicated:

|                                     |  | Financial Year Ended 31 March |  | Percentage Change(1) | 
|------------------------------------ |  | ----------------------------- |  | -------------------- | 
|
|Customer premises equipment          |  | 35                            |  | 31                   | 
|Operator services(2)                 |  | 31                            |  | 34                   | 
|Card and payphones                   |  | 23                            |  | 18                   | 
|Phonewatch                           |  | 13                            |  | 15                   | 
|Lan communications                   |  | 19                            |  | 19                   | 
|Other turnover                       |  | 66                            |  | 42                   | 
|                                     |  |                               |  |                      | 
|Other products and services turnover |  | 187                           |  | 159                  | 
|                                     |  |                               |  |                      | 

---

Turnover from other products and services decreased by 3% in the financial year ended 31 March 2005, primarily due to a decrease in
customer premises equipment, Operator Services and Card & Payphones turnover. This was partially offset by higher revenues from Phonewatch and Lan Communications.

Customer
premises equipment turnover decreased by 16% in the financial year ended 31 March 2005 due to lower equipment sales. Operator Services turnover decreased by 4% in the
financial year ended 31 March 2005 due to lower directory enquiry volumes. Card and Payphones turnover decreased by 25% in the financial year ended 31 March 2005 due to increased mobile
use and growth of low-cost international call shops. Phonewatch turnover increased by 21% in the financial year ended 31 March 2005 due to increased sales of security devices and
related services. Lan Communications turnover

92

---



increased
by 15% in the financial year ended 31 March 2005 due to improved hardware sales. Other turnover was flat in the financial year ended 31 March 2005.

In
the financial year ended 31 March 2004, other product and services turnover decreased by 15% primarily due to our exit from eircomRetail stores and certain other businesses, reductions in calling
card and public payphones turnover as a result of increased mobile use and
lower sales of equipment and hardware to corporate customers.eircomUK turnover is split across the relevant turnover lines in the financial years
ended 31 March 2004 and 31 March 2005, whilst in financial year ended 31 March 2003 all turnover was included in other turnover as this includes subsidiaries. This was partially
offset by increased turnover in Operator services driven by Directory Enquiries call volumes and Phonewatch from increased security device sales and increased turnover from monitoring services.



Discounts increased by 8% to €89 million in the financial year ended 31 March 2005 primarily due to increased discounts given on the
ADSL and bitstream promotions of €14 million, which was partially offset by a reduction in voice discounts of €7 million. Discounts as a percentage of
turnover were 5% in the financial year ended 31 March 2005 and 5% in the financial year ended 31 March 2004. In the financial year ended 31 March 2004 discounts decreased by 15%,
primarily due to the reduction of traffic revenue and the dilution of discount packages offered.



The following table shows information relating to the cost of sales from continuing operations and the percentage change for the periods indicated:

|                    |  | Financial Year Ended 31 March |  | Percentage Change(1) | 
|------------------- |  | ----------------------------- |  | -------------------- | 
|
|Interconnect        |  | 334                           |  | 281                  | 
|Foreign outpayments |  | 51                            |  | 47                   | 
|Other               |  | 114                           |  | 82                   | 
|                    |  |                               |  |                      | 
|Cost of sales       |  | 499                           |  | 410                  | 
|                    |  |                               |  |                      | 

---

Cost of sales decreased by 8% in the financial year ended 31 March 2005. This was due substantially to reduced volumes on interconnect
transit and reduced volumes and rates in foreign outpayments. Cost of sales as a percentage of turnover was 24% in the financial year ended 31 March 2005, compared with 25% in the financial
year ended 31 March 2004. This decrease is primarily a result of the reductions in costs associated with interconnect transit turnover, which is a low-margin product.

In
the financial year ended 31 March 2004, cost of sales decreased by 18%, this was due substantially to reduced volumes on interconnect transit, reduced volumes and rates in
foreign outpayments and the disposal ofeircomRetail stores in the financial year ended 31 March 2003.



Most of our costs of sales are associated with settlement fees that we pay to other authorised operators for traffic that is routed on their networks. Payments to
domestic operators are primarily attributable to calls made by our customers (or customers of other authorised operators, in the case of

93

---



transit
traffic) to fixed and mobile numbers owned by other authorised operators. The amount of such payments is determined by traffic volume and interconnect rates.

Interconnect
cost of sales decreased by 8% in the financial year ended 31 March 2005 and 16% in the financial year ended 31 March 2004. This was primarily due to a
decline in transit traffic, caused by the fact that some other authorised operators (mainly mobile) moved to interconnection with each other instead of routing their traffic through our network. This
factor also resulted in a corresponding decline in transit turnover. In addition, the decrease reflects a decline in certain tariffs, in particular mobile termination rates.



Payments to international carriers are determined by the settlement rates that we have negotiated with international carriers, the volume of outgoing
international traffic and the mix of call destinations.

Foreign
outpayments decreased by 16% in the financial year ended 31 March 2005 and 9% in the financial year ended 31 March 2004, primarily due to lower volumes and
increased competition for international traffic, which resulted in a decline in international settlement rates for calls.



Other costs of sales are attributable to the cost of customer premises equipment sold and commissions paid to agents who sell our services, including calling card
services. Other costs of sales also include leased line penalties, rental of leased lines in the United Kingdom, switched port rental costs and a percentage of amounts received by us for calls by our
customers to premium rate service providers, such as entertainment and information lines, which we in turn remit to the service providers.

Other
costs of sales decreased by 3% in the financial year ended 31 March 2005, due mainly to decreases in costs associated with premium rate services revenue being offset by an
increase in costs associated with the roll out of ADSL and bitstream. In the financial year ended 31 March 2004, other cost of sales decreased by 28%, primarily due to the disposal of the
assets ofeircomRetail stores and lower sales of customer premises equipment to corporate customers, reductions on leased line costs and the disposal
ofeircomNI Limited.

94

---







The following table shows information relating to our other operating costs from continuing operations and the percentage changes for the periods indicated:

|                                                                                                                          |  | Financial Year Ended 31 March |   | Percentage Change(1) |  
|------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | - | -------------------- | -
|
|Staff costs                                                                                                               |  |                               |   |                      |  
|Wages and salaries and other staff costs                                                                                  |  | 372                           |   | 376                  |  
|Social welfare costs                                                                                                      |  | 15                            |   | 14                   |  
|Pension costs                                                                                                             |  | 25                            |   | 25                   |  
|                                                                                                                          |  |                               |   |                      |  
|Pay costs before capitalisation/amortisation                                                                              |  | 412                           |   | 415                  |  
|Pension amortisation                                                                                                      |  | 16                            |   | 16                   |  
|Capitalised labour                                                                                                        |  | (44                           | ) | (54                  | )
|                                                                                                                          |  |                               |   |                      |  
|Total staff costs before restructuring cost                                                                               |  | 384                           |   | 377                  |  
|Restructuring programme costs                                                                                             |  |                              |   |                     |  
|                                                                                                                          |  |                               |   |                      |  
|Total staff costs                                                                                                         |  | 384                           |   | 377                  |  
|Additional operating costs                                                                                                |  |                               |   |                      |  
|Materials and services                                                                                                    |  | 64                            |   | 54                   |  
|Other network costs                                                                                                       |  | 26                            |   | 26                   |  
|Accommodation                                                                                                             |  | 55                            |   | 54                   |  
|Sales and marketing                                                                                                       |  | 32                            |   | 32                   |  
|Transport and travel                                                                                                      |  | 22                            |   | 19                   |  
|IT cost                                                                                                                   |  | 16                            |   | 14                   |  
|Miscellaneous costs                                                                                                       |  | 49                            |   | 56                   |  
|                                                                                                                          |  |                               |   |                      |  
|Additional operating costs                                                                                                |  | 264                           |   | 255                  |  
|                                                                                                                          |  |                               |   |                      |  
|Total other operating costs before Exceptional Operating charges/credits, Depreciation, impairment and goodwill amortised |  | 648                           |   | 632                  |  
|                                                                                                                          |  |                               |   |                      |  

---

Total operating costs before exceptional operating charges/credits, depreciation, impairment and goodwill amortisation increased by 10% for the
financial year ended 31 March 2005 mainly due to restructuring programme costs. Staff costs including restructuring programme costs increased by 15% which was primarily driven by restructuring
programme costs offset by reduced staff costs resulting from reduction in headcount and increased capitalised labour. Additional operating costs increased by 2% for the financial year ended 31
March 2005, mainly due to increased sales and marketing costs, other network costs and miscellaneous costs, partly offset by savings in materials and services and accommodation costs.

In
the financial year ended 31 March 2004, total operating costs before exceptional operating charges, depreciation, impairment and goodwill amortised decreased by 2%. This was
primarily driven by reduced pay costs resulting from reduction in headcount as offset by pay inflation and salary increases, and increased capitalised labour costs. Other operating costs were less
than prior year, due to continued focus on all costs.



Staff costs, which consist of salaries and wages and related pensions and social welfare costs, are the largest component of our operating costs.

95

---



Staff
costs including restructuring programme costs increased by 15% in the financial year ended 31 March 2005. This was mainly due to the restructuring programme costs, pay
inflation and salary increases, partially offset by a decline in the number of employees as a result of our early retirement and voluntary severance programmes. Capitalised labour increased by 7% due
to an increase in staff costs associated with capital projects, primarily to deliver improvements in the access network. There is also an ongoing non-cash charge for pension amortisation
of €15 million, relating to the amortisation of a fair value pension surplus that existed at the time of the acquisition of the entire share capital of eircomLimited by Valentia
Telecommunications. Headcount at 31 March 2005 was 7,275 down from 7,943 at 31 March 2004. At the end
of March 2005 there were also 306 agency staff compared to 246 agency staff at 31 March 2004. The costs of these agency staff are included within staff costs.

Restructuring
programme costs of €72 million, including related pension costs, were incurred as a result of the introduction of a new voluntary leaving programme
in the financial year ended 31 March 2005. Included in the restructuring programme costs is an additional provision for €6 million in the financial year ended
31 March 2005 which is in respect of a net deficit on an annuity plan. The amount included within our existing staff restructuring provision in respect of the net deficit on an annuity plan
offered as part of a restructuring programme was €78 million (2004: €72 million). This provision is expected to be utilised over a period of
8 years.

In
the financial year ended 31 March 2004, staff costs decreased by 2%. This was due to a decline in the number of employees as a result of our early retirement and voluntary
severance programmes, the effect of which was offset by pay inflation and salary increases. There is also an ongoing non-cash charge for pension amortisation of
€16 million, relating to the amortisation of a fair value pension surplus that existed at the time of the acquisition of the entire
share capital ofeircomby Valentia Telecommunications. Capitalised labour costs increased by 24% due to an increase in staff costs associated with
capital projects, primarily to deliver improvements in the access network. As a part of our restructuring programme, we focused on reducing our employee numbers through voluntary severance and early
retirement programmes. In the financial year ended 31 March 2000, we provided €412 million to finance the fundamental restructuring programme announced in March
2000 to strategically reposition the fixed-line business around our core competencies. To date, these provisions have been used principally to pay for staff exits under the restructuring
programme. An additional provision of €11 million was charged to the profit and loss account in the financial year ended 31 March 2003 in respect of a net deficit on an
annuity plan offered as part of the restructuring programme.

We
will continue to focus on reducing our employee numbers. To achieve this goal, we intend to:





Additional operating costs increased by 2% in the financial year ended 31 March 2005. This was primarily due to increases in sales and marketing, due to
customer win-back initiatives and ADSL and bitstream promotions, and in miscellaneous costs, arising from compensation for the early termination of an agreement becoming fully amortised
during the year ended 31 March 2005. These increases were partially offset by a reduction in materials and services costs, due to lower volumes and stricter cost

96

---



control,
lower accommodation costs and a decrease in transport and travel costs due to lower travel activity and higher capitalisation in the year.

In
the financial year ended 31 March 2004, additional operating costs decreased by 3%, primarily due to stricter cost controls, a reduction in materials and services costs due to
lower volumes and stricter cost control, lower IT costs as a result of more favourable contract terms and a decrease in transport and travel costs due to lower travel activity in the year, offset by
an increase in miscellaneous costs due to higher insurance costs and a lower gain on foreign exchange.



The exceptional operating credits of €4 million in the financial year ended 31 March 2005 relate to the net impact of movements in
certain provisions for liabilities acquired as part of the acquisition ofeircomLimited.

In
the financial year ended 31 March 2004, we incurred a number of non-recurring costs amounting in the aggregate to €24 million, principally in
relation to (i) costs associated with refinancing our indebtedness, which are not capitalised as debt issue costs under UK GAAP and (ii) notional charges in respect of share options
granted to certain employees below market value. The exceptional costs in relation to the refinancing primarily include bonus amounts payable to executives relating to contractual entitlements
triggered by the refinancing. The charge for the period includes an amount of €5 million in respect of share options granted to executives in respect of C Shares as the market
price of the options exceeds their exercise price at the date of grant. These share options were exercised in January 2004. Further charges of €3 million arose as a
result of awards granted to certain directors and senior management, on Admission to the London and Irish Stock Exchanges, under theeircomGroup Key
Executive Share Award Plan.
Although the awards do not vest for between 12 and 24 months from the date of grant (24 March 2004), the full charge was included in the Profit and Loss account as the options were
granted in recognition of past performance at the date of Admission. See note 4 and note 35 to the consolidated financial statements of eircomGroup contained in Item 18 "Financial
Statements" for further details on share options. In the financial year ended 31 March 2003,
we incurred costs of €13 million in connection with a number of non-recurring costs, principally relating to costs incurred in connection with a proposed
securitisation transaction which did not materialise and charges in relation to a deficit on an annuity scheme we provided for as part of the restructuring programme.



The following table shows our depreciation expenses for each of the periods indicated.

Financial Year Ended 31 March

Percentage Change(1)2003
€'m

2004
€'m

2005
€'m

2003/2004
%

2004/2005
%Depreciation

399

368

316

(8
)
(14
)


---

Our policy is to review asset lives on an ongoing basis in order to reflect industry norms and to adjust depreciation charges to match changes in
estimated asset lives.

Depreciation,
excluding exceptional impairment charges, decreased by 14% in the financial year ended 31 March 2005 and by 8% in the financial year ended 31 March 2004, due
to reduced capital expenditure in recent years and the impact of assets which are now fully depreciated.

97

---





In the financial year ended 31 March 2005, there were no exceptional fixed asset impairments. In the financial year ended 31 March 2004, we incurred
€38 million in connection with non-recurring costs principally in relation to impairment of the carrying value of land and buildings apparent from a professional
valuation of land & buildings carried out in December 2003.

We
undertake a review for impairment of a fixed asset if events or changes in circumstances indicate that the carrying amount of the fixed asset may not be recoverable. To the extent
that the carrying amount exceeds the recoverable amount, that is the higher of net realisable value and value in use, the fixed asset is written down to its recoverable amount. The value in use of
fixed assets (under UK GAAP) is determined from discounted estimated future net cash flows.



In the financial year ended 31 March 2005, goodwill amortisation remained essentially unchanged compared to the prior year period as we continued to
amortise the €761 million of goodwill arising from the acquisition of the entire share capital ofeircomby Valentia
Telecommunications over 20 years, which is in accordance with UK GAAP. The unamortised goodwill at 31 March 2005 was €631 million.

In
the financial year ended 31 March 2005, 31 March 2004 and 31 March 2003, our goodwill amortisation charge in respect of subsidiary undertakings was
€38 million. The goodwill amortisation is a result of recognising goodwill in connection with the acquisition of the entire share capital of eircomby Valentia Telecommunications.



The Group's share of operating profit of associated undertakings was €1 million in the financial year ended 31 March 2005.



During the three-year period ended 31 March 2005 no material businesses were discontinued.



Exceptional gain on exit from subsidiaries was €nil million in the financial year ended 31 March 2005. Due to the changed
telecommunications environment, we decided to strategically exit or curtail aspects of our operations that were not central to our business. In the financial year ended 31 March 2004, we
disposed of the assets ofeircomRetail and soldeircomResponse Limited with an overall gain of
€1 million.



Interest payable and similar charges decreased by 18% in the financial year ended 31 March 2005 mainly due to the new debt structure as a result of the IPO
and lower interest rates. Interest payable and similar charges increased by 17% in the financial year ended 31 March 2004 due to the new debt structure as a result of the issue of the Senior
and Senior Subordinated notes and amortisation of capitalised fees relating to the refinancing.



Exceptional interest payable or similar charges of €1 million credit in the financial year ended 31 March 2005 reflects a reversal
of an over-accrual associated with the debt issue costs on the previous debt.

98

---



In
the financial year ended 31 March 2004, exceptional interest payable or similar charges of a €51 million include €27 million which
was incurred in connection with the write-off of debt issue costs arising from our refinancing of debt in August 2003 which was subsequently replaced by the new credit facilities in
March 2004, and €24 million of costs relating to the early exit from interest rate swaps. The debt issue costs relating to the Senior Credit Facility were written off in
accordance with Financial Reporting Standard 4 "Capital Instruments", which requires that debt issue costs be amortised to the earliest date on which the repayment option can be exercised,
unless there is no genuine possibility that the option will be exercised on that date.



The tax charge of €20 million in the financial year ended 31 March 2005 represented an increase of
€6 million over the financial year ended 31 March 2004. The increase is due to a lower release of over-provisions in respect of prior year taxation in the
financial year ended 31 March 2004 along with an increase in taxable trading profits in the financial year ended 31 March 2005.

The
tax charge of €14 million in the financial year ended 31 March 2004 represented an increase from the tax credit of €6 million for
the financial year ended 31 March 2003. The increase was due to a higher release of over provisions in respect of prior year taxation in the financial year ended 31 March 2003. Excluding
the credits in respect of prior year over provisions of tax in both periods, the tax charge for the financial year ended 31 March 2004 remained broadly in line with the tax charge for the
financial year ended 31 March 2003.

In
the financial year ended 31 March 2003, we had overall tax credits of €6 million. These credits primarily relate to credits for prior periods that arose
from the resolution of outstanding matters with the Irish tax authorities.

The
weighted average prevailing corporation tax rates in Ireland were 12.5% for the financial years ended 31 March 2005 and 31 March 2004, and approximately 15%, for the
financial year ended 31 March 2003.

Dividend Paid and Proposed (including dividends and other appropriations in respect of non-equity shares)

The
following table shows our dividends paid and payable which were charged to the profit and loss account for each of the years indicated.

Financial
Year Ended
31 March
2003
€'m

Financial
Year Ended
31 March
2004
€'m

Financial
Year Ended
31 March
2005
€'mPaid and Payable:Ordinary dividends



400

82Preference dividends

22

28

2122

428

103


The ordinary and preference dividends paid and payable byeircomGroup plc during the financial
year ended 31 March 2005 were funded using a dividend received from Valentia Telecommunications which it had received fromeircomLimited.

The
preference dividends charged in the financial year ended 31 March 2005, relates to the Convertible Preference Shares, the Redeemable Preference Shares and the Trancheable
Redeemable Preference Shares, that were in issue during the financial year.

99

---



The
preference dividends charged in the financial years ended 31 March 2004 and 31 March 2003 relate to ESOT Preference Shares, the Redeemable Preference Shares, the
Trancheable Redeemable Preference Shares, the Adviser Preference Shares, the Third Party Preference Shares, the Convertible Preference Shares and the Non-Voting Third Party Preference
Shares that were in issue during the financial years. The total preference dividends charged in each financial year are set out in the table above.

The
Ordinary and Preference dividends paid as part of the reorganisation and refinancing, described in Item 4 "Information on the Company", by eircomGroup during the financial year ended 31 March
2004 of €446 million were funded utilising a dividend received from
Valentia Telecommunications. Valentia Telecommunications paid this dividend out of the reserves arising on the cancellation of its share premium and the issue and cancellation of ordinary shares. A
corresponding write down was simultaneously made in the value of the merger reserve recognised byeircomGroup on its acquisition of Valentia
Telecommunications, applying merger relief under the laws of England and Wales. A further preference dividend of €15 million was paid by eircomGroup during the financial year ended
31 March 2004. This was funded using a dividend received from Valentia Telecommunications which had
been received fromeircomLimited.

See
note 8 to the consolidated financial statements ofeircomGroup contained in Item 18 "Financial Statements" for further
details on dividends paid and payable and other appropriations in respect of non-equity shares.

Liquidity

The following table sets forth our net cash inflow from operating activities and our cash flows under UK GAAP for the periods indicated:

|                                                                                      |  | Financial
Year Ended
31 March
2003
€'m |   | Financial
Year Ended
31 March
2004
€'m |   | Financial
Year Ended
31 March
2005
€'m |  
|------------------------------------------------------------------------------------- |  | -------------------------------------- | - | -------------------------------------- | - | -------------------------------------- | -
|Group operating profit                                                                |  | 85                                     |   | 118                                    |   | 178                                    |  
|Depreciation and amortisation                                                         |  | 437                                    |   | 444                                    |   | 354                                    |  
|Amortisation of pension surplus                                                       |  | 16                                     |   | 16                                     |   | 15                                     |  
|Cash flows relating to fundamental restructuring, business exits and other provisions |  | (63                                    | ) | (59                                    | ) | (49                                    | )
|Non-cash restructuring programme costs                                                |  |                                       |   |                                       |   | 25                                     |  
|Non-cash exceptional charges                                                          |  | 10                                     |   | 3                                      |   | 4                                      |  
|Cash flows relating to prior year exceptional charges                                 |  | (7                                     | ) | (8                                     | ) | 1                                      |  
|Changes in working capital                                                            |  | 19                                     |   | (24                                    | ) | 6                                      |  
|                                                                                      |  |                                        |   |                                        |   |                                        |  
|Net cash inflow from operating activities                                             |  | 497                                    |   | 490                                    |   | 524                                    |  
|Returns on investment and servicing of finance                                        |  | (140                                   | ) | (278                                   | ) | (173                                   | )
|Taxation refunded/(paid)                                                              |  | 4                                      |   | (14                                    | ) | (55                                    | )
|Capital expenditure and financial investment                                          |  | (239                                   | ) | (227                                   | ) | (122                                   | )
|Acquisitions and disposals                                                            |  | 185                                    |   | (1                                     | ) |                                       |  
|Equity Dividends paid                                                                 |  |                                       |   | (400                                   | ) | (37                                    | )
|Financing                                                                             |  | (182                                   | ) | 342                                    |   | (100                                   | )
|                                                                                      |  |                                        |   |                                        |   |                                        |  
|Net increase/(decrease) in cash and cash equivalents                                  |  | 125                                    |   | (88                                    | ) | 37                                     |  
|                                                                                      |  |                                        |   |                                        |   |                                        |  

100

---





Our primary source of liquidity is net cash inflow from operations, which represents operating profit adjusted for non-cash items, principally
depreciation and amortisation, cash flows in
respect of fundamental restructuring business exits and other provisions provided for in earlier years, and working capital movements.

During
the financial year ended 31 March 2005, net cash inflow from operating activities increased by 7%, to €524 million from
€490 million in the financial year ended 31 March 2004. This increase was mainly due to improved operating profit, lower exceptional charges/credits and improvements in
working capital.

During
the financial year ended 31 March 2004, net cash inflow from operating activities decreased by 1%, to €490 million from
€497 million in the financial year ended 31 March 2003. This decrease was due to changes in working capital partially offset by an increase in operating profit.

In
the financial year ended 31 March 2003, net cash inflow from operating activities increased by 56%, to €497 million from
€318 million in the financial year ended 31 March 2002. This increase was due to an increase in operating profit and reduction in the cash outflows relating to our
restructuring and business exits which were partially offset by a reduced level of change in working capital in comparison to the financial year ended 31 March 2002.



We use cash to pay interest on our outstanding indebtedness. Net interest paid decreased by 12% during the financial year ended 31 March 2005 due to lower
interest rates and higher deposit levels. A payment of €24 million was made to exit interest rate swaps. Non-equity dividends paid was
€22 million. Net interest paid increased by 4% during the financial year ended 31 March 2004 due to lower deposits and lower associated interest rates. Debt issue costs
of €75 million were paid during the financial year ended 31 March 2004 due to the refinancings during the year. Non-equity dividends paid of
€61 million relate partly to dividends accrued on preference shares in the prior year. Net interest paid increased in the financial year ended 31 March 2003 due to the
increased indebtedness incurred in connection with the acquisition ofeircomby Valentia Telecommunications.



During the financial year ended 31 March 2005, we made payments in respect of capital expenditure, of €194 million, compared to
€209 million in the financial year ended
31 March 2004. The principal reason for the decreased cash outflow in respect of capital expenditure in the financial year ended 31 March 2005 is the timing of payments. Capital
expenditure is used primarily to grow and renew our existing network in order to improve our services and customer satisfaction. Capital expenditure incurred in the financial year ended
31 March 2005 was €209 million compared to €207 million in the financial year ended 31 March 2004. We had no financial investment
outstanding as at 31 March 2005.

During
the financial year ended 31 March 2004, we made payments in respect of capital expenditure, of €209 million, compared to
€197 million in the financial year ended 31 March 2003. The principal reason for the increased cash outflow in respect of capital expenditure in the financial year ended
31 March 2004 is the timing of cash flows, and the increase in actual capital expenditure year on year from €195 million in the financial year ended 31 March 2003
to €207 million in the financial year ended 31 March 2004. We had no financial investment outstanding as at 31 March 2004. The amount advanced during the financial
year ended 31 March 2003, of €50 million, represented an amount loaned to the ESOT during that period, which was repaid in the financial year ended 31 March 2004.

101

---



The
restricted cash balance decreased by €69 million in the financial year ended 31 March 2005. The restricted cash balance of
€1 million as at 31 March 2005 can only be used by the company for the purposes of redeeming the remaining Redeemable Preference Shares and Trancheable Redeemable
Preference Shares. The interest earned on this deposit, after deduction of any taxation payable, is payable as part of the redemption price in respect of the Redeemable Preference Shares and
Trancheable Redeemable Preference Shares to the extent not elected to be received as pre-redemption dividend.



During the three-year period ended 31 March 2005, we made a number of minor acquisitions and disposals. In addition, during the financial year
ended 31 March 2004, we disposed of the assets ofeircomRetail and soldeircomResponse, and
during the financial year ended 31 March 2003 we exited from our remaining 63% stake in Golden Pages.



eircomGroup paid a dividend of €37 million to its equity shareholders in the financial
year ended 31 March 2005.

eircomGroup paid a dividend of €400 million to its equity shareholders in the financial year ended 31
March 2004 as part of the reorganisation and refinancing, described in Item 4 "Information on the Company".



During the financial year ended 31 March 2004, we refinanced substantially all of our indebtedness. This refinancing included the issue of
€550 million aggregate principal amount of 7.25% Senior Notes due 2013 of Valentia Telecommunications, €285 million aggregate principal amount of 8.25%
Senior Subordinated Notes due 2013 ofeircomFunding, and $250 million aggregate principal amount of 8.25% Senior Subordinated Notes due 2013 of eircomFunding. In addition, Valentia Telecommunications entered into a Senior Credit Facility, being a €1.4 billion credit
facility, of which €1.25 billion was drawn down. Concurrent with completion of the Initial Public Offering, we refinanced the previous credit facilities with a new Senior Credit
Facility. As part of the reorganisation and refinancing, described in Item 4 "Information on the Company", the shareholders' of Valentia Telecommunications transferred their interests in
Valentia Telecommunications toeircomGroup. Valentia Telecommunications registered as an unlimited public company, under the laws of Ireland, on 28
July 2003. During the financial year ended 31 March 2004, we received cash of €370 million from the Initial Public Offering and the issue of preference shares.

Share
issue costs of €33 million were paid during the financial year ended 31 March 2005 and we redeemed €69 million of Preference
Shares.

Share
issue costs of €32 million were paid during the financial year 31 March 2004 and we redeemed €76 million of preference shares.



For a description of the legal and economic restrictions on the ability of subsidiaries to transfer funds to the company in the form of cash dividends, loans or
advances, see Item 3 "Key Information", "We have a significant amount of indebtedness, which may impair our operating and financial flexibility and could adversely affect our business and
financial position and our ability to pay dividends", "Changes in accounting principles (particularly the introduction of International Financial Reporting Standards (IFRS)) may materially affect our
financial results and our ability to pay dividends", "Our

102

---



pension
deficit may (if it continues) reduce our cash flows, profitability, financial condition, net assets, distributable reserves and our ability to pay dividends".



In the opinion ofeircomGroup, taking into account the undrawn Senior Credit Facility of
€150 million, the working capital available to the Group is sufficient for the Group's present requirements, that is for at least the next 12 months following the date of
this document.

Capital Resources

As at 31 March 2005 and 31 March 2004, we had gross long-term debt of approximately €2.310 billion outstanding.
The overall net debt, before offsetting capitalised fees, was €1.922 billion (31 March 2004 €1.959 billion). For a description of our funding and
treasury policies and objectives, see Item 11, "Quantitative and Qualitative Disclosures about Market Risk".

As
at 31 March 2005, we had €41 million of unamortised capitalised fees relating to the refinancing of the debt. These unamortised capitalised fees are
offset against the related debt in the balance sheet as required by FRS 4.

As
at 31 March 2004, we had a €1 million bank overdraft which was not available for set off against our other bank balances. As at 31 March 2004, we
had €47 million of unamortised capitalised fees relating to the refinancing of the debt. These unamortised capitalised fees are offset against the related debt in the balance
sheet as required by FRS 4.

As
of 31 March 2005, we had €388 million in cash and cash equivalents, all of which were denominated in euro. This excludes restricted cash and cash
equivalents of €1 million, which is required to be used to redeem the Redeemable Preference Shares and the Trancheable Redeemable Preference Shares.

As
of 31 March 2004, we had €352 million in cash and cash equivalents, all of which were denominated in euro. This excludes restricted cash and cash
equivalents of €70 million, which is required to be used to redeem the Redeemable Preference Shares and the Trancheable Redeemable Preference Shares.

As
of 31 March 2005 and 31 March 2004, approximately 54% of our underlying debt bore interest at variable rates. Approximately 46% of our underlying debt bore interest at
fixed rates. At 31 March 2005 and 31 March 2004 after adjusting for the effect of swaps, approximately 68% and 67% respectively of our debt bore interest at fixed rates, with a weighted
average interest rate of 6.6%, reflecting the transformation of some of our underlying debt from floating to fixed rate, and approximately 32% and 33% respectively of our debt bore interest at
variable rates.

For
a description of the restrictions upon the use of our capital resources, see Item 10B, "Additional InformationMaterial Contracts".

Capital Expenditure

During the financial year ended 31 March 2005, we had cash outflows relating to capital expenditure on plant, equipment and property of
€194 million, net of grants of €nil million. This capital expenditure was used primarily to grow and renew our existing network in order to improve our service
and customer satisfaction. In the financial years ended 31 March 2004 and 2003, we had cash outflows relating to capital expenditure of €208 million, net of grants of
€1 million, and €197 million, net of grants of €nil million, respectively, which were used primarily to modernise our
fixed-line network. Over the next few years, we expect to continue to pursue a focused and disciplined capital expenditure programme, and to maintain levels of capital expenditure on our
operations broadly in line with current

103

---



levels.
As technology develops, we will review the opportunities to invest in new technology to improve services and reduce costs. We plan to continue to use this capital expenditure primarily to grow
and renew our existing network in order to improve our services and customer satisfaction. However, regulatory requirements or technical innovations implemented by our competitors may require us to
increase our capital expenditure. In addition, with the funds realised from the sale of property, additional capital expenditure will be committed in the future to property improvements.

We
expect to fund our current capital expenditure requirements from internally generated funds and through existing financing arrangements (including the Senior Credit Facility).

Description of Indebtedness



We entered into a new €1.4 billion senior secured credit facilities agreement which was drawn down concurrently with the closing of the
Initial Public Offering ("IPO"). The new Senior Credit Facility provides for a five-year, €1.25 billion amortising term loan facility, and a five-year
revolving facility of up to €150 million.



On 6 August 2003, Valentia Telecommunications issued €550 million aggregate principal amount of 7.25% Senior Notes due 2013 and eircomFunding issued €285 million aggregate principal amount of 8.25% Senior Subordinated Notes due 2013 and $250 million
aggregate principal amount of 8.25% Senior Subordinated Notes due 2013. The Senior Notes and Senior Subordinated Notes are listed on the Irish Stock Exchange and the Luxembourg Stock Exchange.

In February
2004 we received consents from the holders of a majority in principal amount of the Senior Notes and the Senior Subordinated Notes to amendments to the indentures,
primarily in order to allow us greater flexibility in the payment of dividends following the Initial Public Offering. The amendments to the Senior Note and Senior Subordinated Notes indentures took
effect upon completion of the Initial Public Offering.



Prior to 31 March 2004 we terminated our old interest rate swaps and entered into new interest rate swaps of €500 million effective
for a period of three years from 1 April 2004. The fees payable to terminate the old swaps were €24 million, which we funded out of the net proceeds we received from the
Initial Public Offering.



Valentia Telecommunications entered into an intercreditor deed in connection with the Senior Credit Facility. The Intercreditor Deed is between, amongst others,
Valentia Telecommunications,eircomFunding, and certain subsidiaries of Valentia Telecommunications (the "Intercreditor Obligors"), senior creditors,
hedging banks; Bayerische Landesbank (the "LC Issuer"),eircomGroup and Deutsche Bank AG London. The Intercreditor Deed provides for the conditions
upon which certain payments can and cannot be made. For more information, see Item 10 "Additional Information".



ITI entered into two sale and leaseback transactions, as lessor, in March 1999 and March 2000. The value of the assets acquired and then leased to a
third party under these transactions was €

104

---



180 million.
ITI acquired the assets with funds borrowed indirectly through a commercial loan facility. Under defeasance agreements, the third party made payments to the defeasance agent, the
same party as the lending bank, which undertook to make the rental payments and ITI consequently released the third party from its obligation to make rental payments to ITI. The Group has a right of
set-off over the defeasance payment and the loan. The loans were originally scheduled to be repaid by 31 March 2004, but the extension options contained in them have been exercised
so that the lease agreements and loans now have primary terms of 16 years and the option of further terms of 19 years at nominal rents. Negotiations are continuing with the lending bank
in relation to the scope and extent of the security to be provided by Eircable Limited and other Group companies for these loans. The lending bank's solicitors have indicated that the lending bank
will require ITI to grant assignments by way of security of the rights of ITI under the defeasance agreements and charges over the bank accounts into which the sums due under the defeasance agreements
are paid. The lease agreements and loans are subject to termination upon certain specified events. ITI andeircomhave covenanted not to create any
security interests over the equipment which is the subject of the leases save for such security as it may grant to the lessee over the equipment. The obligations of ITI under the transactions are
guaranteed byeircom.



We entered into five lease transactions between December 1995 and September 2000, which are scheduled to expire on various dates
between December 2003 and February 2015 although two have already been terminated (see below). The equipment which is subject to these leases is necessary for eircomto operate its business
and the key characteristics of these leases are as follows:



105

---





The
aggregate amount outstanding under all the continuing lease agreements as of 31 March 2005 is €155 million.

Lercie
Limited, previously Eircell Limited, has entered into similar lease transactions. Following the demerger of the Group's mobile business, in 2001:



Section 17 of the Irish Companies (Amendment) Act 1986 exempts a company from the obligation to file individual financial statements for any financial year
so long as its liabilities at the year end are guaranteed by a parent undertaking. These guarantees are uncapped.eircomprovides Section 17
guarantees for a large number of companies in the Group and also remains liable under Section 17 guarantees given for subsidiaries that we subsequently sold. The liabilities of all of the
companies for which we have provided Section 17 guarantees at 31 March 2004 are included as liabilities in the audited balance sheets of eircomand Valentia Telecommunications. Guaranteed
liabilities of subsidiaries we sold in earlier years are not included in these audited balance
sheets, and do not exceed €40 million for the financial year ended 31 March 2005. In addition, intercompany payables are not included in the audited balance sheets as
they are eliminated on consolidation.

Guaranteed
liabilities relating to defeased leases described above in "Description of Indebtedness Lease transactions" are also not included in these audited balance sheets as our lease
obligations are fully defeased at the inception of the leases.



eircomand ITI have a number of overdraft facilities with Allied Irish Banks plc and The Governor and Company of
the Bank of Ireland. The aggregate principal amount available to our Group from its overdraft facilities as of 31 March 2005 was approximately €21 million.

106

---





Contractual Obligations and Commitments for 31 March 2005

The following table sets out our contractual obligations and commitments as they fall due for payment.

|                                              |  | Total
€'m |  | Less than
1
Year
€'m |  | Between
1 & 3
Years
€'m |  | Between
3 & 5
Years
€'m |  | More than
5
Years
€'m
|--------------------------------------------- |  | --------- |  | -------------------- |  | ----------------------- |  | ----------------------- |  | ---------------------
|As of 31 March 2005                           |  |           |  |                      |  |                         |  |                         |  |                      
|Long term and short term debt obligations(1)  |  | 2,310     |  | 70                   |  | 140                     |  | 1,040                   |  | 1,060                
|Operating Leases                              |  | 225       |  | 25                   |  | 46                      |  | 38                      |  | 116                  
|Capital commitments(2)                        |  | 33        |  | 33                   |  |                        |  |                        |  |                     
|                                              |  |           |  |                      |  |                         |  |                         |  |                      
|Total contractual obligations and commitments |  | 2,658     |  | 128                  |  | 186                     |  | 1,078                   |  | 1,176                
|                                              |  |           |  |                      |  |                         |  |                         |  |                      

---

eircomGroup does not believe it has material funding requirements for its defined benefit pension
schemes, and has therefore not included amounts for future benefit payments in the table above for any of the years presented.

For
more information about our Contractual Obligations and Commitments, see "Description of Indebtedness" above. For information regarding pension commitments and long term and short
term debt, see note 28 and note 17 to the consolidated financial statements ofeircomGroup contained in Item 18 "Financial Statements".

Contingent Liabilities

On 17 October 2002, ComReg determined that we were not in compliance with our obligations under the voice telephony regulations by providing telephone
services to specific customers at prices which were not in accordance with the specific terms and conditions of our discount schemes and published prices. No penalties were levied on us as a result of
this determination. By agreement with ComReg and at its direction, we put internal controls in place that we believe will prevent this from re-occurring and an independent audit of the
related internal controls has been conducted. The final audit findings report including management comments and our statement of compliance were submitted to ComReg on 9 March 2005. If ComReg
concludes that we are not
complying with our obligations, ComReg could begin an enforcement action. If we are found to be in violation of applicable laws and regulations, we may become subject to substantial criminal and civil
penalties and fines.

Ocean
Communications Limited and ESAT Telecommunications Limited issued proceedings in the Irish High Court in December 2002 against us seeking damages including punitive damages
resulting from the matters that were the subject of the ComReg decision. We submitted our defence on 26 January 2004. We intend to defend the proceedings vigorously. The plaintiffs submitted
general particulars of their damages claim on 3 February 2004 under the headings loss of existing customers, loss of prospective customers, economic loss and loss of future profits. In those
particulars, the plaintiffs have identified claims for loss of revenue on existing customers (€7.4 million), failure to meet the plaintiffs' alleged budgeted growth
(€25 million) and loss of revenue on the plaintiffs' pricing (€5 million). Even if the plaintiffs could establish a liability on our part under each of
these headings, we do not believe that these figures represent damages which would be properly recoverable from us. The particulars also include further unquantified damages. The plenary summons and
statement of

107

---



claim
of Ocean Communications Ltd and Esat Communications Ltd were amended, inter alia, in April 2005 to include a claim for alleged breach of certain constitutional rights.



In connection with the demerger of Eircell in May 2001 and its subsequent acquisition by Vodafone Group plc, we indemnified Eircell and Vodafone Group plc
against various matters, including for breaches of warranties given by us pursuant to our agreements with them. Notice of any breach of these warranties was required to be given by May 2003,
except for taxation warranties, which, in most cases, must be given by the sixth anniversary of completion of the demerger. No notices of breach have been received to date. Our liability for a breach
of the warranties is limited to €500 million (with certain exceptions, e.g., with respect to stamp and capital duty taxes or fraudulent actions), subject to deductibles and
other limitations set forth in our agreement with them. We also agreed to indemnify Eircell and Vodafone Group plc for various costs and liabilities.



We gave customary corporate and tax warranties to Promedia GCV in connection with our exit from Golden Pages. The liability period for non tax warranties has
expired. Our liability under the tax indemnity and undertaking is generally capped at €10 million, and notice of any breach must be given by 23 May 2009.

We
gave customary tax warranties and indemnities to NTL Communications Corporation in connection with the disposal of our shareholding in Cablelink Limited. The liability period for non
tax warranties has expired. Notice of any breach in respect of tax warranties must be given by 9 July 2006, and our liability is capped at approximately €500 million.

Other
than disclosed above, a number of other lawsuits or claims have arisen in the normal course of business. While any litigation has an element of uncertainty, we believe that there
were no other contingent liabilities which would have a material adverse effect on the group's financial position.

In
the normal course of business, we have entered into contracts involving the exchange or purchase and sale of foreign currencies and various performance bonds. No material losses are
expected in respect of these transactions other than losses for which provision has been made in the financial statements.

Off Balance Sheet Items

We have entered into a number of defeased lease transactions in connection with which we have prepaid the rental payments due over the life up front and in full.
Under UK GAAP, as these lease obligations are fully defeased from the inception of the leases, the deposits and related lease obligations are not recognised as separate assets and liabilities of the
Group. Accordingly, we record no asset for the deposit and show no liability for the lease obligations in our combined and consolidated balance sheet. See "Lease transactionsU.S.
equipment finance leases" above. The outstanding payments under these arrangements, net of interest, as of 31 March 2005 and 31 March 2004 were €127 million and
€146 million.

New UK Accounting Standards



The group prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United Kingdom (UK GAAP). As part of
the European Commissioner's plan to develop a single European Capital market, the application of IFRS is mandatory for the consolidated financial statements of all listed European Union companies for
reporting periods

108

---



beginning
on or after 1 January 2005. The Regulation passed by the European union requires that IFRS-compliant financial statements be produced by eircomfor the financial periods ending 30 September
2005 and 31 March 2006. Under this regulation, 1 April 2005 is the transition
date to IFRS foreircom.

The
principal changes for eircom, which we have identified to date, arising from the change from UK GAAP to IFRS will be:



However,
it is not at this time possible to quantify the impact of adopting IFRS on our financial results for the financial year ending 31 March 2006. We currently expect that
implementation of IFRS may have a negative effect on our financial results, including distributable reserves and our ability to pay dividends.



In June 2003, the IASB published its first International Financial Reporting Standard, IFRS 1, "First-time Adoption of
International Financial Reporting Standards". IFRS 1 must be applied by any company that prepares its first IFRS financial statements for a period beginning on or after
1 January 2004, although it can be applied earlier.

IFRS
provides for full retrospective application of all International Financial Reporting Standards in force at the closing balance sheet date for the first financial statements prepared
in accordance with IFRS. There are six exemptions designed to relieve the burden of retrospective application and three mandatory exceptions where retrospective application is not permitted. Despite
the exemptions, most companies will still be required to make significant changes to their existing policies to comply with some of the most complex areas of IFRS, including financial instruments,
pensions, deferred tax, provisions, special purpose entities and employee share options. The disclosure requirements of IFRS may be different compared to those we are subject to currently.



In November 2000, the ASB issued FRS 17, "Retirement Benefits". Various disclosure requirements under this standard became effective for accounting
periods ending on or after 22 June 2001, with further disclosures taking effect for accounting periods ending on or after 22 June 2002 and 2003. The measurement rules in FRS 17,
which are not yet mandatory and have not been implemented by us, introduce a different way for companies to account for pension costs, principally for defined benefit schemes. In contrast to the
previous approach of spreading the impact of pension surpluses or deficits forward in the profit and loss account over a number of years, FRS 17 approaches pension accounting from a balance
sheet perspective. Once the measurement rules in FRS 17 are effective, at each year end the pension scheme assets will be measured at market value, the pension scheme

109

---



liabilities
will be measured at a present value using a specified actuarial valuation method and discounted at a corporate bond rate, and the resulting surplus or deficit would be shown on our balance
sheet. FRS 17 identifies several components of performance and specifies what should be reported in the profit and loss account and what should be reported in the statement of total recognised
gains and losses. Amounts reported as operating costs reflect an annual "current service cost" and would no longer be reduced or increased by spreading forward surpluses or deficits. The expected
return on scheme assets less the notional interest cost on the scheme liabilities would be included as other finance costs (or income) adjacent to interest. Actuarial gains and losses from year to
year are to be recognised immediately in the statement of total recognised gains and losses. The measurement and recognition of pension costs and the pension surplus or liabilities in accordance with
the provisions of the standard have been deferred by the ASB.

Under
current UK GAAP, we would be required to fully implement FRS 17 in our financial year ending 31 March 2006. However, we expect to prepare our financial statements for
the financial year ending 31 March 2006 and thereafter in accordance with IFRS, rather than current UK GAAP (including FRS 17).

The
accounting treatment for a pension surplus or deficit under IFRS is different from FRS 17 and is addressed in IAS 19. The accounting treatment for first time adoption
of IFRS is addressed in IFRS 1 which sets out how IAS 19 should be applied on first time adoption of IFRS. The adoption of IAS 19 as it currently stands allows the recognition of
the net actuarial loss element of a pension deficit as a realised loss in the profit and loss account to be spread over the average remaining working lives of employees in the scheme, provided the
necessary actuarial information is available, rather than as a single reduction in distributable reserves as would be the case with FRS 17.

The
requirements for disclosure under FRS 17 remain in force between its issue and adoption of IFRS and the required information is set out in note 28 to the consolidated
financial statements ofeircomGroup contained in Item 18 "Financial Statements".



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R "Share-Based Payment" ("SFAS 123R") which revises
SFAS 123 and eliminates the option to apply the intrinsic value measurement provisions of APB 25. SFAS 123R requires that the cost of all share-based payment transactions be
recognised in the financial statements. SFAS 123R also establishes fair value as the measurement method in accounting for share-based payments to employees. SFAS 123R applies to all
awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. For public entities that do not file as small business issuers, the standard is
effective for the first interim or annual reporting period that begins after June 15, 2005. The Group adopted SFAS 123R on 1 April 2005 using the modified prospective transition
method. Under the modified prospective method, and in accordance with Staff Accounting Bulletin 107 ("SAB 107"), the Group is not required to restate prior year amounts. The Group
estimates the application of the expensing provisions of SFAS 123R will result in a pre-tax expense of approximately €2 million in the financial year ending
31 March 2006 excluding additional grants and awards.

In March
2004, FASB's Emerging Issues Task Force ("EITF") reached consensus on EITF 03-01, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments" ("EITF 03-01"). The guidance prescribed a three-step model for determining whether an investment is
other-than-temporarily impaired and requires disclosure for unrealised losses on investments. In September 2004, the FASB issued FASB Staff Position ("FSP")
EITF 03-1-1 "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1" ("FSP EITF 03-1-1"). FSP
EITF 03-1-1 delays the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of EITF 03-01. The disclosure
requirements of EITF 03-01 remain effective for fiscal years ending after June 15, 2004. No

110

---



effective
date for the measurement and recognition guidance has been established in FSP EITF 01-1-1. During the period of delay, FSP EITF 01-1-1
states that companies should continue to apply current guidance to determine if an impairment is other-than-temporary. The adoption of EITF 03-01, excluding
paragraphs 10-20, did not impact the Group's consolidated position, results of operations or cash flows. The Group will assess the impact of paragraphs 10-20 of
EITF 03-01 once the guidance has been finalised.

In December
2003, the Securities and Exchange Commission issued "Staff Accounting Bulletin 104" ("SAB 104"). SAB 104 addresses certain aspects of the
accounting by a vendor for arrangements that involve more than one deliverable, or unit of accounting, and how arrangement consideration should be
measured and allocated to the separate units of accounting in the arrangement. SAB 104 has no impact on these financial statements.

C.RESEARCH AND DEVELOPMENT

We did not spend any significant amounts on company-sponsored research and development activities during each of the financial years ending 31 March 2005,
31 March 2004 and 31 March 2003.

111

---



ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.DIRECTORS AND SENIOR MANAGEMENT

Board of Directors

A list of the members of our Board of Directors is set forth in the table below.

|Name                            |  | Age |  | Position                           
|------------------------------- |  | --- |  | -----------------------------------
|Sir Anthony O'Reilly            |  | 69  |  | Chairman                           
|Con Scanlon(1)                  |  | 51  |  | Vice Chairman                      
|Dr. Philip Michael Gerard Nolan |  | 51  |  | Director, chief executive officer  
|Peter Eugene Lynch              |  | 47  |  | Director, chief financial officer  
|Cathal Gerard Magee(1)          |  | 52  |  | Director, managing director, retail
|David Francis McRedmond         |  | 42  |  | Director, commercial director      
|John Gerard Conroy(1)           |  | 45  |  | Non-executive director             
|Didier Jean-Claude Delepine     |  | 57  |  | Non-executive director             
|Irial Finan                     |  | 48  |  | Non-executive director             
|Kevin Christopher Melia         |  | 58  |  | Non-executive director             
|Padraic Joseph O'Connor         |  | 56  |  | Non-executive director             
|Maurice Alan Pratt              |  | 49  |  | Non-executive director             
|Donal Michael Roche             |  | 52  |  | Non-executive director             

---

The business address for the directors is c/o 114 St. Stephen's Green West, Dublin 2.

Sir Anthony O'Reillyhas served as the Chairman of the Board of Directors of Valentia Telecommunications since 27 May 2001, as the
Chairman of the Board of Directors ofeircomGroup since its formation and as Chairman of the Board of Directors of eircomsince 16 November 2001. He
is Chief Executive and the largest shareholder of Independent News & Media PLC, the international media
and communications group having resigned as Chairman in June 2004. In addition, he is Chairman of Waterford Wedgwood plc. Previously Sir Anthony was with H.J. Heinz Company and retired as
Chairman in September 2000 after leading the company for nearly 30 years. He is a solicitor and earned a PhD in agricultural marketing from the University of Bradford in 1980.

Con Scanlonhas served as Vice Chairman of the Board of Directors of Valentia Telecommunications since 9 November 2001, as the Vice
Chairman of the Board of Directors ofeircomGroup since its formation and as Vice Chairman of the Board of Directors of eircomsince 16 November
2001. Mr. Scanlon has stepped down as a Non-Executive Director and Chairman of the ESOT and has taken
up the role as General Manager of ESOT with effect from 12 July 2004. Mr. Scanlon has served as a Director of a number of our group entities since 1998. Previously, he was General
Secretary of the Communication Workers Union ("CWU") from 1998 until 9 July 2004, assistant general secretary of the CWU from 1990 to 1998 and President of the Communications Union of Ireland
between 1986 and 1990, before its merger with the Postal and Telecommunications Workers Union to form the CWU. Mr. Scanlon was an employee of eircombetween September 1970 and September
2003.

Dr. Philip Nolanhas served on the Board of Directors of Valentia Telecommunications since 26 February 2002, on the Board of
Directors ofeircomGroup since its formation and as Chief Executive Officer and Director ofeircomsince 30 January 2002. Dr. Nolan is a Non-Executive Director of De La Rue plc, the Irish Management Institute and Providence Resources plc. He was previously Chief Executive
Officer of Lattice Group plc from October 2000, Chief Executive Officer of Transco plc from December 1999 and served as a Director of BG Group plc. Dr. Nolan joined British Gas,
now

112

---



known
as BG Group plc, in 1996. Before joining British Gas, he spent 15 years at the entity now known as BP plc.

Peter E. Lynchhas served as Chief Financial Officer ofeircomsince January 2001
and on the Board of Directors ofeircomGroup since 18 March 2004. He is a Director of the ESOT and a trustee of eircom's main pension fund, theeircomSuperannuation Fund. Prior to joining eircom, Mr. Lynch was Group Finance Director of Adare Printing Group plc from 1995 to 2000.
Mr. Lynch was at ABN AMRO
Stockbrokers Ltd and Riada Corporate Finance Ltd from 1990 to 1995 and was Managing Director of stockbroking prior to departing. He is a Fellow of the Institute of Chartered Accountants
in Ireland and a member of the Securities Institute.

Cathal Mageehas served as the Managing Director ofeircomretail since
January 2002 and on the Board of Directors ofeircomGroup since 18 March 2004. Mr. Magee has previously served as Managing
Director,eircomIreland, and Managing Director, business transformation. He joinedeircomin
March 1995 as Group Human Resources Director. He is a Director of the ESOT. Prior to joiningeircom, Mr. Magee worked for the National
Australia Banking Group from 1992, initially at its subsidiary National Irish Bank and then moved within the group to Yorkshire Bank plc as head of human resources. From 1988 to 1992 he was also
Director of Human Resources and Business Restructuring with Bord na Móna.

David McRedmondhas served aseircom's Commercial Director with responsibility for
strategy, regulation and corporate communications since June 2002 and on the Board of Directors ofeircomGroup since 18 March 2004. From
December 1999, Mr. McRedmond had served as our Director of Enterprises which included responsibility for Golden Pages Limited andeircomPhonewatch Limited. Mr. McRedmond is currently Chairman ofeircomPhonewatch Limited, aneircomsubsidiary company. From June 1998 until joiningeircom, Mr. McRedmond was Chief Executive Officer of WH Smith USA, an airport development
business and previously he held a number of retail executive posts in the United Kingdom.

John Conroyhas served on the Board of Directors of Valentia Telecommunications since 7 December 2001, the Board of Directors of eircomsince 11 December 2001
and the Board of Directors ofeircomGroup since its formation.
Mr. Conroy is the Chief Executive Officer of Merrion Capital Group, a Dublin-based stockbroking and corporate finance company. He serves as a Director on several Merrion entities, as well as
Iona Technologies plc, a middleware software company. Prior to joining Merrion, Mr. Conroy served as head of the NCB Group Limited's equity research department between 1993 and 1997 and as head
of NCB's overall equity division in 1997.

Didier Delepinehas served on the Board of Directors ofeircomGroup since 18 March
2004. Mr. Delepine was President and Chief Executive Officer of Equant N.V., a leader in data, global networking and managed communications solutions for multinational organisations from 1998
to 2003. Prior to that time he occupied several executive positions with SITA the global network provider to the airline industry. Mr. Delepine is Senior Fellow and member of the Board of
Advisors of Adventis, a Boston consulting firm. He is also advisor to the Board of Directors of Viatel Ltd.

Irial Finanhas served on the Board of Directors ofeircomGroup since 18 March
2004. Mr. Finan joined the Coca-Cola Company in August 2004 and was named President of Bottling Investments, a newly established position responsible for managing the
Company's equity investments in
bottler operations and overseeing the operations of the Company-owned bottlers around the world. In October 2004 he was elected as Executive Vice President of the Coca-Cola Company.
Mr. Finan serves on the Board of Directors of Coca-Cola Enterprises, Coca-Cola FEMSA, Alltracel Pharmaceuticals, Galway University Foundation, Co-Operation
Ireland and CCE AG Supervisory Board. Mr. Finan is a chartered management accountant and a fellow of the Institute of Chartered Management Accountants.

113

---



Kevin Meliahas served on the Board of Directors ofeircomGroup since 18 March
2004. Since May 2003 Mr. Melia has been the Non-Executive Chairman of Iona Technologies plc, a middleware software company, and has been the Non-Executive
Chairman of Lightbridge Inc., a global enabler of mobile and online business solutions since November 2002. He was the co-founder, Chairman and Chief Executive Officer
(June 1994 to January 2002) and Chairman (January 2002 to January 2003) of Manufacturers Services Ltd (MSL), an electronics manufacturing services company. From
October 1989 until establishing MSL, he held positions at Sun Microsystems Corporation as Executive Vice President of Operations, President of their subsidiary, Sun Microsystems Computer
Company, and Chief Financial Officer. Mr. Melia also held a number of senior executive positions in operations and finance over a sixteen-year career at Digital Equipment
Corporation. He is Chairman of Manugistics Group Inc., a supply chain applications software company, and is also Chairman of Millstone Medical Outsourcing Inc, a privately held aftermarkets
medical device outsourcing services company. He is Managing Director of Boulder Brook LLC, a private investment Company and he is a member of the Board of Radisys Corporation, a provider of embedded
systems solutions to original equipment manufacturers ("OEMs"), and a trustee of the Fenn School in Concord, Massachusetts.

Padraic O'Connorhas served on the Board of Directors ofeircomGroup since
18 March 2004. Mr. O'Connor was Non-Executive Chairman of ACC Bank from 1999 to 2002 during which time he oversaw the reorientation of the strategy of ACC Bank and its sale
to the Rabobank Group. He was Chief Economist of NCB Group Limited from 1987 to 1991 and Managing Director from 1991 to 1999 and was an Economist with the Central Bank of Ireland from 1975 to 1986 and
at the Irish Department of Finance from 1972 to 1975.

Maurice Pratthas served on the Board of Directors ofeircomGroup since 18 March
2004. Mr. Pratt is Chief Executive of C&C Group plc, the beverage and snack foods group, which he joined in January 2002. Prior to this he was Chief Executive of Tesco Ireland for
5 years, having previously been Managing Director of the Power Supermarket Group. He is the immediate Past President of IBEC, a Council Member if Dublin Chamber of Commerce, and a Fellow of the
Marketing Institute of Ireland. He is a Non-Executive Director of Repak and Uniphar plc.

Donal Rochehas served on the Board of Directors ofeircomGroup since 18 March
2004. Mr. Roche serves as the Chairman of Appian Wealth Management Limited. Previously, Mr. Roche was Managing Partner of Matheson Ormsby Prentice Solicitors in Ireland from 1995 to 2003
and was the Head of the Commercial and Corporate Finance group from 1985 to 2003. He qualified as a solicitor in Ireland in 1980.

The
directors and senior executives ofeircomGroup hold the following directorships, in addition to their directorships of Group
companies, and are members of the following partnerships:

|Name                 |  | Position             |  | Company                                     
|-------------------- |  | -------------------- |  | --------------------------------------------
|Sir Anthony O'Reilly |  | Chairman             |  | Waterford Wedgwood Plc                      
|                     |  | Chairman and Partner |  | Matheson Ormsby Prentice                    
|                     |  | Chairman             |  | Fitzwilton Limited                          
|                     |  | Director and CEO     |  | Independent News & Media PLC                
|                     |  | Director             |  | Independent Newspapers (UK) Ltd             
|                     |  | Director             |  | Cartson Holdings Limited                    
|                     |  | Director             |  | Columbia Investments                        
|                     |  | Director             |  | Fairfield Holdings Limited                  
|                     |  | Director             |  | Galacia Management Limited                  
|                     |  | Director             |  | Genetix Holdings Limited                    
|                     |  | Director             |  | Helenof Holdings Limited                    
|                     |  | Director             |  | Indexia Holdings Limited                    
|                     |  | Director             |  | Lionheart Ventures (Overseas) Limited       
|                     |  | Director             |  | Stemriver Investments Limited               
|                     |  | Director             |  | Stoneworth Investment Limited               
|                     |  | Director             |  | The Fitzwilton Charitable Foundation Limited
|                     |  | Director             |  | The Ireland Funds                           
|Con Scanlon          |  | Director             |  | None                                        
|                     |  |                      |  |                                             

114

---



|Dr. Philip Nolan |  | Director               |  | Irish Management Institute                     
|---------------- |  | ---------------------- |  | -----------------------------------------------
|                 |  | Non-executive Director |  | De La Rue Plc                                  
|                 |  | Non-executive Director |  | Providence Resources plc                       
|Peter Lynch      |  | Director               |  | Copperstar Limited                             
|                 |  | Director               |  | eircomESOP Trustee Limited                     
|                 |  | Director               |  | Intrust Properties Limited                     
|Cathal Magee     |  | Director               |  | Beaumont Hospital                              
|                 |  | Director               |  | EBS Building Society                           
|                 |  | Director               |  | eircomESOP Trustee Limited                     
|                 |  | Director               |  | Enniskerry Demesne Management Limited          
|David McRedmond  |  | Director               |  | None                                           
|John Conroy      |  | Director and CEO       |  | Merrion Capital Group Limited                  
|                 |  | Director               |  | Iona Technologies plc                          
|                 |  | Director               |  | Rockview Merrion Investments Limited           
|                 |  | Director               |  | Merrion Corporate Finance Limited              
|                 |  | Director               |  | Merrion Financial Services Limited             
|                 |  | Director               |  | Merrion Fund Management Limited                
|                 |  | Director               |  | Merrion Stockbrokers Limited                   
|                 |  | Director               |  | Merrion Stockbrokers Nominee Limited           
|                 |  | Director               |  | Merrion Venture Capital Management Limited     
|                 |  | Director               |  | Parima Limited                                 
|Didier Delepine  |  | Director               |  | None                                           
|Irial Finan      |  | Director               |  | Alltracel Pharmaceuticals plc                  
|                 |  | Director               |  | Coca-Cola Enterprises                          
|                 |  | Director               |  | Coca-Cola FEMSA                                
|                 |  | Director               |  | Co-Operation Ireland                           
|                 |  | Director               |  | CCE AG Supervisory Board                       
|                 |  | Director               |  | Galway University Foundation                   
|Kevin Melia      |  | Chairman               |  | Iona Technologies plc                          
|                 |  | Chairman               |  | Lightbridge Inc.                               
|                 |  | Chairman               |  | Millstone Medical Outsourcing Inc              
|                 |  | Chairman               |  | Manugistics Group Inc                          
|                 |  | Director               |  | Boulder Brook LLC                              
|                 |  | Director               |  | Radisys Corporation                            
|Padraic O'Connor |  | Chairman               |  | Alltracel Pharmaceuticals plc                  
|                 |  | Chairman               |  | Hewitt Associates Ltd                          
|                 |  | Chairman               |  | Jones Distribution Limited                     
|                 |  | Chairman               |  | IMPAX Funds (Ireland) plc                      
|                 |  | Chairman               |  | Adwalker plc                                   
|                 |  | Director               |  | Bear Stearns Multi Strategy Fund               
|                 |  | Director               |  | Becketts Limited                               
|                 |  | Director               |  | ICMOS Ireland Limited                          
|                 |  | Director               |  | ICMOS Pangaea Global Hedge Fund plc            
|                 |  | Director               |  | J O Hambro Capital Management Umbrella Fund plc
|                 |  | Director               |  | QMC Development Capital Fund plc               
|                 |  | Director               |  | ACC Bank plc                                   
|Maurice Pratt    |  | Director and CEO       |  | C&C Group plc                                  
|                 |  | Director               |  | Aquaporte Group Limited                        
|                 |  | Director               |  | Aquaporte Limited                              
|                 |  | Director               |  | Ballygowan Group Limited                       
|                 |  | Director               |  | Ballygowan Limited                             
|                 |  | Director               |  | Bestormel Limited                              
|                 |  | Director               |  | Bewdley Limited                                
|                 |  | Director               |  | Bouchel Limited                                
|                 |  | Director               |  | Britvic Limited                                
|                 |  | Director               |  | Bulmers Limited                                
|                 |  | Director               |  | C&C (Ireland) Limited                          
|                 |  | Director               |  | C&C (Wholesale) Limited                        
|                 |  | Director               |  | C&C Agencies Limited                           
|                 |  | Director               |  | C&C International Limited                      
|                 |  | Director               |  | C&C Logistics Limited                          
|                 |  | Director               |  | C&C Logistics (NI) Limited                     
|                 |  | Director               |  | C&C Group International Holdings Limited       
|                 |  | Director               |  | C&C Profit Sharing Trustee (NI) Limited        
|                 |  |                        |  |                                                

115

---



|               |  | Director |  | C&C Management Services Limited                       
|-------------- |  | -------- |  | ------------------------------------------------------
|               |  | Director |  | C&C Profit Sharing Trustee Limited                    
|               |  | Director |  | Cantrell & Cochrane (Belfast) Limited                 
|               |  | Director |  | Cantrell & Cochrane (Holdings) Limited                
|               |  | Director |  | Cantrell & Cochrane (Investments) Limited             
|               |  | Director |  | Cantrell & Cochrane (Munster) Limited                 
|               |  | Director |  | Cantrell & Cochrane Group Limited                     
|               |  | Director |  | Cantrell & Cochrane Group Pension Trust (No 2) Limited
|               |  | Director |  | Cantrell & Cochrane Pension Trust (1973) Limited      
|               |  | Director |  | Cantrell & Cochrane Pension Trust (1988) Limited      
|               |  | Director |  | Cravenby Limited                                      
|               |  | Director |  | Dublin Chamber of Commerce                            
|               |  | Director |  | Edward & John Burke (1968) Limited                    
|               |  | Director |  | Edward & John Burke Limited                           
|               |  | Director |  | Eurosnax (UK) Limited                                 
|               |  | Director |  | Eurosnax International Limited                        
|               |  | Director |  | Findlater (Wine Merchants) Limited                    
|               |  | Director |  | Fruit of the Vine Limited                             
|               |  | Director |  | Grants of Ireland Limited                             
|               |  | Director |  | Hollywood & Donnelly Limited                          
|               |  | Director |  | Irish Mist Liqueur Company Limited                    
|               |  | Director |  | King Foods (Export) Limited                           
|               |  | Director |  | King Foods Limited                                    
|               |  | Director |  | King Kandy Limited                                    
|               |  | Director |  | King Snacks Limited                                   
|               |  | Director |  | Littlemill Limited                                    
|               |  | Director |  | Lough Corrib Mineral Water Company Limited            
|               |  | Director |  | M O'Sullivan & Sons Limited                           
|               |  | Director |  | Potato Distributors Limited                           
|               |  | Director |  | Quinns of Cookstown (1964) Limited                    
|               |  | Director |  | Rehill McKeown Limited                                
|               |  | Director |  | Repak Limited                                         
|               |  | Director |  | Showerings (Ireland) Limited                          
|               |  | Director |  | Sooner Foods (Ireland) Limited                        
|               |  | Director |  | Tayto Crisps Limited                                  
|               |  | Director |  | Tayto Limited                                         
|               |  | Director |  | The Fairgreen Partnership                             
|               |  | Director |  | Thwaites Limited                                      
|               |  | Director |  | TJ Carolan & Sons Limited                             
|               |  | Director |  | Uniphar plc                                           
|               |  | Director |  | Vandamin Limited                                      
|               |  | Director |  | William J Dwan & Sons Limited                         
|               |  | Director |  | WM Magner Limited                                     
|Donal Roche    |  | Chairman |  | Appian Wealth Management Limited                      
|               |  | Director |  | McInerney Holdings plc                                
|               |  | Director |  | Murray Consultants                                    
|               |  | Director |  | Newcourt Capital Group                                
|Brian Montague |  | Director |  | Intrust Properties Limited                            

Board Composition

Our Board of Directors consists of 13 Directors. The ESOT has the right, pursuant to the articles of association of eircomGroup, to
appoint three Directors to our Board of Directors for so long as it (or its nominee(s)) continues to hold at least 18% of our issued
Ordinary Shares (which number will decline to two Directors where it (or its nominee(s)) holds at least 10% but less than 18% of our issued Ordinary Shares and one Director where such holding is at
least 1% but less than 10% of our issued Ordinary Shares). The ESOT also has the right to appoint one of its nominee Directors to be the Vice-Chairman for a period of three years from the
Initial Public Offering in March 2004 and thereafter will have this right for so long as the ESOT is entitled to appoint not less than two Directors to our Board of Directors. The initial ESOT
nominee Directors are Mr. Scanlon, Mr. Conroy and Mr. Magee, Mr. Scanlon is the Vice Chairman.

Mr. Delepine,
Mr. Finan, Mr. Melia, Mr. O'Connor, Mr. Pratt and Mr. Roche are the independent Non-Executive Directors.
Mr. Roche was until December 2003 the Managing Partner of Matheson

116

---



Ormsby
Prentice Solicitors, at which point he retired from the partnership. He has no ongoing financial interest, management responsibility or other rights in the partnership other than to receive
certain fixed contractual payments that will be made over the next six years irrespective of the profitability of the partnership in consideration of his early retirement from the partnership. Sir
Anthony O'Reilly is the Non-Executive Chairman of Matheson Ormsby Prentice and the firm also provides certain legal services to him and his family. Our Board of Directors has determined
that Mr. Roche's relationship with Sir Anthony O'Reilly is not such as could render him other than an independent Non-Executive Director of eircomGroup for the purposes of the Combined Code.

Our
Memorandum and Articles of Association stipulate that at every Annual General Meeting (AGM) of the Company, one-third of the Directors, or the number nearest to
one-third, shall retire from office by rotation. At the Company's forthcoming AGM in July 2005 it is proposed that the following Directors shall retire from office and offer
themselves for re-election:

Sir
Anthony O'Reilly, Chairman;

Con
Scanlon, Vice Chairman;

Dr. Philip
Nolan, CEO;

Padraic
O'Connor, Director; and

Maurice
Pratt, Director.

Senior Management

Our senior management consists of the following executive officers who are responsible for the business and administrative departments indicated below.

|Name                               |  | Age |  | Position                 
|---------------------------------- |  | --- |  | -------------------------
|Dr. Philip Michael Gerard Nolan(1) |  | 51  |  | Chief executive officer  
|Peter Eugene Lynch(1)              |  | 47  |  | Chief financial officer  
|Cathal Gerard Magee(1)             |  | 52  |  | Managing director, retail
|David Francis McRedmond(1)         |  | 42  |  | Commercial director      
|Paul Francis Reid                  |  | 41  |  | Operations Director      
|Brian Montague                     |  | 42  |  | Human resources director 
|John Gerard Mason                  |  | 47  |  | General counsel          

---

The business address for the senior executives is c/o 114 St. Stephen's Green West, Dublin 2.

Paul Reidis the Operations Director, since his appointment to this role, in March 2005. Paul joined eircomin August, 1982. He has held a number of senior
management positions across the organisation, in both the retail and the network organisations.
Paul has an MSc, (Business Administration) from Trinity College, Dublin, and a BA (Hons), in Personnel Management & Industrial Relations, from the National College of Ireland.

Brian Montaguejoinedeircomin July 2002 as Director of Human Resources. He is a
trustee ofeircom's two defined benefit pension schemes, theeircomSuperannuation Fund, and the eircomNo. 2 Fund. Beginning May 2001 and prior to joiningeircom, he was Director of
Human Resources at the National Air Traffic Service, United Kingdom, General Manager of Human Resources at British Airways beginning September 1992 and was Group Human Resources Manager for
Guinness Northern Ireland beginning January 1988.

John Masonjoinedeircomin August 2003 as General Counsel and was appointed
Company Secretary in September 2003 and Company Secretary ofeircomGroup, Valentia Telecommunications

117

---



and eircomin January 2004. Prior to joiningeircomand beginning in 2002, Mr. Mason was
senior Corporate Attorney at Hewlett Packard Ltd (UK and Ireland). Beginning in 2001, Mr. Mason was Director of Legal Services and Company Secretary for Compaq Computer Ltd (UK
and Ireland) and beginning in 1999, European Legal Counsel and Group Company Secretary at Compaq Financial Services. Mr. Mason was admitted to the Northern Irish Bar in 1981.

To
the best of our knowledge, there is no family relationship between any of our directors or senior management.

B.    DIRECTORS' REMUNERATION

The Remuneration Committee determines remuneration polices and practices which conform with best market practice, with the aim of attracting, retaining and
motivating top class Executive Directors who will deliver excellent performance for the business and shareholders.

The
objectives that underpineircom's remuneration policy are:



The
Remuneration Committee considers that a successful policy needs to be sufficiently flexible to take account of future changes in the Group's business environment and in remuneration
practice and so the policy is subject to change.

Executive Directors' remuneration

eircom'spolicy is that the remuneration awarded to Executive Directors should be competitive and comprise a mix
of performance and non-performance related remuneration designed to incentivise Executive Directors. Benefits comprise base salary, pension arrangements, non-cash benefits,
annual bonus and share options. Annual bonus payments and share options are performance-related and the Remuneration Committee regards these as key elements of the remuneration package.

118

---



Executive Directors detailed emoluments

The remuneration of Executive Directors of the Group, excluding pension contribution shown separately below, in respect of the financial year ended
31 March 2005, is set out below:

|                             |  | Dr. P. Nolan |  | P. E. Lynch |  | C. Magee |  | D. McRedmond
|---------------------------- |  | ------------ |  | ----------- |  | -------- |  | ------------
|
|Salary & fees                |  | 707,000      |  | 466,400     |  | 466,400  |  | 330,000     
|Benefits in kind(1)          |  | 45,151       |  | 3,965       |  | 37,342   |  | 25,751      
|Expense allowance            |  |             |  | 25,950      |  |         |  |            
|Performance related bonus(2) |  | 511,868      |  | 268,180     |  | 258,852  |  | 183,150     
|Other payments(3)            |  | 22,440       |  | 16,829      |  | 12,896   |  | 9,736       
|                             |  |              |  |             |  |          |  |             
|Total                        |  | 1,286,459    |  | 781,324     |  | 775,490  |  | 548,637     
|                             |  |              |  |             |  |          |  |             

---

Base salary

Base salaries for all Executive Directors are reviewed by the Remuneration Committee (but not necessarily increased) annually in April. In considering base
salaries, the Remuneration Committee refers to market information and data for comparable positions in comparable businesses. Salary increases are awarded based on market information, business and
individual performance and anticipated future contribution to the business.

For
the financial year commencing 1 April 2005, the Remuneration Committee has set the salaries of the Executive Directors at €735,280 for Dr. Philip Nolan,
€485,000 for Peter E. Lynch, €485,000 for Cathal Magee and €350,000 for David McRedmond having regard to the factors noted above.

Annual bonus

For the financial year ended 31 March 2005, the Executive Directors had the opportunity to earn annual bonuses of up to 100% of basic salary for
Dr. Philip Nolan and 75% of basic salary for the other Executive Directors. Annual bonus payments for the financial year ended 31 March 2005 were determined by the Remuneration Committee
based on the achievement of corporate and personal performance objectives set by the Remuneration Committee at the beginning of the financial year. For the financial year ended 31 March 2005,
80% of the bonus target related to business performance and 20% related to performance against individual objectives. The remuneration committee considers it vital that the bonus targets incorporate
real opportunity and risk. To reflect this, the business performance element was linked to business adjusted EBITDA performance. The Remuneration Committee agreed a bonus ratchet (being the
incremental bonus opportunity against incremental performance targets) against target adjusted EBITDA performance for the financial year ending 31 March 2005, Executive Directors could achieve
the maximum 80% of the business performance element of their bonuses for target adjusted EBITDA performance.

119

---



For
the financial year ended 31 March 2005, for those Executive Directors with the opportunity to earn bonuses of up to 75% of base salary (Peter E. Lynch, Cathal Magee and David
McRedmond) 42.5% of base salary was awarded for achievement against the business performance element of the bonuses. For Dr. Philip Nolan, whose bonus opportunity is up to 100% of base salary,
the award for business performance is 56.4% of base salary. The balance of bonus paid to each of the Executive Directors was to reflect personal performance. Actual bonuses paid are as follows:

|Executive Director |  | Total Bonus Amount
€ |  | % of base Salary |  
|------------------ |  | -------------------- |  | ---------------- | -
|Dr. Philip Nolan   |  | 511,868              |  | 72.4             | %
|Peter E Lynch      |  | 268,180              |  | 57.5             | %
|Cathal Magee       |  | 258,852              |  | 55.5             | %
|David McRedmond    |  | 183,150              |  | 55.5             | %

For the financial year commencing on 1 April 2005, the Remuneration Committee has decided to continue with the principles established for
the financial year ended 31 March 2005 that annual bonus should be split between corporate and personal performance targets and that there should be a bonus ratchet against target and stretch
performance (being performance above target). This approach is further developed by the introduction of a new customer service measure as a component of the business performance element of the bonus.
The business performance element of the bonus will have targets based on a split, between adjusted EBITDA and the customer service measure. Both elements have a ratchet for target and stretch
performance.

For
the Executive Directors with a bonus opportunity of 75%, the split is 55% adjusted EBITDA performance, 10% customer service performance and 10% personal performance. For
Dr. Philip Nolan, with a bonus opportunity of 100%, the split is 74% adjusted EBITDA, 13% customer service and 13% personal performance.

This
evolution of the performance model for Executive Directors reflects the central importance of customer service toeircomand the link
to Executive Director performance and reward.

Bonus
payments are non-pensionable.

Non-cash benefits

All Executive Directors are entitled to a company car including petrol (or allowance), mobile phone, private health insurance and life assurance cover of four
times salary.

Non-Executive Directors' remuneration

The remuneration of Non-Executive Directors is a matter for the Chairman of the Board and the Executive members of the Board.

The
Board of Directors determines the remuneration of Non-Executive Directors annually. The fees paid to Non-Executive Directors are set at a level, which will
attract individuals with the necessary experience and ability to make a substantial contribution to the Group's affairs, and reflect the time demands of their Board duties.

A
basic fee is paid in respect of service as a Non-Executive Director and additional fees are paid to Sir Anthony O'Reilly and Mr. Scanlon to reflect their additional
duties as Chairman and Vice-Chairman of the Board. No additional fee is payable for membership of Board committees.

The
basic fee for Non-Executive Directors for the financial year commencing 1 April 2005 is €75,000 per year, inclusive of Board committee membership.
Sir Anthony O'Reilly is entitled to annual fees of €132,500 (inclusive of the basic fee) and Mr. Scanlon is entitled to annual fees of €106,000 (inclusive of the
basic fee). However, Mr. Scanlon was appointed General Manager of the ESOP on

120

---



12 July
2004 and with effect from that date agreed to forego all fees earned as a Director in consideration of the receipt of a salary for his duties as General Manager of the ESOP.
Accordingly, Mr. Scanlon's fee is now paid to the ESOP in consideration of making Mr. Scanlon's services available as a Director, and not to Mr. Scanlon.

Non-Executive
Directors are not eligible to receive bonuses or share options.

As
of 31 March 2005 fees were paid to non-executive directors as follows:

Name

Financial
Year Ended
31 March
2005Sir A. O'Reilly


€132,500C. Scanlon(1)

€
29,695J. Conroy

€
75,000D. Delepine

€
75,000I. Finan

€
75,000K. Melia

€
75,000P. O'Connor

€
75,000M. Pratt

€
75,000D. Roche

€
75,000


---

Executive directors' service contracts

It is the remuneration committee's policy that Executive Directors will have service contracts that may be terminated by not more than one year's notice. Service
contracts are compliant with the UK Combined Code and generally reflect public company best practice.

Each
Executive Director has a service agreement witheircomLimited dated 18 March 2004. Service agreements have a notice period of
one year.

Termination payments to Directors

Under the terms of Dr. Nolan's service agreement, ifeircomLimited terminates Dr. Nolan's
employment without notice (other than in circumstances where it is entitled to terminate the employment summarily), it must pay Dr. Nolan an amount equal to 12 months salary and the
gross value of the car, insurance benefits and pension contributions provided under his service agreement.

eircomLimited may suspend an Executive Director from his duties at any time after notice has been given, provided he continues to receive
full salary. There are no other provisions for compensation payable on early termination of the service agreements.

Non-Executive Directors' letters of appointment

Each Non-Executive Director has a letter of appointment under which he has been appointed for an initial period of three years effective from
18 March 2004. The appointments are subject to the Companies Act 1985 andeircomGroup's Articles of Association, in particular the need for
periodic re-election. Either party may terminate the appointment at any time by giving one month's notice (except for Sir Anthony O'Reilly whose appointment may be terminated by either
party giving three months' notice). The letters of appointment do not contain any provision for termination payments.

121

---



Management incentive arrangements

An important element of the remuneration policy for the Senior Management Group (including the Executive Directors) is to create long term incentives aligned to
the interests of shareholders. For the financial year 2004/2005 this objective was delivered through theeircomGroup plc Employee Share Option Plan
2004 (the "Share Option Plan"), details of which are described below.

The
Share Option Plan allows eligible employees (including Executive Directors and Senior Management) to be granted options over existing or unissued Ordinary Shares. The first grant of
options was made under the Share Option Plan to selected senior employees including the Executive Directors, on 22 June 2004. Details of the options granted to the Executive Directors during
the financial year are set out under the Share Option section of this report. The Remuneration Committee intends that the second grant of options under this plan will be granted during the financial
year ended 31 March 2006. The exercise price for these options is set at the middle market closing quotation for aneircomshare as derived from
the Daily Official list of the London Stock Exchange on the date of grant.

The
exercise of any options granted under the Share Option Plan is conditional on achievement of performance targets over a three year period. For options granted during the financial
year 31 March 2005, the Remuneration Committee determined that the exercise of these options would be subject to the following performance target (i) that the Company's normalised
adjusted earnings per share for the financial year ending on 31 March 2007 must exceed 12.05 cents and (ii) payment of a dividend of not less than 11 cents per share in each of the
financial years ending 31 March 2005, 31 March 2006 and 31 March 2007 which is consistent with the assumed dividend yield at the time of listing. Normalised adjusted earnings per
share will be calculated by an independent third party.

For
options granted during the financial year ended 31 March 2006, the Remuneration Committee intends to apply different performance targets.

These
performance targets are that: (i) that the Company's normalised adjusted earnings per share, based on UK GAAP, for the financial year ending on 31 March 2008 is
increased by CPI plus 3% over the previous year target and (ii)eircommust pay a dividend of not less than €0.11 per share in
each of the financial years ending 31 March 2006, 31 March 2007 and 31 March 2008, which reflects the assumed dividend yield at the time of Listing. Normalised adjusted earnings
per share will be calculated by an independent third party. These targets will be re-expressed under IFRS in due course, and the basis for the conversion explained.

The
Remuneration committee has commenced a review of long term incentive arrangements for the executive directors which will continue during the next financial year.

ESOP

The Employee Share Ownership Plan ("ESOP") is a form of share scheme approved by the Irish Revenue which statutory rules require the ESOP to be open to all
employees that meet the relevant qualifying service. The ESOP was established in March 1999 to acquire and hold shares for the benefit of all eligible employees. The ESOP consists of two
separate trusts, theeircomEmployee Share Ownership Trust ("ESOT") and theeircomApproved Profit
Sharing Scheme ("APSS"). All Executive Directors are members of the ESOP. Prior to listing, all Executive Directors held notional interests under the ESOT Trust. Dr. Nolan, Mr. Lynch and
Mr. McRedmond have waived all entitlements under the ESOT for a period of two years and one month from listing.

122

---



Share Ownership Policy

In line with investment best practice, the Remuneration Committee has adopted a policy on share ownership for all Executive Directors. This policy has been
developed having regard to research carried out by Towers Perrin, independent remuneration consultants.

The
share ownership policy requires each of the Executive Directors to retain a holding ofeircomshares based on a multiple of annual
salary while employed byeircom. The minimum shareholding is equivalent to 1.5 times base salary for Dr. Philip Nolan and 1 times base salary for
other Executive Directors.

Executive
Directors have three years from when they are appointed to reach the share ownership levels. If an Executive Director ceases employment with eircomthey will no longer be bound by share ownership
obligations and will be governed by the rules applying to all shareholders.

The
Remuneration Committee will review share ownership on an annual basis and has the discretion in the operation of this policy to respond to specific circumstances in relation to share
ownership as they see fit.

Share options



Prior to Listing, the Executive Directors and other members of Senior Management were granted awards to acquire ordinary shares under the eircomGroup key executive share award Plan (the "key executive share award plan") as a reward and retention incentive for their contribution to the
development and growth of the Group in the period prior to Listing. The second tranche of awards is capable of vesting on 24 March 2006, subject generally to the participant remaining in
employment on the vesting date. The vesting of awards is not subject to any performance conditions (other than the condition relating to a participant's continued employment). No further awards will
be granted under this Plan.

During
the financial year ended 31 March 2004 awards under theeircomGroup key executive share award plan were made to Executive
Directors. The awards not yet exercised at 31 March 2005 were as follows:

|                               |  | Date
of
grant |  | Earliest
exercise
date           |  | Exercise
price
(cents) |  | Expiry Date           |  | Number at 1 April 2004 |  | Exercised
in
Period |  | Lapsed
in
Period |  | Number at
31 March 2005
|------------------------------ |  | ------------- |  | -------------------------------- |  | ---------------------- |  | --------------------- |  | ---------------------- |  | ------------------- |  | ---------------- |  | -----------------------
|Dr. P Nolan10c ordinary shares |  | 24 March 2004 |  | 24 March 2005 (first instalment) |  | 0.10                   |  | 6 months
from vesting |  | 433,316                |  |                    |  |                 |  | 433,316                
|P E Lynch10c ordinary shares   |  | 24 March 2004 |  | 24 March 2005 (first instalment) |  | 0.10                   |  | 6 months
from vesting |  | 324,987                |  |                    |  |                 |  | 324,987                
|C Magee10c ordinary shares     |  | 24 March 2004 |  | 24 March 2005 (first instalment) |  | 0.10                   |  | 6 months from vesting |  | 249,032                |  |                    |  |                 |  | 249,032                
|D McRedmond10c ordinary shares |  | 24 March 2004 |  | 24 March 2005 (first instalment) |  | 0.10                   |  | 6 months from vesting |  | 188,019                |  |                    |  |                 |  | 188,019                

---

123

---







Details of theeircomGroup plc employee share option plan 2004 ("the Share Option Plan") are already set under
"Management incentive arrangements" above. The options granted to the executive directors under the Share Option Plan as of 22 June 2005 are as follows:

|            |  | Date
of
grant |  | Earliest
exercise
date |  | Expiry
date  |  | Exercise
price
(cents) |  | Number at
1 April
2004 |  | Granted
in
period |  | Exercised
in
period |  | Lapsed
in
Period |  | Number at
31 March
2005
|----------- |  | ------------- |  | ---------------------- |  | ------------ |  | ---------------------- |  | ---------------------- |  | ----------------- |  | ------------------- |  | ---------------- |  | -----------------------
|Dr. P Nolan |  | 22 June 2004  |  | 22 June 2007           |  | 22 June 2014 |  | 150                    |  |                       |  | 471,333           |  |                    |  |                 |  | 471,333                
|P E Lynch   |  | 22 June 2004  |  | 22 June 2007           |  | 22 June 2014 |  | 150                    |  |                       |  | 310,667           |  |                    |  |                 |  | 310,667                
|C Magee     |  | 22 June 2004  |  | 22 June 2007           |  | 22 June 2014 |  | 150                    |  |                       |  | 310,933           |  |                    |  |                 |  | 310,933                
|D McRedmond |  | 22 June 2004  |  | 22 June 2007           |  | 22 June 2014 |  | 150                    |  |                       |  | 220,000           |  |                    |  |                 |  | 220,000                

124

---



Directors' pension entitlements

Set out below are details of the pension benefits to which each of the executive directors and Mr. Scanlon are entitled. Mr. Scanlon's entitlements
arise from his status as a former employee ofeircomLimited and not by virtue of his position as a director of eircomGroup plc.



Cathal Magee

Con ScanlonFinancial year-ended
31 March 2005

Financial year-ended
31 March 2005€'000

€'000Increase in accrued entitlements earned in year (pension)

6

4Increase/(decrease) in accrued entitlements earned in year (gratuity)

17

NilAccrued entitlement at end of year (pension)

179

74Accrued entitlement at end of year (gratuity)

537

nilTransfer value at beginning of year

3,205

1,777Transfer value at end of year

3,596

1,945Increase in transfer value less directors' contributions

360

168(Decrease)/Increase in accrued entitlements (excluding inflation) (pension)

(2
)
1Decrease in accrued entitlements (excluding inflation) (gratuity)

(5
)
NilTransfer value of (decrease)/increase in accrued benefits (excluding inflation and directors contributions)

(64
)
14


---

The accrued pension entitlements are the amount that the Director would receive if he left service at the end of the year.

The
increase in the accrued entitlements is the difference between the accrued entitlements at the year-end and that at the previous year-end. As required by the
UKLA's Listing Rules, this is disclosed excluding inflation.

All
transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer values of the accrued entitlement represent the
value of assets that the pension scheme would need to transfer to another pension provider on transferring the scheme's liability in respect of the directors' pension benefits. They do not represent
sums payable to individual directors and, therefore, cannot be added meaningfully to annual remuneration.

The
increase in the transfer value less directors' contributions is the increase in the transfer value of the accrued benefits during the year after deducting the director's personal
contributions to the scheme.

The
transfer value of the increase in accrued benefits (excluding inflation), required by the Listing Rules, discloses the current value of the increase in accrued benefits that the
director has earned in the year, whereas the change in this transfer value, required by the UK Companies Act, discloses the absolute increase or decrease in his transfer value and includes the changes
in the value of the accrued benefits that results from changes in the basis of calculation of transfer values over the year, as well as the additional value earned in the year and the impact of
inflation on the benefit accrued at the beginning of the year.

125

---





Cathal Magee

Con ScanlonAs at
31 March 2005

As at
31 March 2005€'000

€'000Total Risk Cost for year ended

14

Nil




Each Executive Director participates in a defined contribution pension scheme operated by the Group. In accordance with historical arrangements, Cathal Magee also
participates in the Group's main defined benefit pension scheme (theeircomMain Superannuation Scheme).

eircomLimited makes employer contributions to each of these schemes in respect of the Executive Directors. eircomLimited contributions paid and payable to defined
contribution schemes in respect of the Executive Directors for the financial year ended
31 March 2005 were as follows:

Name

Financial
Year Ended
31 March
2005Dr. P. Nolan

€
353,500P. E. Lynch

€
69,960C. Magee

€
13,059D. McRedmond

€
49,500


C.CORPORATE GOVERNANCE AND BOARD PRACTICES

The Listing Rules of the Financial Services Authority require UK listed companies to report on the manner in which they apply the Principles of Good Governance
and the extent to which they comply with the Provisions set out in the Combined Code on Corporate Governance issued in July 2003 ("the Combined Code").

TheeircomBoard is committed to the highest standards of corporate governance. During the year, a thorough review of the Group's
corporate governance policies and procedures was conducted to reflect the impact of the Higgs review of the role and effectiveness of Non-Executive Directors, the Smith report on Audit
Committees and the revised Combined Code.

The
Combined Code recommends that at least half the members of a board (excluding the chairman) of a public company listed in the UK should be non-executive directors who are
independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement. eircomGroup has six independent non-executive
directors: Mr. Delepine, Mr. Finan, Mr. Melia, Mr. O'Connor,
Mr. Pratt and Mr. Roche.eircomGroup therefore considers that it is compliant with the revised Combined Code in relation to the
constitution of our board of directors.

The
Combined Code also recommends that the board of directors should appoint one of its independent non-executive directors to be the senior independent director. The senior
independent director should be available to shareholders if they have concerns that contact through the normal channels of chairman, chief executive officer or chief financial officer has failed to
resolve or for which such contact is inappropriate.eircomGroup's senior independent director is Mr. Melia.

The
ESOT has the right under the Articles of Association ofeircomGroup (as described in Item 10 "Additional Information") to
appoint three directors to our board of directors for so long as it (or its nominee(s)) continue(s) to hold at least 18% of our issued Ordinary Shares (which number will

126

---



decline
to two directors where it (or its nominees(s)) holds at least 10% but less than 18% of our issued Ordinary Shares and one director where such holding is at least 1% but less than 10% of our
issued Ordinary Shares). The ESOT also has the right to appoint one of its nominees to be the Vice-Chairman for a period of three years from the Initial Public Offer in March 2004 and will
have this right thereafter for so long as the ESOT is entitled to appoint not less than two directors to our board of directors.

Our
board of directors has established three committees: an audit committee, a nominations committee and a remuneration committee. From time to time, separate committees will be set up
by our board of directors to consider specified issues when the need arises.

The
ESOT has the right under the articles of association ofeircomGroup (as described in Item 10 "Additional Information"), for so
long as it is entitled to appoint a nominee Director, to appoint one of its nominee Directors to each of the committees of our board of directors, provided that such appointments will not contravene
the Combined Code, the UK Listing Rules or any other rules or codes of corporate governance which apply toeircomGroup or which have been adopted by
our board of directors. Accordingly, directors nominated by the ESOT will not be appointed either to the audit committee or the remuneration committee.

Audit committee

The audit committee assists our board of directors in discharging its responsibilities with regard to financial reporting, external and internal audits and
controls, including reviewingeircomGroup's annual financial statements, considering the scope of eircomGroup's annual external audit and the extent of
non-audit work undertaken by external auditors, approving eircomGroup's internal audit programme, advising on the appointment of external auditors and reviewing the effectiveness of eircomGroup's internal control systems.

The
Combined Code recommends that all members of the audit committee should be non-executive directors, all of whom are independent in character and judgement and free from
relationships or circumstances which are likely to affect, or could appear to affect, their judgement and that at least one member should have recent and relevant financial experience.

The
audit committee is composed of four independent non-executive directors: Mr. O'Connor (chair), Mr. Melia, Mr. Finan and Mr. Pratt.
Mr. Finan was chairman of the committee throughout the financial year ended 31 March 2005. Our board of directors considers that Mr. Finan has recent and relevant financial
experience. Our board of directors therefore considers that it complies with Combined Code recommendations regarding the composition of the Audit Committee.

The
audit committee reports its activities and makes recommendations to the Board. During the year ended 31 March 2005 the Audit Committee discharged its described duties. Its
activities included:



127

---





During
the year, the Group put in place a code of ethical business conduct for the Board and senior management and has also developed a whistleblowing policy and process. Copies of the
general code are available on request from the Company Secretary.

In
order to continue to meet best practice in the light of new regulations and legislation, the Group strengthened the independence policy with the introduction of a formal auditor
independence policy which conforms to the requirements of Rule 2-01 of Regulation S-X and the Sarbanes-Oxley Act. This provides clear definitions of services that
the external auditors may and may not provide such that their independence and objectivity is not impaired, as well as establishing a formal authorisation process, including the
pre-approval by the audit committee, for allowable non-audit work that the external auditors may perform. The audit committee also completes regular reviews of the remuneration
received by PricewaterhouseCoopers for non-audit work, with the aim of seeking to balance objectivity, value for money and compliance with this policy. The audit committee formed the view
that no conflict of interest exists between PricewaterhouseCoopers' audit and non-audit work during the financial year ended 31 March 2005 and that this was the most cost effective
way of conductingeircomGroup's business given the nature of the projects arising during the year. In other situations, proposed assignments are
subject to independent tendering and decisions taken on the basis of competence and cost effectiveness.

In
the light of the Sarbanes-Oxley Act, the board of directors has given due consideration to the actions necessary to meet the new and enhanced standards for corporate accountability in
the United States, as defined in this legislation, and how these might be best incorporated with existing procedures to meet best practice in the United Kingdom and Ireland.

Nominations committee

The nominations committee assists our board of directors in discharging its responsibilities relating to the composition of our board of directors. The
nominations committee is responsible for reviewing, from time to time, the structure of our board of directors, determining succession plans for the chairman and chief executive officer, and
identifying and recommending suitable candidates for appointment as directors.

The
Combined Code recommends that a majority of the nominations committee should be non-executive directors independent in character and judgement and free from relationships
or circumstances which are likely to affect, or could appear to affect, their judgement.

The
nominations committee is composed of Sir Anthony O'Reilly (chair), Mr. Conroy, Mr. Delepine and Mr. Roche. The initial ESOT nominee for the nominations committee
is Mr. Conroy.eircomGroup therefore considers that it complies with Combined Code recommendations regarding the composition of the nominations
committee.

Remuneration committee



The remuneration committee is responsible for determining remuneration policy in relation to the Chairman, Chief Executive, Chief Financial Officer, the other
Executive Directors of the Company and

128

---



the
Company Secretary. The committee will consult with other independent non-executive Directors in regard to the remuneration of these key officers. The committee also monitors and
recommends to the board the remuneration of Senior Management below board level and considers and determines all elements of the remuneration of the Executive Directors and Senior Management forming
the Executive Group.

The
remuneration committee consults with other independent Non-Executive Directors in relation to the remuneration of the Chairman, the Executive Directors and the Company
Secretary.

The
remuneration committee administers all aspects of any share option scheme operated by theeircomGroup including the selection of
those eligible to participate, to whom options should be granted, the timing of any grant, the number of shares, the exercise price and the performance conditions that must be satisfied.

The
remuneration committee gives due regard to published or other available information relating to pay, bonuses and other benefits of executives in companies which are comparable to eircom.

The
remuneration committee operates within agreed terms of reference.

The
Combined Code recommends that all members of the remuneration committee should be non-executive directors, all of whom are independent in character and judgement and free
from relationships or circumstances which are likely to affect, or could affect, their judgement.



The remuneration committee is made up entirely of independent Non-Executive Directors. Other Directors may be invited to attend meetings of the
remuneration committee. No Executive Director ofeircomGroup can participate at a meeting of the remuneration committee (or during the relevant part)
at which any part of his remuneration is being discussed.

The
current members of the remuneration committee are Mr. Melia (chair), Mr. Roche, Mr. O'Connor and Mr. Pratt.

Our
board of directors considers that it complies with Combined Code recommendations regarding the composition of the remuneration committee.



Advice is provided to the remuneration committee by the Group Human Resources Director. The Chief Executive and the Chairman were consulted about the remuneration
of other Executive Directors.

The
remuneration committee received advice from external independent remuneration consultants Towers Perrin in relation to the performance conditions applicable to share options granted
under the Employee Share Option Plan 2004, the design of the Executive Share Ownership Policy, and executive salary positioning and long term incentive arrangements for the Executive Directors. Towers
Perrin were appointed by the Remuneration Committee.

The
remuneration committee also received advice from Freshfields Bruckhaus Deringer (the Company's English law advisers) as to English law and A&L Goodbody (the Company's Irish law
advisers) as to Irish law in relation to the sourcing of shares to satisfy awards under the Key Executive Share Award Plan.

129

---



Additional Committees



The employee relations committee makes recommendations to our board of directors on any cases of proposed dismissal of staff.

The
employee relations committee is composed of two directors, Dr. Nolan and Mr. Pratt, and one non-board member, Mr. Mason, in his capacity as company
secretary and general
counsel. The Group human resources director also attends meetings, but is not a member of the committee.



eircomGroup has formed a disclosure committee comprising senior executives, which reports to the Chief Executive
Officer and the Chief Financial Officer on a formal basis regarding this document.

The
principal responsibilities and duties of this committee are to design, maintain and revieweircomGroup's disclosure controls and
procedures in the preparation and verification of this 20-F, to evaluate the effectiveness of these controls on a regular basis and to assist the senior officers in providing the formal
certifications required under U.S. legislation. To satisfy these requirements, the committee's responsibilities extend to the entirety ofeircomGroup's
disclosures, including financial and non-financial information. It consults regularly with its external legal advisors and auditors to identify any risk areas, determine the subject of any
disclosures, evaluate disclosure issues and prepare or assist in the preparation of this 20-F.

In
this context, the disclosures contained within this document have been reviewed and evaluated by the committee following which appropriate assurances were given to the board of
directors that the disclosure committee was not aware of any reason why the Chief Executive Officer and the Chief Financial Officer could not provide the certifications included as
Exhibits 12.1, 12.2, 12.3 and 12.4 in this document.



During the period under review, the Compliance, Internal Audit and Risk management units were re-organised into one division, Audit, Risk and
Compliance. The Group internal audit function was restructured and a new head of Group internal audit was appointed during the review period. The programme to implement compliance with S404 of the
Sarbanes-Oxley Act, 2002 was also established within this business unit.

As
part of the re-organisation, a new risk framework was introduced and a Corporate Risk Committee was established. The committee, which is made up of executives and senior
management representatives from across the company, has primary responsibility for risk management, internal control remediation and the Group's compliance with regulatory matters and reports to the
Executive and Audit committees.

As
part of this new risk framework, a remediation programme was established to address cross-functional remediation.



A committee was established in the period under review with responsibility for implementing and monitoringeircomGroup's corporate governance compliance programme. The committee is comprised of senior management and reports to the board's executive committee.

130

---



D.EMPLOYEES

We are one of the largest employers in Ireland. As of 31 March 2005, we had 7,275 employees, excluding 306 agency staff. For the financial year ended
31 March 2004 we had an average number of 8,306 employees and for the financial year 31 March 2005 we had an average number of 7,595 employees in the following categories of activity:

Average for the Financial Year Ended 31 March2003

2004

2005Operational/Technical

5,700

5,335

4,966Sales/Customer support

2,871

2,439

2,128Administration

558

532

501Total employees

9,129

8,306

7,595


The substantial majority of our employees are employed in Ireland.

As
of 31 March 2005, approximately 86% of our employees were members of six recognised trade unions, the largest union being the Communication Workers Union ("CWU"). Approximately
73% of our employees are represented by the CWU. Our employees have an average 22.7 years of service with the Group. Approximately 79% are aged 41 years or older, with approximately 58%
of our total employees aged 41 to 50.

We
believe that the relationship between our management and our employees and the trade unions is good. We entered into a collective agreement, called the Telecom Partnership Agreement,
with our employees in February 1997, under which all significant changes in conditions of employment are to be discussed with the trade unions prior to any change. As part of this Agreement, we
also agreed with the employees and the trade unions that all employee redundancies will be voluntary. The trade unions have agreed not to oppose changes we propose in response to competitive market
pressures.

Approximately
92% of our employees are employed on a permanent basis. Approximately 4% of our employees have fixed-term contracts, with the remaining 4% being temporary
employees, employed by a subsidiary or working under a flexible working arrangement. Under the Irish employment law regime it is difficult to terminate the contracts of existing employees or to
unilaterally change the terms and conditions of their employment. In addition, employees who were members of staff of the Irish Department of Posts and Telegraphs prior to our conversion into a
corporation in 1984 have specific statutory protection. Approximately 73% of our employees still enjoy these protections. In the absence of a collective bargaining agreement to the contrary, these
employees may not have less beneficial scales of pay and conditions of service than those that were applicable immediately prior to the conversion. Likewise, the tenure of employment may not, except
in accordance with a collective agreement, be made less beneficial than that prevailing for the time being in the Irish Civil Service.

131

---



National
pay agreements are generally applied to the approximately 75% of our staff whose terms are agreed directly with their trade unions. Since 1 April 2001, the following pay
increases have been awarded or are scheduled to be awarded in the future:

|Programme                             |  | Date Introduced |  | % Increase
|------------------------------------- |  | --------------- |  | ----------
|Programme for Prosperity and Fairness |  | 1 April 2001    |  | 2.0       
|Programme for Prosperity and Fairness |  | 1 February 2002 |  | 5.5       
|Programme for Prosperity and Fairness |  | 1 April 2002    |  | 1.0       
|Programme for Prosperity and Fairness |  | 1 February 2003 |  | 4.0       
|Sustaining Progress                   |  | 1 November 2003 |  | 3.0       
|Sustaining Progress                   |  | 1 August 2004   |  | 2.0       
|Sustaining Progress                   |  | 1 February 2005 |  | 2.0       
|Sustaining Progress                   |  | 1 May 2005      |  | 1.5       
|Sustaining Progress                   |  | 1 November 2005 |  | 1.5       
|Sustaining Progress                   |  | 1 November 2006 |  | 2.5       

The first phase of the current agreement (Sustaining Progress) governing employee compensation was effective from 1 November 2003. This
agreement increased basic pay for employees to whom it applies by 3%. There can be no assurance that national pay agreements will continue to be entered into in Ireland in the future.

In
1997, in connection with a strategic alliance with the Irish government, KPN Telecom and Telia AB (publ), we established an employee share ownership plan and entered into a collective
agreement with our employees, the principal objectives of which were to reduce our operating costs, improve our work processes and allow us to pursue a growth strategy. To achieve these goals, we
agreed on a range of measures, including a reduction of 2,500 employees on a voluntary basis in the period from 1997 to 2002.

We
are continuing to reduce headcount, and have achieved significant reductions in the last three financial years. Our average number of employees declined from 9,129 in the financial
year ended 31 March 2003 to 8,306 in the financial year ended 31 March 2004 and 7,595 in the financial year ended 31 March 2005. This decline in average headcount reflects the
impact of our voluntary severance, as well as the reduction of employees in connection with our discontinuation, disposal and exit of various businesses, and outsourcing certain activities through
Managed Service contracts. Our goal is to reduce headcount to approximately 7,000 by 31 March 2008 or earlier if it is possible to do so. To achieve this goal, we intend to:



To
date our voluntary severance and early retirement programmes involved making offers of severance payments or assisted or early retirement to targeted groups of employees. Employees
are typically offered a lump sum or take early retirement to leave the company. In addition employees can avail of a number of flexible working options. Flexible working options allow staff to work
reduced hours and, in the case of part-time with voluntary severance, part-time for a specified period before leaving the company.

Our
main voluntary severance programme in the financial year ended 2005 was launched on 24 May 2004 and closed on 16 July 2004. The remainder of the voluntary severance
programmes closed on 11 March 2005.

132

---





The Company ensures that the skills of its employees are regularly refreshed, in order to effectively meet the demands of the market.

We
offer various employee benefit plans, including an Employee Share Ownership Plan, which consists of two separate trusts, as well as management incentive schemes targeted at senior
managers and executive directors. Through the Employee Share Ownership Plan, at the date of this document, approximately 20.9% of our voting shares are held for the beneficiaries of that plan, being
approximately 51% of current employees and 49% former employees.

E.SHARE OWNERSHIP

Directors' beneficial interests in share capital

The interests of the directors in the shares ofeircomGroup and other Group companies were:

eircomGroup plc

As at 15 June 200510c
Ordinary
Shares

%ExecutivesDr. Nolan(1)(2)

1,585,760

0.21Mr. Lynch(1)

505,112

0.07Mr. Magee(1)

505,112

0.07Mr. McRedmond(1)

378,836

0.05Non-executivesMr. Scanlon

233,250

0.03Mr. Conroy

77,750

0.01Mr. Delepine

25,806

0.00Mr. Finan

64,516

0.01Mr. Melia

64,516

0.01Mr. O'Connor

38,709

0.01Mr. Pratt

48,387

0.01Mr. Roche

10,000

0.00


---

133

---



The share options held by Directors are set out above in Item 6B "Directors Remuneration".

The
directors have the same voting rights as all other holders of the relevant shares set out above.

F.PENSION SCHEMES

General

The Group's pension commitments are funded through separately administered superannuation schemes and are principally of a defined benefit nature. The Group's
principal schemes are theeircomMain Superannuation Scheme 1988 and theeircomSpouses' and Children's
Contributory Pension Scheme 1988 (the "eircomDB Schemes"). The Group also operates theeircomLimited
Group Defined Contribution Scheme (the "eircomDC Scheme"), a defined contribution pension scheme which is principally used to provide benefits for
staff and management who have joined the Group since 1997. In addition, the Group operates a number of relatively small, stand-alone defined contribution pension schemes, an AVC scheme and two
relatively small defined benefit pension schemes. The schemes established in the Republic of Ireland have the approval of the Irish Revenue Commissioners, and the defined contribution scheme
established in the United Kingdom has the approval of the United Kingdom Inland Revenue.

eircomDB Schemes

Until the establishment of what is noweircomin 1984, employees of what was then the Irish Department of Post and
Telegraphs were included in the unfunded "pay as you go" Civil Service pension arrangements. On the establishment ofeircom, the eircomDB Schemes were
established. TheeircomDB Schemes were designed to replicate the benefits
payable under the unfunded Civil Service pension arrangements.

Membership
in theeircomDB Schemes is generally open to graded employees under the age of 60. As at 31 March 2005, the eircomDB Schemes had 6,987 active
members along with 5,113 pensioners and 6,090 deferred members.

The
principal benefits payable under theeircomDB Schemes are a pension of 1/80 of retiring salary for each year of pensionable service
(with a maximum of 40/80) together with a gratuity of 3/80 of retiring salary for each year of pensionable service (maximum 120/80). Members may retire or be retired at any time after attaining age 60
(but must retire at age 65) and receive immediate pension benefits. Members contribute 5.3% of pensionable salary together with, where they are included for spouse and children's benefits, an
additional 1.5% of pensionable salary. The Group contribution rate is currently 8.2% of pensionable salary although this will increase for the financial year ended 31 March 2006, on foot of an
actuarial valuation undertaken as at 31 March 2005, to 10% of pensionable salary (see further information below).

Two
pension funds are operated to fund the benefits payable under theeircomDB Schemes. The Group operates the eircomSuperannuation Fund (the "eircomMain Fund") to fund and pay the benefits under the eircomDB Schemes in respect of post-1 January 1984 service entitlements and any additional costs due to
the acceleration of the
payment of pre-1
January 1984 entitlements arising on voluntary severance or early retirement programmes. TheeircomNo.2 Pension Fund funds and pays the benefits
under the defined benefit scheme which are the liability of the Irish Minister for Finance. These liabilities relate to the pre 1 January 1984 pension entitlements of staff who transferred from
the former Department of Posts and Telegraphs to Telecom Eireann on 1 January, 1984.

An
actuarial valuation of theeircommain Fund was carried out, using the attained age method, as at 31 March 2005 by Mercer Human
Resource Consulting who are actuaries to theeircomDB Schemes but are neither officers nor employees of eircomGroup. The actuarial method used involved
determining an appropriate future employer contribution rate designed to fund the projected liabilities

134

---



of
the Schemes related to service subsequent to 1 January 1984 over the remaining working lifetime of the current members. The valuation considered the financial position of the schemes on two
actuarial bases, the primary features of which were that the investments will earn a real rate of investment return, over and above salary inflation and pension increases, of 2.5% (Basis A) and
2.75% per annum (Basis B). As at 31 March 2005, the market value of the fund's assets attributable to the pension scheme was €2,190 million and the actuarial valuation of
the assets was sufficient to meet 102% (Basis A) and 107% (Basis B) of the value of the accrued liabilities making due allowance for future increases in salaries and pensions.

The
Irish Minister for Finance is responsible for meeting and discharging the liability of: (i) the pension costs of former staff of the Irish Department of Posts and Telegraphs
who retired or died before 1 January 1984; and (ii) costs in respect of the pension entitlements, related to pre-1 January 1984 reckonable service, of staff who
transferred toeircomfrom the Irish Civil Service. Such benefit payments are made from theeircomNumber 2 Pension Fund, which was established in December 1999 and we received a contribution of €1.016 billion from the Irish Minister for Finance in accordance with
arrangements set out in theeircomSuperannuation (Amendment) Scheme of 1999. However, the Irish Minister of Finance retains liability for these
payments.

eircomDC Scheme

The Group established theeircomDC Scheme in 1997 and it operates on a defined contribution basis. Membership is
at the discretion ofeircomand is generally open to non graded company staff. As at 31 March 2005, the scheme had approximately 532 active
members along with 681 deferred members. Employees contribute at 5.3% of basic pay and the Group contributes at the rate of 9.7% of basic pay. As at 31 March 2005 the market value of the assets
of the scheme was approximately €30.95 million. Normal retirement age is a member's 60th birthday.

eircomExecutive Defined Contribution Scheme

eircomestablished theeircomExecutive Defined Contribution
Scheme in July 2003. This scheme is a defined contribution scheme and membership is at the discretion ofeircom. At present, there are six active
members of the scheme who are Dr. Nolan, Mr. Lynch, Mr. Magee, Mr. McRedmond and two of the Senior Managers. Under the provisions of the scheme, the contributions payable
byeircomto the scheme in respect of a member are those notified byeircomto the member in question.

Miscellaneous Other Schemes



Phonewatch operates a defined benefit scheme for its employees. As at 31 March 2005, the Scheme had approximately 87 active members and 31 deferred
members. The employer contribution rate is currently 12.5% of pensionable salary and the employee contribution rate is 5% of pensionable salary. The last actuarial valuation was carried out as at
1 April 2002. It showed that the actuarial value of the scheme's assets were €946,000 (market value €1.203 million) and that the value of the past service
liabilities, allowing for assumed future increases in pensionable pay and pension increases, was €1.417 million, giving a shortfall of €471,000.

eircomhas also established theeircomExecutive Defined Benefit Scheme to provide
supplementary pension benefits. Mr. Scanlon is the only current member of the scheme.



LAN Communications Limited operates the largest of the other defined contribution schemes within the Group. The scheme currently has approximately 35 active
members. The employer contribution rate is 9.7% of pensionable remuneration and the employee contribution rate is 5.3% of pensionable salary.

135

---



ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.INTERESTS OF MAJOR SHAREHOLDERS

Valentia Holdings Limited was incorporated on 9 July 2003 under the Companies Act of England and Wales as a private company limited by shares. Valentia
Holdings Limited changed its name toeircomGroup Limited on 26 February 2004. It was re-registered as a public limited company under
Section 43 of the Companies Act of England and Wales 1985 on 8 March 2004 thereby becomingeircomGroup plc.

Upon
the acquisition byeircomGroup (then called Valentia Holdings Limited) of the entire issued share capital of Valentia
Telecommunications on 21 July 2003, the major shareholders ofeircomGroup who beneficially owned 3% or more of eircomGroup's capital and the amount
of such person's interest, were as follows:

|Name                                     |  | A
Ordinary
Shares |  | %    |  | B
Ordinary
Shares |  | %   |  | ESOT
Preference
Shares |  | %   |  | Non-Voting
Adviser
Preference
Shares 2008 |  | %    |  | Balancing
Voting
Deferred
Shares |  | %   
|---------------------------------------- |  | ----------------- |  | ---- |  | ----------------- |  | --- |  | ---------------------- |  | --- |  | ----------------------------------------- |  | ---- |  | -------------------------------- |  | ----
|eircomESOP Trustee Limited(1)            |  | 24,335,000        |  | 24.3 |  | 7,940,000         |  | 100 |  | 2,390                  |  | 100 |  |                                          |  |     |  |                                 |  |    
|Providence entities(2)                   |  | 48,963,758        |  | 48.9 |  |                  |  |    |  |                       |  |    |  | 3,664,236                                 |  | 73.3 |  | 6,471                            |  | 64.7
|Soros entities(3)                        |  | 19,514,484        |  | 19.5 |  |                  |  |    |  |                       |  |    |  |                                          |  |     |  | 2,579                            |  | 25.8
|Lionheart Ventures (Overseas) Limited(4) |  | 5,613,181         |  | 5.6  |  |                  |  |    |  |                       |  |    |  |                                          |  |     |  | 742                              |  | 7.4 
|Aurum Nominees(5)                        |  |                  |  |     |  |                  |  |    |  |                       |  |    |  | 1,335,764                                 |  | 26.7 |  |                                 |  |    

---

136

---



eircomGroup also issued, on 21 July 2003, 8,000,000 non-voting third party
preference shares 2009, all of which were held by Yoghal Trading Limited.

On
7 August 2003:



On
23 December 2003, 5,000,000 Non-Voting Adviser Preference Shares 2008, including all of these held by Providence entities, were redeemed in accordance with their
terms.

The
following number of Redeemable Preference Shares, held byeircomESOP Trustee Limited, were redeemed prior to 31 March 2005 in
accordance with their terms on the following dates:



137

---





The
Redeemable Preference Shares redeemed since 31 March 2005 are set out in note 25 to the consolidated financial statements of eircomGroup contained in Item 18 "Financial Statements".

On
24 March 2004: The 7,940,000 issued B Ordinary Shares of €0.50 each were subdivided unto 39,1000,000 Ordinary Shares. The 173,000,000 issued ESOT Preference
Shares of €0.50 each were consolidated into the one ESOT Preference Share of €86,500,000. This was subdivided into 107,000,000 Convertible Preference Shares and
66,000,000 Trancheable Redeemable Shares.

eircomGroup plc allotted and issued 66,000,000 Convertible Preference Shares of €0.50 each to eircomESOP Trustee Limited.

The
following number of Trancheable Redeemable Preference Shares, held byeircomESOP Trustee Limited, were redeemed prior to
31 March 2005 in accordance with their terms on the following dates:



138

---





The
Trancheable Redeemable Preference Shares redeemed since 31 March 2005 are set out in note 25 to the Consolidated Financial Statements of eircomGroup plc contained in Item 18 "Financial
Statements".

On
31 March 2005 the authorised share capital was subdivided into:



On
7 December 2004 theeircomESOP Trustee Limited appropriated 33,744,253 ordinary shares to its participants.

In
1 February 2005 theeircomESOP Trustee Limited cancelled an appropriation of 3.546 ordinary shares to its participants.

On
24 March 2005 theeircomESOP Trustee Limited appropriated 32,780,438 ordinary shares to its participants.

On
30 March 2005 theeircomESOP Trustee Limited converted 14,416,667 Convertible Preference Shares into 7,338,967 Ordinary Shares
and 6,474,436,800 Non-Voting Deferred Shares.

139

---



As
of 1 June 2005, the major shareholders ofeircomGroup were as follows:

|                                 |  | Ordinary
Shares |  | Redeemable
Preference
Shares |  | Trancheable
Redeemable Preference
Shares |  | Convertible
Preference
Shares |  | Sterling
Deferred
Shares |  | Non-Voting
Deferred
Shares
|-------------------------------- |  | --------------- |  | ---------------------------- |  | ---------------------------------------- |  | ----------------------------- |  | ------------------------ |  | --------------------------
|
|
|eircomESOP Trustee Limited(1)    |  | 157,031,531     |  | 20.9                         |  | 531,870                                  |  | 100                           |  | 671,083                  |  | 100                       
|Capital Research & Management    |  | 73,841,884      |  | 9.8                          |  |                                         |  |                              |  |                         |  |                          
|Cantillon Capital Management     |  | 28,519,768      |  | 3.8                          |  |                                         |  |                              |  |                         |  |                          
|Marathon Asset Management        |  | 27,464,756      |  | 3.7                          |  |                                         |  |                              |  |                         |  |                          
|Bank of Ireland Asset Management |  | 24,161,606      |  | 3.2                          |  |                                         |  |                              |  |                         |  |                          

---

As
of 1 June 2005, 155,885,423 Ordinary Shares, were held by holders with registered addresses in the United States, representing approximately 20.75% of the outstanding Ordinary Shares. Since
certain of the Company's Ordinary Shares are held by nominees, the above numbers of holders may not be representative of the number of beneficial owners in the United States or of the total number of
Ordinary Shares held by them.

None of our Major Shareholders have different voting rights than our other shareholders.

To
the best of our knowledge, we are not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or
jointly.

B.RELATED PARTY TRANSACTIONS

The following are descriptions of the material provisions of agreements and other documents betweeneircomGroup
and various individuals and entities that may be deemed to be related parties. The agreements and other documents are largely historical and refer to shareholder arrangements in place prior to the
Initial Public Offering.

Subscription and shareholders agreement

In connection with the acquisition of the entire share capital ofeircomby Valentia
Telecommunications,the shareholders of Valentia Telecommunications entered into a subscription and shareholders agreement that documented the ownership
and transfer of the shares and the governance of Valentia Telecommunications. This agreement was amended on a number of occasions prior to its termination following the reorganisation and refinancing,
described in Item 4 "Information on the Company". Following the reorganisation and refinancing,eircomGroup and these shareholders entered into a new
shareholders agreement containing substantially similar terms. This new shareholders agreement was amended during the reorganisation and refinancing process, inter alia, to remove provisions rendered
obsolete as a consequence of the reorganisation and refinancing and was subsequently amended to facilitate certain steps required in the context of the Initial Public Offering. Following the Initial
Public Offering, the new shareholders agreement was terminated and ceased to have effect and any outstanding rights or obligations under the agreement have been waived by eircomGroup and its
shareholders.

Registration rights agreement

In connection with their acquisition of the entire share capital ofeircom, Valentia Telecommunications entered
into a registration rights agreement, dated 28 August 2001, with its shareholders. In connection with the reorganisation and refinancing, described in Item 4 "Information on the Company", the
Valentia Telecommunications registration rights agreement was terminated andeircomGroup entered into a similar agreement dated 21 July 2003.
Following the Initial Public Offering, this new registration rights agreement was terminated and ceased to have effect and any

140

---



outstanding
rights or obligations under this agreement have been waived byeircomGroup and its shareholders.

Other acquisition-related agreements

In addition to the agreements discussed above, Valentia Telecommunications entered into agreements with, among others, a fund affiliated with Providence, a fund
affiliated with Soros, The Goldman Sachs Group, Inc., Sir Anthony O'Reilly and the ESOT, relating to the formation of the consortium to acquire eircomand the framework for the proposed governance
of Valentia Telecommunications which agreements were superseded by, and terminated upon the entry
into force of, the shareholders agreement described above.

Agreements related to the Reorganisation and Refinancing

In connection with the reorganisation and refinancing, described in Item 4 "Information on the Company", we entered into various agreements with our shareholders
in addition to the shareholders agreement referred to above, including a share exchange agreement and an implementation agreement. We paid certain expenses of our shareholders in connection with the
reorganisation and refinancing.

We
also agreed to pay certain bonuses to our executive directors and certain senior executives in connection with the reorganisation and refinancing. These payments were originally
scheduled for payment in three instalments, but were accelerated so as to be paid in full prior to the Initial Public Offering. Details of the amounts paid to the directors (together with amounts paid
in return for certain of our executive directors giving up entitlements in relation to leveraged coinvestment arrangements) are set out in Item 6 "Directors, Senior Management and Employees".

Loan agreements witheircomand the ESOT

On 23 May 2002, Valentia Telecommunications loaned €50 million to the ESOT. Valentia Telecommunications obtained the funds used for
this loan from an intercompany loan fromeircom. The loan agreement governing the ESOT loan provided that any proceeds received by the ESOT from a sale
of preference shares had to first be used for repayment of the loan. The loans were on an interest-free basis and were repayable on 31 October 2003. The ESOT waived its entitlement
to dividends in respect of 474 ESOT preference shares up to 31 October 2003. These loans were repaid following the offering of Senior Notes and Senior Subordinated Notes in the financial year
ended 31 March 2004.

Payments of fees



141

---







During the financial year ended 31 March 2004, Valentia Telecommunications incurred fees in connection with the reorganisation and refinancing to the
following related parties:







During the financial year ended 31 March 2004, Valentia Telecommunications incurred €0.1 million in fees to Lionheart Ventures
(Overseas) Limited, €0.3 million in fees to entities affiliated with Soros, and €0.7 million in fees to entities affiliated with Providence, in connection
with an undertaking by these shareholders to repay a €50 million loan to the ESOT if the loan were not repaid prior to a certain date and €1.2 million in
other legal fees to A&L Goodbody solicitors. In addition,eircomGroup paid €0.9 million to Goldman Sachs Group Inc, a
shareholder in Valentia Telecommunications in connection with the Reorganisation and Refinancing (see Item 10B "Additional InformationMaterial Contracts").



During the financial year ended 31 March 2005 there were no related party transactions.

142

---



Transactions with affiliates

From time to time the Group makes investments in joint ventures and affiliates relating to its business. Transactions with these joint ventures and affiliates
include the following:

Other transactions with Directors

In addition to the above, the Group has entered into various transactions with its Directors, during the financial year ended 31 March 2005 which are set
out in Item 6 "Directors, Senior Management and Employees".

143

---





ITEM 8  FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Item 18 "Financial Statements".

Legal Proceedings

Except as set out below, no member of the Group is engaged in or, so far aseircomGroup is aware, has pending or
threatened, any legal or arbitration proceedings which may have, or have had in the recent past (covering the 12 months preceding the date of this document), a significant effect on the Group's
financial position.



On 17 October 2002, ComReg determined that we were not in compliance with our obligations under the voice telephony regulations by providing telephone
services to specific customers at prices which were not in accordance with the specific terms and conditions of our discount schemes and published prices. No penalties were levied on us as a result of
this determination. By agreement with ComReg and at its direction, we put internal controls in place that we believe will prevent this from re-occurring and an independent audit of the
related internal controls has been conducted. The final audit findings report including management comments and our statement of compliance were submitted to ComReg on 9 March 2005. If ComReg
concludes that we are not complying with its obligations, ComReg could begin an enforcement action. If we are found to be in violation of applicable laws and regulations, we may become subject to
substantial criminal and civil
penalties and fines. Ocean Communications Limited and ESAT Telecommunications Limited issued proceedings in the Irish High Court in December 2002 against the Group seeking damages including
punitive damages resulting from the matters that were the subject of the ComReg decision. The Group submitted its defence on 26 January 2004. The directors intend to defend the proceedings
vigorously. The plaintiffs submitted general particulars of their damages claim on 3 February 2004 under the headings loss of existing customers, loss of prospective customers, economic loss
and loss of future profits. In those particulars the plaintiffs have identified claims for loss of revenue on existing customers (€7.4 million), failure to meet the plaintiffs'
alleged budgeted growth (€25 million) and loss of revenue on the plaintiffs' pricing (€5 million). Even if the plaintiffs could establish a liability on
the Group's part under each of these headings, our directors do not believe that these figures represent damages which would be properly recoverable from the Group. The particulars also include
further unquantified damages. The plenary summons and statement claim of Ocean Communications Ltd and Esat Communications Ltd were amended, inter alia, in April 2005 to include a
claim for alleged breach of certain constitutional rights. This additional claim will also be defended vigorously. See also Item 5B "Operating and Financial Review and
ProspectsContingent Liabilities", Item 4E "Information on the CompanyRegulation of our Products and ServicesCompliance".



Approximately 120 premises currently or previously occupied by the Group contain or have contained asbestos. In 1987, the Group began a programme of removing
asbestos from some of its premises and introduced safety measures and a warning procedure. As of 31 March 2005, approximately 33 premises occupied by the Group were identified as containing
asbestos and these have been identified, controlled and monitored.

Claims
have been received from approximately 115 employees or former employees alleging injuries caused by exposure to asbestos. Of these, 98 related to exposure at one particular
premises in 1985. A composite Irish High Court action for unquantified damages and costs initiated on behalf of 97

144

---



of
these has remained dormant since 1997. One further case relating to the same location initiated in the Irish High Court in 2003 has not progressed to any extent since.

In
summary, as of 30 May 2005, 5 claims have been settled; one case was withdrawn and the remaining claims have been inactive for several years with the exception of 2 claims
which have been inactive since 2003. The directors do not expect any material adverse impact on the Group's profitability based upon the claims which have been made against it. Given the uncertain
nature of this kind of litigation, and the lengthy period of time before asbestos-related injuries become manifest, there can be no assurance that future claims will not be made against the Group.

Dividend Policy

We currently intend to pay annual interim and final dividends on the Ordinary Shares, which will normally be paid in December and July, respectively. Dividends
will be declared and paid in euro. The Board currently expects that in the absence of unforeseen circumstances, the first aggregate annual dividend will be €0.11 per Ordinary Share
(€82 million). In future years, it is anticipated that the Company will seek to pay a progressive dividend.

Under
UK company law, we can only pay cash dividends to the extent that we have distributable reserves and cash available for this purpose. In addition, as a holding company, our ability
to pay dividends, first, to the holders of Preference Shares and, thereafter, to the holders of Ordinary Shares is affected by a number of factors, principally our ability to receive sufficient
dividends from our subsidiaries. The payment of dividends to us by our subsidiaries is, in turn, subject to certain restrictions, including similar Irish company laws requiring the existence of
sufficient distributable reserves and cash in our subsidiaries and restrictions contained in the Senior Credit Facility and the Amended Senior Notes and Senior Subordinated Notes Indentures.

As
at 31 March 2005,eircomGroup had distributable reserves that were sufficient to enable us to pay the aggregate dividend for
the financial years to 31 March 2006 in accordance with the Board's expectations. However, following payment by us of significant dividends to our shareholders in August 2003, as part of
the Reorganisation and Refinancing, members of the Group do not currently have significant additional accumulated reserves in excess of those required to pay the expected dividend for the year to
31 March 2006. As a result, any limitations on the ability of our subsidiaries to pay dividends (for example, as a result of profitability or distributable reserves in these subsidiaries being
adversely affected, including for one of the reasons set out in Item 3B "Key InformationRisk Factors") may reduce our ability to pay dividends to our shareholders. In particular,
primarily because the level of depreciation charges (a non-cash item which affects distributable reserves) ineircom(our principal
operating subsidiary) currently exceeds capital expenditure and is likely to do so for the next three to four years,eircomis expected to generate
substantially less distributable reserves than cash for at least this period.

For
a further description of these and certain other factors that will continue to affect our ability to pay dividends (including under the terms of the Senior Credit Facility and the
Amended Senior Notes and Senior Subordinated Note Indentures and the implications for us of adopting International Financial Reporting Standards in 2006) see Item 10B "Additional
InformationMaterial Contracts" and Item 3B "Key InformationRisk Factors". In particular, as explained in the Risk Factor entitled "Our pension deficit may (if it
continues) reduce our cash flows, profitability, financial condition, net assets, distributable reserves and our ability to pay dividends", it should be noted that if we have a significant pension
deficit in 2006 (which is dependent amongst other things on changes in the valuation of publicly traded equities and interest rates), depending on the accounting treatment adopted at that time, we may
(unless we are able to take steps to increase distributable reserves within the Group) be unable to pay dividends.

145

---



SIGNIFICANT CHANGES

Since the year end the group has disposed of certain properties. The group expects to realise a profit (after tax) of approximately
€34 million on these sales based on the excess of net sales proceeds receivable over the carrying value of these assets at year end.

There
has been no other significant change in our financial or trading position since 31 March 2005.

146

---



ITEM 9  THE OFFER AND LISTING

The Senior Notes and Senior Subordinated Notes are listed on the Luxembourg Exchange and the Irish Stock Exchange, while the Ordinary Shares are listed on the
London and Irish Stock Exchanges.

147

---



ITEM 10  ADDITIONAL INFORMATION

A. SUMMARY OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION

Memorandum of Association

The memorandum of association ofeircomGroup provides that its principal object is to carry on the business of a
holding company. The objects ofeircomGroup are set out in full in clause 4 of its memorandum of association which is available for inspection
at the address specified in Item 4 "Information on the Company".

Articles of Association

The articles of association ofeircomGroup, which were adopted pursuant to a special resolution of eircomGroup passed on 18 March 2004, include provisions,inter alia,to the following effect:





Subject to the provisions of the Act, if at any time the capital ofeircomGroup is divided into or otherwise
comprises different classes of shares, the rights attached to any such class of shares may (unless otherwise provided by the terms of allotment of the shares of that class) be varied or abrogated
either with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class (excluding any shares of that class held as treasury shares), or with
the sanction of an extraordinary resolution passed at a separate general meeting of the holders of shares of such class.



148

---







149

---







150

---





The rights attaching to the Redeemable Preference Shares are contained in Article 21 of the Articles.



151

---







The rights attaching to the Trancheable Redeemable Preference Shares are contained in Articles 22 and 23 of the Articles.



152

---





153

---







The rights attaching to the Convertible Preference Shares are contained in Article 20 of the Articles.



154

---





155

---





156

---







157

---







The rights attaching to the Sterling Deferred Shares are contained in Article 25 of the Articles.



The rights attaching to the Non-Voting Deferred Shares are contained in Article 24 of the Articles.



158

---





159

---







160

---







161

---







eircomGroup is entitled to sell, at the best price reasonably obtainable, the shares of a member or the shares to
which a person is entitled by transmission if:



The
net proceeds of sale shall belong toeircomGroup which shall be obliged to account to the former member or other person previously
entitled for an amount equal to the proceeds.



162

---







163

---





Memorandum of Association and Articles of Association of Valentia Telecommunications





164

---





165

---





Memorandum of Association and Articles of Association ofeircomLimited



166

---





167

---





Memorandum of Association and Articles of Association ofeircomFunding





168

---







169

---







B.MATERIAL CONTRACTS

The following contracts are the only contracts (not being contracts entered into in the ordinary course of business) that have been entered into by eircomGroup or any member of the Group within the two years immediately preceding the date of this document which are or may be material or which have
been entered into byeircomGroup or any member of the Group at any other time and which contain provisions under which eircomGroup or any member of the
Group has an obligation or entitlement that is material to the Group as at the date of this document.

Underwriting Agreement

We entered into an underwriting agreement in connection with our Initial Public Offering dated 19 March 2004 with Goldman Sachs International and Morgan
Stanley & Co. International Limited as the joint sponsors (the "Joint Sponsors") Morgan Stanley Securities Limited, Goldman Sachs International, Deutsche Bank AG London and Citigroup Global
Markets U.K. Equity Limited as joint bookrunners and BNP Paribas, Davy, Goodbody Stockbrokers, Merrill Lynch International and Merrion Stockbrokers Limited as co-lead managers (together,
the "Underwriters").

We
and the selling shareholders agreed that the Underwriters could deduct from our respective proceeds from the Initial Public Offering a commission of 3.5% of the amount equal to the
offer price of €1.55 multiplied by the aggregate number of our new shares which the Underwriters acquired or procured acquirors for, pursuant to the terms of the underwriting
agreement.

We,
our directors, the retiring shareholder nominees (John Hahn, Jonathan Nelson, Paul Salem and Biswajit Subramanian (who were nominees of Providence entities), Ramez Sousou and Niclas
Gabran (who were nominees of Soros entities), each being former directors of the Company who resigned on 18 March 2004) and the selling shareholders, inter alia, gave certain indemnities,
representations and warranties to the joint sponsors and to the Underwriters. Our liabilities are unlimited as to time and
amount, those of our directors and the retiring shareholder nominees are limited as to both time and amount and those of the selling shareholders are limited as to amount.

We,
our directors, the selling shareholders, Hazelview Limited, Herb Hribar and Brian Montague undertook certain selling and dealing restrictions with respect to our ordinary shares for
a period following their listing. These restrictions have now lapsed.

Messrs
Scanlon and Conroy undertook to each of the underwriters and the joint sponsors that up to and including 31 December 2005 he would not, without the prior written consent of
the joint

170

---



sponsors,
offer, pledge, sell, contract to pledge or sell, issue or grant options, rights or warrants in respect of, or otherwise dispose of or transfer, whether for consideration or not, directly or
indirectly, 50% of their then current respective holdings of (a) any of our ordinary shares (or any legal or beneficial interest therein or right in respect thereof) or (b) any of our
securities that are substantially similar to our ordinary shares (or any legal or beneficial interest in such securities or right in respect of such securities), including, but not limited to, any
securities that are convertible into or exchangeable for, or that represent the right (whether conditional or not) to receive, our ordinary shares or any such substantially similar securities, or do
anything with the same or substantially the same economic effect as any of the foregoing (including, without limitation, a derivatives transaction), other than (A) to the extent that such
action is in respect of our ordinary shares or other securities acquired following Admission to the exchanges or (B) a transfer or disposal of our ordinary shares pursuant to a compromise or
arrangement between us and our creditors and/or members or any class of them which is agreed by the creditors and/or members (as the case may be) and sanctioned by the court under sections 425 to 427A
of the Companies Act 1985 or (C) a transfer of any of our ordinary shares (or interest in any Ordinary Shares) to any connected persons or (D) the acceptance of a takeover offer (as
defined in section 428 of the Companies Act 1985) or the provision of an irrevocable undertaking to accept such an offer.

Senior Credit Facility

Valentia Telecommunications and certain of its affiliates have entered into a secured senior facility agreement dated 18 March 2004, between, amongst
others, Valentia Telecommunications, as the original Borrower and original Guarantor, Deutsche Bank AG London, Citigroup Global Markets Limited, Goldman Sachs International and Morgan Stanley Bank as
the Mandated Lead Arrangers, the financial institutions named therein as the Original Lenders, and Deutsche Bank AG London as Facility Agent and as Security Agent.



An advance of €1.25 billion has been drawn down by Valentia Telecommunications under the Tranche A term loan facility. The term loan
facility was used to refinance certain existing indebtedness of Valentia Telecommunications and its subsidiaries and was also available for use to pay certain fees, costs and expenses associated with
the refinancing (including, if necessary, swap termination payments) and the Initial Public Offering.eircomhas since acceded to the senior facility
agreement as a borrower and a guarantor and Irish Telecommunications Investments Limited has acceded as a guarantor.

The
Tranche B revolving credit facility may be utilised byeircomand other eligible borrowers and provides for revolving advances and the
issuance of letters of credit and bank guarantees, in euro, Sterling or U.S. Dollars, in an aggregate amount of up to €150 million. The revolving credit facility is to be used
for the working capital needs and other general corporate purposes of Valentia Telecommunications and its subsidiaries and may not be used unless the term loan facility has been or will, on the same
date, be fully utilised.



Advances under the two facilities bear interest at a rate per annum equal to EURIBOR (in the case of euro advances) and LIBOR (in the case of U.S. Dollar and
Sterling advances) plus, where appropriate, any applicable mandatory liquid asset costs (which are the costs of complying with any applicable reserve requirements, including Bank of England, FSA
and/or European Central Bank mandatory cost requirements), plus a margin of 1.50% per annum for the first 12 months from the date of the Senior Credit Facility and to be thereafter determined
in accordance with a margin adjustment mechanism. The margin adjustment mechanism provides that the margin may be reduced following reductions in Valentia Telecommunications' leverage ratio, as
reflected in the financial statements

171

---



delivered
for the previous accounting quarter. The leverage ratio is the ratio of Valentia Telecommunications' consolidated net total borrowings to consolidated adjusted EBITDA.

In
addition to paying agency, fronting and documentary credit fees (as appropriate), Valentia Telecommunications must at designated times procure the payment of a commitment fee computed
at the rate of 40% per annum on the then applicable margin on the undrawn, uncancelled amount of each lender's commitment under the term loan facility and the revolving credit facility.



The obligations of the obligors under the Senior Credit Facility are guaranteed by Valentia Telecommunications, eircomLimited and Irish
Telecommunications Investments Limited and any other guarantors and borrowers from time to time. Valentia Telecommunications
may elect any of its subsidiaries to become guarantors under the Senior Credit Facility. The security arrangements for the previous senior credit facilities will be replicated for the Senior Credit
Facility. The security arrangements will, if Valentia Telecommunications so requests, be released upon the attainment of a corporate rating for Valentia Telecommunications or eircomGroup of "Baa3" (or
the equivalent) or higher from Moody's Investor Service, Inc., and a rating of "BBB-" (or the equivalent)
from Standard and Poor's Rating Services, which is referred to as the "Designated Rating".



The Senior Credit Facility contains certain customary negative covenants, which restrict the borrowers and their subsidiaries (subject to certain agreed
exceptions and materiality carve outs) from, amongst other things: (i) creating encumbrances over their business, assets or undertaking; (ii) selling, transferring, leasing or otherwise
disposing of assets other than in the ordinary course of business without the consent of the majority lenders; (iii) incurring additional debt; (iv) giving guarantees and indemnities;
(v) agreeing to restrictions on the ability to move cash intra-group; (vi) substantially changing the general nature of their business; (vii) making acquisitions and investments
or entering into joint ventures or mergers; (viii) making loans; (ix) purchasing, redeeming, defeasing or repaying any principal amount in respect of any of the Senior Notes or Senior
Subordinated Notes; (x) redeeming, repurchasing, defeasing, retiring or repaying any of their share capitals; (xi) entering into finance or capital leases; (xii) amending
constitutional documents and certain provisions contained in the Senior Subordinated Notes and the Senior Notes; (xiii) paying dividends, making intercompany loan payments, transferring assets
or making other transfers of value toeircomFunding andeircomFunding (Holdings) Limited;
(xiv) expanding the business activities ofeircomFunding andeircomFunding (Holdings) Limited
beyond that provided in the Senior Credit Facility; (xv) repaying any indebtedness owing toeircomGroup; (xvi) requiring repayment of
inter-company debt where there are insufficient funds to effect such repayment; (xvii) holding cash which, when aggregated with all other amounts so held by Valentia Telecommunications'
subsidiaries (excluding obligors) exceeds €15,000,000, which amount does not apply to cash held by the obligors (this covenant will fall away if the Designated Rating is attained); and
(xviii) making distributions toeircomGroup.

In
addition, the Senior Credit Facility require Valentia Telecommunications and its consolidated subsidiaries to maintain specified financial ratios: (i) for consolidated net
total borrowings to consolidated adjusted EBITDA of 4.00 : 1 for 30 June 2004 and progressing in a non-linear manner to 3.25 : 1
for 31 December 2008, (ii) for consolidated adjusted EBITDA to consolidated net interest payable of 3.25 : 1 for 30 June 2004 and progress in a
non-linear manner to 4.25 : 1 for 31 December 2008, and (iii) senior borrowings to consolidated adjusted EBITDA of
3.50 : 1 for 30 June 2004 and progressing in a non-linear manner to 2.75 : 1 for 31 December 2008. The Senior Credit
Facility also requires Valentia Telecommunications to ensure that guarantors constitute at least 80% of total net assets, turnover, and consolidated adjusted EBITDA of Valentia Telecommunications and
its subsidiaries (excludingeircomFunding,eircomFunding (Holdings) Limited, Lercie Limited and the

172

---



ESOT).
As at 31 March 2005 the financial ratios were: (i) for consolidated net total borrowings to consolidated adjusted EBITDA of 3.75 : 1 (ii) for
consolidated adjusted EBITDA to consolidated net interest payable of 4.00 : 1 and (iii) senior borrowings to consolidated adjusted EBITDA of
3.40 : 1. The Senior Credit Facility also requires the borrower to observe certain customary covenants, including, but not limited to, covenants relating to:
(i) compliance with laws, including environmental laws, and licences, (ii) hedging arrangements, (iii) intellectual property, (iv) maintenance of licences, authorisations
and consents, (v) pension schemes, (vi) provision of and access to financial information, (vii)pari passuranking of obligations,
(viii) insurance, (ix) notification of default; and (x) ownership of the obligors.

As
required by the terms of the Senior Credit Facility and as envisaged by the amended indentures for the Senior Notes and the Senior Subordinated Notes, substantially all of the net
proceeds from the Initial Public Offering and the issuance of ordinary shares to the ESOT simultaneous therewith will be invested in Valentia Telecommunications in the form of new equity, capital
contribution or subordinated debt. It is also a requirement under the Senior Credit Facility that an amount equal to at least €200 million of the net proceeds of the Initial
Public Offering and the issuance of ordinary shares to the ESOT simultaneous therewith must be contributed to, and used by, Valentia Telecommunications for certain purposes. This requirement will fall
away if the Designated Rating is attained.



The term loan facility is to be repaid in semi-annual instalments beginning on the date 24 months after signing the Senior Credit Facility with
the last repayment due five years from the date of signing of the Senior Credit Facility. The first six payments are to be in equal amounts which in aggregate equal 30% of the total amount of the
Senior Credit Facility as at the date of signing of the Senior Credit Facility. Tranche B Loans are to be repaid at the end of each interest period and in full five years from the date of signing of
the Senior Credit Facility. No amounts repaid by Valentia Telecommunications on the Tranche A facility may be re-borrowed.



All Loans under the Senior Credit Facility must be prepaid in full upon the occurrence of certain events, including: (i) discovery that it is unlawful in
any jurisdiction for a lender to perform any of its obligations (in respect of that lender's loan only), (ii) (if the majority lenders so require) a change of control of Valentia
Telecommunications, or (iii) the sale of all or substantially all of the business or assets of Valentia Telecommunications and its subsidiaries.

Furthermore,
on the issuance of any bonds, notes or debt securities by Valentia Telecommunications or its subsidiaries, the net proceeds shall be applied to pre-pay the
Tranche A facility and Tranche B facility to the extent required by the terms of the Senior Credit Facility. Such mandatory prepayment requirement will fall away if the Designated Rating is attained.

The
Borrowers may voluntarily pre-pay amounts outstanding under the Senior Credit Facility, without penalty or premium, with five business days prior written notice, or,
subject to minimum amounts and integral multiples, in part. If a prepayment does not take place on an interest payment date, breakage costs (if any) may be payable.



The Senior Credit Facility contains certain customary events of default (subject to agreed exceptions and grace periods), the occurrence of which would allow the
lenders to accelerate all outstanding loans and terminate their commitments, including: (i) non-payment of amounts due under the Senior Credit Facility and certain other agreements
entered into in connection with the Senior Credit Facility (together "Finance Documents"); (ii) failure to comply with the financial covenants

173

---



(described
above); (iii) failure to comply with other obligations under the Finance Documents; (iv) material misrepresentation; (v) cross default; (vi) material adverse
change; (vii) insolvency; (viii) change in ownership ofeircomor an obligor; (ix) material audit qualification in relation to
consolidated statutory accounts; (x) invalidity or illegality of any Finance Document; (xi) material litigation or labour dispute; (xii) revocation of material telecommunications
licences or regulatory authorisations; and (xiii) cessation of business of an obligor or material subsidiary.



Valentia Telecommunications has entered into various interest rate swaps (effective 1 April 2004) so that €500 million of the
aggregate principal amount of the term loan facility under the Senior Credit Facility is on a fixed interest rate basis for a period of three years from 1 April 2004.

eircomFunding has also entered into various currency swaps (effective 7 August 2003).

Details
of all existing interest rate and currency swaps entered into are set out below:

Interest Rate Swaps

|  |  | Date         |  | Counterparty   |  | Amount
€    |  | Maturity
years |  | Fixing period |  | Contract rate |   | Annual equivalent |   | Maturity date
|- |  | ------------ |  | -------------- |  | ----------- |  | -------------- |  | ------------- |  | ------------- | - | ----------------- | - | -------------
|1 |  | 1 April 2004 |  | Citibank       |  | 100,000,000 |  | 3              |  | Quarterly     |  | 2.6325        | % | 2.6586            | % | 1 April 2007 
|2 |  | 1 April 2004 |  | Morgan Stanley |  | 100,000,000 |  | 3              |  | Quarterly     |  | 2.6350        | % | 2.6612            | % | 1 April 2007 
|3 |  | 1 April 2004 |  | Deutsche Bank  |  | 100,000,000 |  | 3              |  | Quarterly     |  | 2.6350        | % | 2.6612            | % | 1 April 2007 
|4 |  | 1 April 2004 |  | Ulster Bank    |  | 100,000,000 |  | 3              |  | Quarterly     |  | 2.6240        | % | 2.6499            | % | 1 April 2007 
|5 |  | 1 April 2004 |  | Fleet Bank     |  | 100,000,000 |  | 3              |  | Quarterly     |  | 2.6325        | % | 2.6586            | % | 1 April 2007 
|  |  |              |  |                |  | 500,000,000 |  |                |  |               |  |               |   |                   |   |              
|  |  |              |  |                |  |             |  |                |  |               |  |               |   |                   |   |              

Currency Swaps

|  |  | Effective date |  | Counter-
Party  |  | USD Amount  |  | Length years |  | Payment dates |  | Initial USD/
euro rate |  | All-in
rate |   | Initial &
final exchange |  | Termination date
|- |  | -------------- |  | --------------- |  | ----------- |  | ------------ |  | ------------- |  | ---------------------- |  | ----------- | - | ------------------------ |  | ----------------
|1 |  | 7 Aug 2003     |  | Bank of Ireland |  | 40,000,000  |  | 10           |  | Semi-annual   |  | 1.1131                 |  | 7.7525      | % | Yes                      |  | 15 Aug 2013     
|2 |  | 7 Aug 2003     |  | Fleet Bank      |  | 50,000,000  |  | 10           |  | Semi-annual   |  | 1.1131                 |  | 7.7825      | % | Yes                      |  | 15 Aug 2013     
|3 |  | 7 Aug 2003     |  | Deutsche Bank   |  | 65,000,000  |  | 10           |  | Semi-annual   |  | 1.1131                 |  | 7.7825      | % | Yes                      |  | 15 Aug 2013     
|4 |  | 7 Aug 2003     |  | Ulster Bank     |  | 70,000,000  |  | 10           |  | Semi-annual   |  | 1.1131                 |  | 7.7625      | % | Yes                      |  | 15 Aug 2013     
|5 |  | 7 Aug 2003     |  | Deutsche Bank   |  | 25,000,000  |  | 10           |  | Semi-annual   |  | 1.1131                 |  | 7.7625      | % | Yes                      |  | 15 Aug 2013     
|  |  |                |  |                 |  | 250,000,000 |  |              |  |               |  |                        |  |             |   |                          |  |                 
|  |  |                |  |                 |  |             |  |              |  |               |  |                        |  |             |   |                          |  |                 

Intercreditor Deed

Valentia Telecommunications entered into an intercreditor deed in connection with the Senior Credit Facility. The Intercreditor Deed is between, amongst others,
Valentia Telecommunications,eircomFunding, and certain subsidiaries of Valentia Telecommunications (the "Intercreditor Obligors"); senior creditors;
hedging banks; Bayerische Landesbank (the "LC Issuer");eircomGroup; and Deutsche Bank AG London.

The
Intercreditor Deed provides for the conditions upon which certain payments can and cannot be made. The Intercreditor Deed includes provisions which:



174

---





Amended Senior Note Indenture and Senior Subordinated Note Indenture

On 22 January 2004 and supplementally on 13 February 2004, Valentia Telecommunications andeircomFunding solicited consents from the holders of the Senior Notes and the Senior Subordinated Notes to proposed amendments to the Senior Notes and Senior Subordinated Notes Indentures (the "Indentures")
primarily to provide greater flexibility for Valentia Telecommunications to pay dividends or make other payments toeircomGroup in order to fund the
payment of dividends byeircomGroup to the holders of Ordinary Shares, Preference Shares or other shares of eircomGroup in the event of an Initial Public
Offering of the equity securities ofeircomGroup. The
amendments became effective upon the execution of supplemental indentures on 24 March 2004.



The covenants relating to restricted payments in each of the Indentures were amended to allow Valentia Telecommunications to pay a dividend or make other payments
toeircomGroup if Valentia Telecommunications receives at least 85% of the net proceeds from the first qualifying Initial Public Offering and the
dividend or other payment paid by Valentia Telecommunications does not exceed Consolidated EBITDA minus the aggregate of (1) the product of €87.50 million and the number
of fiscal quarters for which consolidated financial statements of Valentia Telecommunications are available from and including the fiscal quarter in which the first such qualifying Initial Public
Offering is completed until the fiscal quarter ending immediately prior to such dividend or other payment and (2) Consolidated Interest Expense. Consolidated EBITDA and consolidated interest
expense are calculated for the period from the first day of the fiscal quarter in which the first qualifying Initial Public Offering is completed until the end of the most recent fiscal quarter ending
immediately prior to the date of such dividend or other payment for which consolidated financial statements of Valentia Telecommunications are available. To be a "qualifying Initial Public Offering", eircomGroup must have raised at least €300 million in gross proceeds in the Initial Public Offering. The directors were
satisfied that the Initial Public Offering was a qualifying Initial Public Offering. The amendments set out above

175

---



replaced
in full an existing provision of the Indentures which permitted dividends or other payments in any fiscal year up to 6% of the aggregate gross proceeds received by Valentia Telecommunications
following a public offering of its shares or shares in its parent company.

Under
the terms of the amended indentures for the Senior Notes and the Senior Subordinated Notes, Valentia Telecommunications is not permitted to pay a dividend or make another payment
to the Group under the new test set out above if the previous Senior Credit Facility has not been repaid and/or refinanced on terms whereby upon the attainment of a corporate rating for Valentia
Telecommunications oreircomGroup of "Baa3" (or the equivalent) or higher from Moody's Investor Service, Inc. and a rating of "BBB-"
(or the equivalent) or higher from Standard and Poor's Rating Services substantially all of the principal amount of indebtedness outstanding thereunder shall be on an unsecured basis. The directors
were satisfied that the Senior Credit Facility is on these terms and satisfy this condition.

The
tests currently set out in the indentures, which allow credit for 50% of consolidated net income and deduct 100% of the deficit in consolidated net income for certain periods when
calculating the amount of a restricted payment that may be made, will change such that, following the Initial Public Offering, consolidated net income (or deficit in consolidated net income) for any
period shall not be taken into account. The test which allows credit for the net proceeds of a public equity offering when calculating the amount of a restricted payment that may be made will remain
in effect.

The
exception to the restricted payments covenant currently set out in the Indentures, which permits restricted payments in an aggregate amount not to exceed
€75 million changed following the Initial Public Offering such that no payment by Valentia Telecommunications of, or loans, advances, dividends or distributions to any of its
parent companies to pay, dividends on any Ordinary Shares or Preference Shares may now be made on the basis of that exception.

The
amendments also amended the Senior Notes and the Senior Subordinated Notes to provide that the issuers of the Senior Notes and the Senior Subordinated Notes are not to be permitted
to redeem up to 35% of the original principal amount of the Senior Notes and the Senior Subordinated Notes with the net cash proceeds of the first qualifying Initial Public Offering, as they would
otherwise be permitted to do under the previous terms of the Senior Notes and the Senior Subordinated Notes.



Valentia Telecommunications oreircomFunding, as the case may be, were obligated to pay to each holder of the
Senior Notes or the Senior Subordinated Notes who delivered a valid consent (not subsequently revoked) to the tabulation agent on or prior to the expiration date, a one-time cash payment
to each such holder. The consent fee equalled €20.00 per €1,000 principal amount of Senior Notes held by a holder with respect of which a valid consent was delivered
(and not revoked), $20.00 per $1,000 principal amount of the dollar denominated Senior Subordinated Notes held by a holder in respect of which a valid consent was delivered (and not revoked) and
€20.00 per €1,000 principal amount of the euro denominated Senior Subordinated Notes held by a holder in respect of which a valid consent was delivered (and not
revoked). The consent fees were paid upon the completion of the Initial Public Offering. The total consent fees, including the consent solicitation agents fees, were approximately
€21 million.

Senior Notes

Valentia Telecommunications issued €550 million principal amount of 7.25% Senior Notes due 2013, under an indenture dated as of
7 August 2003 amongst Valentia Telecommunications,eircomas the Guarantor and The Bank of New York as the Senior Notes Trustee.

176

---



The
Senior Notes are general unsecured obligations of Valentia Telecommunications and mature on 15 August 2013, unless previously redeemed. The Senior Notes bear interest at the
rate of 7.25% payable in cash semi-annually in arrears on 15 February and 15 August in each year, commencing 15 February 2004.

The
Senior Notes will be subject to redemption at any time on or after 15 August 2008, at the option of Valentia Telecommunications, in whole or in part, at the redemption prices
set forth in the Senior Notes (initially par plus one half the coupon declining to par on or after 15 August 2011). In addition, Valentia Telecommunications may redeem all or, from time to
time, a part of the Senior Notes on or prior to 15 August 2008 by paying 100% of the principal amount thereof plus with respect to any Senior Note on any redemption date, the excess of:
(1) the present value at such redemption date of (i) 104.25% of the principal amount plus (ii) all required interest payments due on such Senior Note to and including 15
August 2008 (excluding accrued but unpaid interest), computed upon the redemption date using a discount rate equal to the Bund Rate at such redemption date plus 50 basis points; over
(2) the outstanding principal amount of such Senior Note, and accrued and unpaid interest and additional amounts necessary in order that the net amounts received by the holders of the Senior
Notes in respect of payments on the notes, after certain withholdings or deductions required by law on account of any present or future taxes, duties, assessments or governmental charges of whatever
nature, equal the amounts which would have been received in respect of such payments on the Senior Notes in the absence of such withholdings or deductions, if any, to the date of redemption.

Further,
before 15 August 2006, Valentia Telecommunications may redeem up to 35% of the original aggregate principal amount of the Senior Notes with funds in an aggregate amount
not exceeding the net cash proceeds of one or more equity offerings at a redemption price of 107.25% of the principal amount thereof, plus accrued and unpaid interest and additional amounts, if any,
to the redemption date, if at least 65% of the original principal amount of the Senior Notes redeemed (including the principal amount of any additional Senior Notes) remains outstanding after such
redemption. The Group waived this provision in respect of the net cash proceeds of the first qualifying Initial Public Offering as part of the bond consent solicitation.

Valentia
Telecommunications may redeem for tax reasons the Senior Notes in whole, but not in part, at any time, at a redemption price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest and additional amounts, if any, to the date fixed for redemption.

Unless
previously called for redemption, if a change of control shall occur at any time, then each holder of Senior Notes shall have the right to require Valentia Telecommunications to
purchase all of such holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount of the Senior Notes plus accrued and unpaid interest and additional amounts, if any, to the
date of purchase. If the Senior Notes achieve investment grade status, the change of control redemption will cease to be applicable. The Initial Public Offering did not give rise to a change of
control for these purposes.

The
indenture contains certain covenants which, amongst other things, restrict Valentia Telecommunications' and any restricted subsidiaries' ability to:



177

---





A
restricted security, as defined in the indenture, is any subsidiary ofeircomFunding or eircomGroup, as applicable, other than an unrestricted
subsidiary. The board of directors may designate any subsidiary to be an unrestricted subsidiary
only if, among other requirements, such subsidiary or any of its subsidiaries does not own any capital stock or indebtedness of or have any investment in, or own or hold any lien on any property of,
any other subsidiary ofeircomFunding oreircomGroup which is not a subsidiary of the subsidiary to be
so designated or otherwise an unrestricted subsidiary).

In
addition, the indenture limits Valentia Telecommunications' andeircom's ability to consolidate, merge or sell all or substantially all
of their assets. The indenture also includes a tax gross-up.

If,
at any time after the issue date, the Senior Notes achieve investment grade status, then the covenants in the indenture described under sub-paragraphs (a), (b), (c), (d),
(e), (g), (h) and (i) above, as well as part of the covenant limiting the ability to consolidate, merge or sell all or substantially all of Valentia Telecommunications' and eircom's assets,
will cease to be effective.

The
indenture also contains certain events of default, including:



178

---





Upon
the occurrence of an event of default, the Senior Notes Trustee under the indenture or the holders of 25% of outstanding Senior Notes, may declare the Senior Notes immediately due
and payable at 100% of the principal amount plus accrued and unpaid interest and additional amounts, if any, to the date of declaration.

Valentia
Telecommunications as Issuer entered into a euro senior deposit and custody agreement with, among others, The Bank of New York as Book-entry Depositary dated as of
7 August
2003 which, among other things, regulates the deposit and custody of the Senior Notes, and the transfers of the book-entry interests in respect thereof.

Senior Subordinated Notes

eircomFunding has issued €285 million principal amount of 8.25% Senior Subordinated Notes
due 2013, and $250 million principal amount of 8.25% Senior Subordinated Notes due 2013, collectively the Senior Subordinated Notes, under an indenture dated as of 7 August 2003 amongst eircomFunding, Valentia Telecommunications andeircom(as well as eircomGroup on a subordinated basis) as the Guarantors and The Bank of New York as the Senior
Subordinated Notes Trustee.

The
Senior Subordinated Notes are general unsecured obligations ofeircomFunding and mature on 15 August 2013, unless previously
redeemed. The Senior Subordinated Notes bear interest at the rate of 8.25% payable in cash semi-annually in arrears on 15 February and 15 August in each year, commencing 15 February
2004.

The
Senior Subordinated Notes will be subject to redemption at any time on or after 15 August 2008, at the option ofeircomFunding, in whole or in part, at the redemption prices set forth in the Senior Subordinated Notes (initially par plus one half the coupon declining to par on or after 15 August 2011). In
addition,eircomFunding may redeem all or, from time to time, a part of any series of Senior Subordinated Notes prior to 15 August 2008 by
paying 100% of the principal amount thereof plus with respect to any Senior Subordinated Note on any redemption date, the excess of: (1) the present value at such redemption date of
(i) 104.25% of the principal amount plus (ii) all required interest payments due on such Senior Subordinated Note to and including 15 August 2008 (excluding accrued but unpaid
interest), computed upon the redemption date using a discount rate equal to the treasury rate at such redemption date plus 50 basis points; over (2) the outstanding principal amount of such
Senior Subordinated Note, and accrued and unpaid interest and additional amounts necessary in order that the net amounts received by the holders of the Senior Subordinated Notes, in respect of
payments on the notes, after certain withholdings or deductions required by law on account of any present or future taxes, duties, assessments or governmental charges of whatever nature, equal the
amounts which would have been received in respect of such payments on the Senior Subordinated Notes in the absence of such withholdings or deductions, if any, to the date of redemption.

Further,
before 15 August 2006,eircomFunding may redeem up to 35% of the original aggregate principal amount of the Senior
Subordinated Notes with funds in an aggregate amount not exceeding the net cash proceeds of one or more equity offerings at a redemption price of 108.25% of the principal amount thereof, plus accrued
and unpaid interest and additional amounts, if any, to the redemption date, if at least 65% of the original aggregate principal amount of such series remains outstanding after such redemption. eircomGroup waived this provision in respect of the net cash proceeds of the first qualifying Initial Public Offering as part of the bond consent
solicitation.

eircomFunding may redeem for tax reasons any series of Senior Subordinated Notes in whole as to such series, but not in part, at any
time, at a redemption price equal to 100% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date fixed for redemption.

Unless
previously called for redemption, if a change of control (as defined in the indenture) shall occur at any time, then each holder of Senior Subordinated Notes shall have the right
to requireeircom

179

---



Funding
to purchase all of such holder's Senior Subordinated Notes at a purchase price in cash equal to 101% of the principal amount of the Senior Subordinated Notes plus accrued and unpaid interest
and additional amounts, if any, to the date of purchase. If the Senior Subordinated Notes achieve investment grade status, the change of control redemption will cease to be applicable. The Initial
Public Offering did not give rise to a change of control for these purposes.

The
indenture contains certain covenants which, amongst other things, restrict Valentia Telecommunications' ability and the restricted subsidiaries' ability to:



A
restricted security, as defined in the indenture, is any subsidiary ofeircomFunding or eircomGroup, as applicable, other than an unrestricted
subsidiary. The board of directors may designate any subsidiary to be an unrestricted subsidiary
only if, among other requirements, such subsidiary or any of its subsidiaries does not own any capital stock or indebtedness of or have any investment in, or own or hold any lien on any property of,
any other subsidiary ofeircomFunding oreircomGroup which is not a subsidiary of the subsidiary to be
so designated or otherwise an unrestricted subsidiary).

180

---



In
addition, the indenture limits Valentia Telecommunications' andeircom's ability to consolidate, merge or sell all or substantially all
of their assets. The indenture also includes a tax gross-up.

If,
at any time after the issue date, the Senior Subordinated Notes achieve investment grade status, then the covenants in the indenture described under sub-paragraphs (a),
(b), (c), (d), (e), (g), (h), (i) and (k) above, as well as part of the covenant limiting the ability to consolidate, merge or sell all or substantially all of Valentia
Telecommunications' andeircom's assets, will cease to be effective.

The
indenture also contains certain events of default, including:



Upon
the occurrence of an event of default, the Senior Subordinated Notes Trustee under the indenture or the holders of 25% of outstanding Senior Subordinated Notes may declare the
Senior Subordinated Notes immediately due and payable at 100% of the principal amount plus accrued and unpaid interest and additional amounts, if any, to the date of declaration.

eircomFunding as Issuer entered into a euro senior subordinated deposit and custody agreement and a dollar senior subordinated deposit
and custody agreement, each with, among others, The Bank of New York as Book-entry Depositary and dated as of 7 August 2003 each of which, among other things, regulates the deposit
and custody of the Senior Subordinated euro Notes and the Senior Subordinated Dollar Notes, respectively, and the transfers of the book-entry interests in respect thereof.

181

---



C.EXCHANGE CONTROLS

There are currently no UK or Irish laws, decrees or regulations that restrict the export or import of capital, including, but not limited to, foreign exchange
controls, or that affect the remittance of dividends or other payments to non-UK or non-Irish residents or to US holders of our securities except as otherwise set forth below
in "Taxation". There are no limitations under our articles of association restricting voting or shareholding.

D.TAXATION CONSIDERATIONS

United States Taxation

The following is a general discussion based on present law of certain U.S. federal income tax considerations relevant to the purchase, ownership and disposition
of the Senior Notes or Senior Subordinated Notes ("Notes"). This summary applies only to a beneficial owner of a Note who acquired the Note at the initial offering and for the original offering price
thereof, and who holds the Notes as capital assets and uses the dollar as their functional currency. This discussion is for general information only and does not address all of the tax consequences
that may be relevant to specific holders in light of their particular circumstances or to holders subject to special treatment under U.S. federal income tax laws (such as banks, other financial
institutions, insurance companies, tax-exempt entities, retirement plans, dealers in securities, brokers, expatriates, partnerships, other pass-through entities, persons who
hold their Notes as part of a straddle, hedge, conversion transaction or other integrated investment and persons liable for the alternative minimum tax). This discussion does not address the tax
treatment of persons that will hold the Notes in connection with an Irish or UK permanent establishment. This discussion does not address the U.S. federal estate and gift tax, U.S. state and local or
non-U.S. tax considerations relating to the purchase, ownership and disposition of the Notes.

Except
as otherwise described herein, this discussion applies only to a person who is a "U.S. Holder". "U.S. Holder" means a holder that is the beneficial owner of a Note and that is,
for U.S. federal income tax purposes:



If
a partnership holds the Notes, the tax treatment of a partner will depend upon the application of special rules that apply to partnerships under the U.S. federal income tax laws, the
status of the partner and the activities of the partnership. If you are a partner or a partnership holding the Notes, we urge you to consult your tax advisers.

WE
URGE HOLDERS OF NOTES TO CONSULT THEIR OWN TAX ADVISERS AS TO THE PARTICULAR TAX CONSIDERATIONS FOR THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE APPLICABILITY OF ANY U.S. FEDERAL, STATE, OR LOCAL TAX LAWS, OR NON-U.S. TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.

182

---



Taxation of Interest and Additional Amounts

Subject to the discussion below under "Contingent Payment Debt Instruments", in general, interest and additional amounts (without reduction for applicable
withholding taxes) paid or payable on a Note or with respect to a guarantee is taxable to a U.S. Holder as ordinary interest income as received or accrued, in accordance with the U.S. Holder's method
of accounting for U.S. federal income tax purposes.

Contingent Payment Debt Instruments

At the time we issued the Notes, there was a possibility that we would have been obliged to pay additional interest if the exchange offer registration statement
were not filed or declared effective within the applicable time periods (or certain other actions were not taken). At the time we issued the Notes, we took the position that the possibility of the
exchange offer registration statement not being filed or declared effective within the applicable time periods was remote. As a result, we took the position that the Notes were not contingent payment
debt instruments issued with original issue discount. We continue to believe that the Notes are not contingent payment debt instruments. Our determination is binding on all holders except a holder
that discloses its differing position in a statement attached to its timely filed U.S. federal income tax return for the taxable year during which a Note was acquired.

Interest on Euro-Denominated Notes

Special rules apply to interest on Notes that are denominated in euro. A cash method U.S. Holder must include in income the dollar value of each interest payment
in respect of a euro-denominated Note based on the spot rate in effect on the date the interest payment is received, regardless of whether the payment in fact is converted to dollars. In
the case of an accrual method U.S. Holder, the amount of any interest income accrued in respect of euro-denominated Notes during any accrual period generally will be determined by
translating the accrued interest into dollars at the average exchange rate applicable to the accrual period (or, with respect to an accrual period that spans two taxable years, at the average exchange
rate for the partial period within the relevant taxable year). An accrual method U.S. Holder will recognise exchange gain or loss with respect to any accrued interest income in respect of
euro-denominated Notes on the date that payment in respect of the interest income is received in an amount equal to the difference between (1) the dollar value of the payment, based
on the spot rate in effect on the date the payment is received, and (2) the amount of interest income accrued in respect of the payment. Any exchange gain or loss generally will be treated as
ordinary income or loss. Notwithstanding the rule regarding the translation of accrued interest income described above, an accrual method U.S. Holder may elect to translate accrued interest income
using the spot rate in effect on the last day of the accrual period (or, with respect to an accrual period that spans two taxable years, using the spot rate in effect on the last day of the relevant
taxable year). If the last day
of an accrual period is within five business days of the date of receipt of the accrued interest, a U.S. Holder may translate accrued interest using the spot rate in effect on the date of receipt. The
above election will apply to all other debt obligations held by the U.S. Holder and may not be changed without the consent of the U.S. Internal Revenue Service. We urge U.S. Holders to consult with
their tax advisers before making the above election.

Foreign Tax Credit

A U.S. Holder may, subject to certain limitations, be eligible to claim a credit or deduction in respect of any taxes that are withheld at the appropriate rate
from payments on the Notes for purposes of computing its U.S. federal income tax liability. The rules relating to foreign tax credits are complex and we urge U.S. Holders to consult their own tax
advisers with regard to the availability of foreign tax credits and the application of the foreign tax credit rules to their particular situation. Interest income

183

---



attributable
to the Notes generally will be treated as "passive income" or, in the case of certain U.S. Holders, "financial services income", in either case from sources outside the United States.
Recent legislation has eliminated the financial services income basket for tax years beginning after 31 December 2006. Any foreign currency exchange gain or loss attributable to the Notes
generally will be treated as realised from U.S. sources.

Sale, Exchange or Retirement of the Notes

Upon the sale, exchange, redemption, retirement at maturity or other taxable disposition of a Note, a U.S. Holder generally will recognise taxable gain or loss
equal to the difference between the amount of cash and the fair market value of all other property received on the disposition (except to the extent the cash or property is attributable to accrued and
unpaid interest, which is taxable as ordinary income) and the U.S. Holder's adjusted tax basis in the Note.

Any
gain or loss that a U.S. Holder recognises upon the sale, exchange, redemption, retirement or other disposition of a Note (other than foreign currency gain or loss in respect of
euro-denominated Notes, described below) generally will be U.S. source capital gain or loss and will be long-term capital gain or loss if, at the time of the disposition, the
U.S. Holder has held the Note for more than one year. The long-term capital gains of non-corporate U.S. Holders may be taxed at lower rates. Deductions for capital losses are
subject to limitations.

Upon
a U.S. Holder's sale, exchange, redemption, retirement or other disposition of a euro-denominated Note, the foreign currency amount realised will be considered to be the
payment of accrued but unpaid interest (on which exchange gain or loss may be recognised as described above under "Interest on euro-Denominated Notes") and as a payment of principal.
Exchange gain or loss will be separately computed with respect to the payment of principal on the foreign currency amount of the purchase price that is repaid to the extent that the spot rate on the
date of retirement or disposition differs from the spot rate on the date such Note was acquired. Exchange gain or loss computed on accrued interest and principal will be recognised, however, only to
the extent of total gain or loss on the sale or other disposition of a Note. In general, any such exchange gain or loss will be treated as ordinary income or loss realised from U.S. sources.

If
a U.S. Holder receives any foreign currency in respect of the sale, exchange, redemption, retirement or other disposition of a Note the U.S. Holder generally will be deemed to realise
the dollar value of the foreign currency based on the spot rate in effect on the date of the sale or other disposition. A U.S. Holder's adjusted tax basis in a Note generally will equal the dollar
value of the issue price of the Note based on the spot rate in effect on the date of purchase.

With
respect to Notes that are traded on an established securities market and held by a U.S. Holder that is a cash method taxpayer, foreign currency paid or received will be translated
into dollars at the spot rate in effect on the settlement date of the purchase or sale, respectively. A U.S. Holder that is an accrual method taxpayer may elect the same treatment with respect to the
purchase and sale of Notes that are traded on an established securities market. The above election may not be changed without the consent of the U.S. Internal Revenue Service. We urge U.S. Holders to
consult with their tax advisers before making the above election.

Additional Foreign Currency Considerations

Foreign currency that a U.S. Holder receives as interest on, or on the sale, exchange, redemption, retirement or other taxable disposition of a Note, will have a
tax basis equal to its dollar value at the time the interest is received or at the time payment in respect of the sale or other disposition is received or accrued. A U.S. Holder will recognise an
amount of gain or loss on a sale or other disposition of the foreign currency equal to the difference between (1) the amount of dollars, or the fair market value in dollars of the other
currency or property received in the sale or other disposition,

184

---



and
(2) the tax basis of such foreign currency. Any such gain or loss generally will be treated as ordinary income or loss.

A
U.S. Holder that purchases a Note with previously owned foreign currency will recognise gain or loss in an amount equal to the difference, if any, between the U.S. Holder's tax basis
in the foreign currency and the dollar value of the Note on the date of purchase. Any such gain or loss generally will be treated as ordinary income or loss.

Reportable Transactions

U.S. Holders that participate in "reportable transactions" (as defined in applicable Treasury regulations) must attach to their federal income tax returns a
disclosure statement on Form 8886. We urge U.S. Holders to consult their own tax advisers as to the possible obligation to file Form 8886 with respect to the ownership or disposition of
the Notes, or any related transaction, including, without limitation, the disposition of any non-U.S. currency received as interest or as proceeds from the sale, exchange, retirement or
other disposition of the Notes.

Backup Withholding

In general, payments of principal and interest in respect of, and proceeds from the sale, redemption or other disposition of a Note may be reported to the U.S.
Internal Revenue Service unless the holder (i) is a corporation, (ii) provides a properly executed U.S. Internal Revenue Service Form W-8BEN or (iii) otherwise
establishes a basis for exemption. Backup withholding of U.S. federal income tax may apply at applicable rates to amounts subject to information reporting if the holder fails to provide a correct
taxpayer identification number or, with respect to certain payments, if the U.S. Holder fails to report in full all interest income and the U.S. Internal Revenue Service notifies the payor of the U.S.
Holder's under-reporting. A holder can claim a credit against its U.S. federal income tax liability for the amount of any backup withholding tax and a refund of any excess if the holder follows the
required procedures.

Irish Taxation

The following is a summary of the current Irish tax law and practice with regard to holders of the Notes described in this report. It does not purport to be a
complete description of all of the tax considerations that may be relevant to a decision to subscribe for, buy, hold, sell, redeem, exchange or dispose of the Notes and does not constitute tax or
legal advice. The comments relate only to the position of persons who are the beneficial owners of the Notes and coupons thereon who hold the Notes as an investment and may not apply to certain
classes of persons such as dealers in securities. The comments are generally based upon Irish tax law and the Revenue Commissioners of Ireland's practice as of the date hereof, which may be subject to
change.

WE
URGE HOLDERS OF NOTES TO CONSULT THEIR OWN TAX ADVISERS AS TO THE PARTICULAR TAX CONSIDERATIONS FOR THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE APPLICABILITY OF ANY IRISH TAX LAWS OR NON-IRISH TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.

Withholding Tax on Interest

Withholding tax will not apply to interest payments made by the Issuers to holders of the Notes to the extent that the Notes are represented by a global Note held
in bearer form, are quoted on a

185

---



recognised
stock exchange and carry a right to interest, referred to as "quoted eurobonds", and interest payments are made



It
is anticipated that for so long as the Notes are listed on the Luxembourg Stock Exchange and/or the Irish Stock Exchange and they remain in global bearer form, they will qualify as
"quoted eurobonds". It is also anticipated that interest payments on the Notes will be made by the paying agent located outside Ireland. Accordingly, for so long as this is the case, the exemption
from withholding tax on "quoted eurobonds" described above may apply to payments of interest on the Notes.

In
all other cases, interest payments may be subject to be made net of withholding tax at the standard rate of income tax (which is currently 20%).

Encashment Tax

A collection or encashment agent in Ireland obtaining payment of interest whether in Ireland or elsewhere on a Note or realising in Ireland any interest on behalf
of a holder of a Note must withhold income tax at the standard rate, which is currently 20%. This obligation does not arise where the person that is the beneficial owner of the Note and entitled to
the interest is not resident in Ireland and has made a declaration in the prescribed form and has provided that declaration to the collection or encashment agent and the interest is not deemed under
the provisions of Irish tax legislation to be that of some other person. Holders should note that appointment of an Irish collection or encashment agent will (subject to the above) bring them within
the charge to Irish encashment tax.

186

---



Taxation on Interest

Interest on the Notes whether paid gross or not, may be subject to Irish income tax or corporation tax, as the case may be. In general, holders that are resident
or ordinarily resident in Ireland for tax purposes will be subject to Irish corporation tax or income tax with respect to interest on the Notes.

Holders
that are not resident or ordinarily resident in Ireland for tax purposes may be exempt from Irish taxation in respect of interest on the Notes where:



Ireland
operates a self-assessment system of tax in respect of income and corporation tax and any person other than an excluded company, excluded person or exempt double tax
treaty resident in receipt of Irish source income comes within its scope, including a person who is neither resident nor ordinarily resident.

Capital Gains Tax

Holders resident or ordinarily resident in Ireland may be subject to Irish capital gains tax on any gain realised on the disposal (including redemptions) of the
Notes at the rate of 20% on taxable capital gains, subject to any applicable relief.

Holders
that are neither resident nor ordinarily resident in Ireland will not be subject to Irish capital gains tax on any gain realised on the disposal (including redemptions) of Notes
unless the Notes either (1) are or were held for the purposes of a trade or business carried on by the holder in Ireland; or (2) cease to be quoted and derive the greater part of their
value from Irish land, minerals or exploration, or exploitation rights.

Stamp Duty

No Irish stamp duty will be payable on the issue, transfer or exchange of the Notes.

Capital Acquisitions Tax

A gift or inheritance consisting of any of the Notes will generally be within the charge to Irish capital acquisitions tax if either (1) the disponer or
the Donee/Successor in relation to the gift or inheritance is resident or ordinarily resident in Ireland (or in certain circumstances, if the disponer is domiciled in Ireland irrespective of his
residence or that of the donee/Successor) on the relevant date or (2) if the Notes are Irish situated property. It is expected that the Notes for so long as they remain

187

---



in
bearer form, would not be Irish situated property unless they are physically located in Ireland or, if registered, there is a register of such Notes maintained in Ireland.

European Union Savings Tax Directive

On 3 June 2003 the Council of the European Union, or Ecofin, approved a directive regarding the taxation of interest income. By provisions implementing the
directive each EU Member State must require paying agents (within the meaning of the directive) established within its territory to provide to the competent authority of this state details of the
payment of interest made to any individual resident in another EU Member State as the beneficial owner of the interest. The competent authority of the EU Member State of the paying agent (within the
meaning of the directive) is then required to communicate this information to the competent authority of the EU Member State of which the beneficial owner of the interest is a resident. This directive
was due to come into force on 1 January 2005.

On
19 July 2004 the EU Council decided to postpone the date of application of the Savings Directive by 6 months to 1 July 2005. This decision was published in the
Official Journal of the EU on 4 August 2004.

For
a transitional period, Austria, Belgium and Luxembourg may refrain from reporting interest payment details, but instead opt to withhold tax from interest payments within the meaning
of the directive at a rate of 15% from the revised starting date of 1 July 2005, or 20% as from 1 July 2008 and 35% from 1 July 2011. The decision to postpone the date of
application of the Savings Directive by six months also influenced the timing of the transitional arrangements which were initially due to start on 1 January 2005.

It
had previously been agreed that the member states would apply the respective provisions as from 1 January 2005 provided that (1) Switzerland, Liechtenstein, San Marino,
Monaco and Andorra apply from that same date measures equivalent to those contained in the directive, in accordance with
agreements entered into by them with the European Community and (2) also all the relevant dependent or associated territories (the Channel Islands, the Isle of Man and the dependent or
associated territories in the Caribbean) apply from that same date automatic exchange of information or, during the transitional period described above, apply a withholding tax in the described
manner. It would appear that following negotiations between the EU and the above mentioned countries that they have now agreed to put in place the necessary measures to enable the Savings Directive to
proceed on 1 July 2005. These countries will impose a withholding tax on interest paid to EU residents at the same rate as Austria, Belgium and Luxembourg and will hand over 75 percent
of these revenues to the EU Member State of the EU resident in question. All issues with the dependent and associated territories of the Netherlands and the UK would appear to have been resolved.

Holders
who are individuals should note that the Issuer will not pay Additional Amounts in respect of any withholding tax imposed as a result of this EU directive.

Valentia, eircom Funding and eircom Group

If any of Valentia,eircomFunding andeircomGroup cease to be
Irish tax resident, that company would be subject to Irish corporation tax on the excess of the value of its chargeable assets (including shares of subsidiaries held by the company) over its tax basis
in those assets, in each case determined on the date the company ceases to be Irish resident. Furthermore, in the case of Valentia, interest on its indebtedness would not be deductible for Irish
income tax purposes against the taxable income ofeircomand the other members ofeircom's tax group. If
Valentia,eircomFunding oreircomGroup was tax resident in the United Kingdom, the income and gains
realised by that company generally would be subject to U.K. corporation tax. So long as central management and control of each company, and in

188

---



the
case ofeircomGroup effective management takes place in Ireland, however, each company should be regarded as a tax resident of Ireland by both the
Irish Revenue and the U.K. Inland Revenue.

Since
the determination of whether the central management and control and effective management of a company takes place in Ireland is a complex determination that depends on all of the
relevant facts and circumstances that are applicable to the company from time to time, there can be no assurance that a tax authority will not assert that Valentia, eircomFunding oreircomGroup is tax resident outside Ireland. We believe, however, that each of
Valentia,eircomFunding andeircomGroup will properly be treated as a tax resident of Ireland on the
basis that central management and control and, in the case ofeircomGroup effective management, of each company takes place in Ireland, and we expect
that each of Valentia,eircomFunding andeircomGroup will conduct its business so that it will
continue to be treated as a tax resident of Ireland.

United Kingdom Taxation

The following is a general description of certain UK tax consequences for a Holder of Notes who, for UK tax purposes, is neither a UK resident or ordinarily
resident person nor a non-UK resident person holding Notes attributable to a trade, profession or vocation carried on in the UK, based on current law and practice in the UK. It does not
purport to be a complete analysis of all tax considerations relating to the Notes. Prospective holders who may be resident, ordinarily resident or carry on a trade, profession or vocation in the UK,
or who may be unsure as to their UK tax position, should seek their own professional advice.

Information reporting requirements

Any paying agent or other person through whom interest is paid to, or by whom interest is received on behalf of, an individual (whether resident in the UK or
elsewhere) may be required to provide information in relation to the payment and the individual concerned to the HM Revenue and Customs. Interest for this purpose includes any amount to which a person
holding a relevant discounted security is entitled on redemption of that security. The HM Revenue and Customs may communicate this information to the tax authorities of other jurisdictions.

Guarantee Payments by eircom Group

Although the position is not clear, the better view, based on a consideration of the reported cases, is that a payment by eircomGroup in
respect of interest owed byeircomFunding under the Subordinated Holdings Guarantee
will not be regarded as having a United Kingdom source for United Kingdom tax purposes. On that basis, no requirement to deduct or withhold on account of United Kingdom income tax in respect of such
payment would apply toeircomGroup or any paying agent acting in his capacity as such. The existing case law authority is, however, equivocal and there
remains some risk that such payments could be treated as having a United Kingdom source in which case, subject to any relief under an applicable double tax treaty or any applicable exemption, there
might be a requirement on such persons to deduct or withhold United Kingdom income tax from such payments.

European Union Savings Tax Directive

Holders are specifically referred to the disclosure in respect of the European Union Savings Tax Directive in the section discussing Irish Taxation above.

WE
URGE HOLDERS OF NOTES TO CONSULT THEIR OWN TAX ADVISERS AS TO THE PARTICULAR TAX CONSIDERATIONS FOR THEM RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE APPLICABILITY OF ANY UK TAX LAWS OR NON-UK TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.

189

---



E.DOCUMENTS ON DISPLAY

We have filed this annual report in Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Statements
made in this annual report as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document
filed as an exhibit to this annual report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by
such reference.

We
are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission. Reports and other information
which we file with the Securities and Exchange Commission, including this annual report on Form 20-F, may be inspected and copied at the public reference facilities of the
Securities and Exchange Commission at:



Copies
of this material may also be obtained from the Securities and Exchange Commission's Internet site athttp://www.sec.gov. The
Commission's telephone number is 1-800-SEC-0330.

190

---





ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk



Following the completion of the Initial Public Offering, we have available the Senior Credit Facility of €1.4 billion. Our Senior Credit
Facility replaced the previous senior credit facilities of €1.4 billion, of which €1.25 billion had been drawn down. In the financial year ended
31 March 2004, we issued Senior Notes amounting to €550 million and Senior Subordinated Notes amounting to €510 million
(€285 million aggregate principal amount of Senior Subordinated Notes and $250 million aggregate principal amount of Senior Subordinated Notes).

Borrowings
under the Senior Credit Facility bear interest at a variable rate. As a result, interest rate changes generally will not affect the market value of this debt but will impact
the amount of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant. The Senior Notes and Senior Subordinated Notes are fixed rate debt,
the market value of which will change as interest rates change.

Since
Valentia Telecommunications entered into new interest rate swaps following the closing of the Initial Public Offering, €500 million (or approximately 40%) of
the €1.25 billion amortising term loan facility under the Senior Credit Facility is covered by interest rate hedging arrangements. Assuming constant variables, including levels
of indebtedness, a
one percentage point increase in interest rates would have an estimated impact on our pre-tax earnings of approximately €7.5 million in a full year.



We conduct our business primarily in Ireland and, therefore, our operating and investing cash flows are substantially denominated in euro. As of 31 March
2005 and 31 March 2004, approximately 100% of our net assets were denominated in euro other than the Senior Subordinated Notes as discussed below. Limited foreign exchange risk arises in
relation to some of our capital expenditure, as well as foreign exchange settlements with international third party telecommunications carriers.

Following
completion of the offering of notes, we had $250 million in Senior Subordinated Notes that are denominated in dollars at 31 March 2005 and 31 March 2004.
We have hedged all of our payment obligations under the dollar denominated Senior Subordinated Notes into euro, thereby eliminating this foreign currency exposure.



Treasury operating parameters and policies are established under formal authority. Treasury policy covers the areas of funding, currency and interest rate risk,
counterparty risk and controls. The risk of counterparty default is controlled by restricting our dealings to entities which satisfy minimum credit rating criteria and by limiting the amount of credit
exposure to any one entity. We consider the likelihood of significant counterparty failure to be remote. We use financial instruments, including fixed and variable rate debt and forward foreign
exchange contracts, to finance operations, for capital spending programmes and for general corporate purposes. Financial instruments, including derivative instruments, are used to hedge exposure to
interest rate and foreign currency risks. We do not use derivative instruments for trading purposes.

We
regard interest rate changes as our most significant market risk exposure. We manage this exposure to achieve an appropriate balance of fixed and variable rate funding. This is
achieved through the mix of borrowings and the use of interest rate swap agreements. As of 31 March 2005, the

191

---



proportion
of our total borrowings that were at fixed interest rates was 68%. We expect to continue to maintain a minimum of 50% of our underlying debt at fixed interest rates.

The
fair value of our interest rate swap agreements as of 31 March 2005 and 31 March 2004 was (€2) million and €nil. The weighted average
interest rate on our total borrowings as of 31 March 2005 and 31 March 2004 was 5.6%.

As
at 31 March 2005 and 31 March 2004, following completion of the offering of notes, we have $250 million in Senior Subordinated Notes that are denominated in
dollars. We have hedged all of our payment obligations under the dollar denominated Senior Subordinated Notes into euro, thereby eliminating this foreign currency exposure. The fair value of our
currency swap arrangements as of 31 March 2005 and 31 March 2004 was (€55) million and (€26) million respectively.

ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

This item is not applicable.

192

---



PART II

ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

There were no material modifications to the rights of security holders in the financial year ended 31 March 2005.

For
a description of the modifications of the rights of holders of the senior notes and senior subordinated notes in the financial year ended 31 March 2004, please refer to Item
10B "Additional InformationMaterial ContractsAmended Senior Note Indenture and Senior Subordinated Note Indenture".

We
have not withdrawn or substituted a material amount of the assets securing any class of our securities.

There
has been no change in the trustees or paying agents for any of our securities during the financial year ending 31 March 2005.

ITEM 15  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive and Finance Director, of the
effectiveness and design and operation of
our disclosure controls and procedures as at 31 March 2005. Based upon that evaluation, the Chief Executive and Finance Director concluded that our disclosure controls and procedures are
effective in ensuring that material financial and non-financial information required to be disclosed in this annual report is recorded, processed, summarised and reported in a timely
manner. Since the date of the evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect the controls. Therefore, no corrective
actions were taken.

For
details of the Audit Committee and the Disclosure Committee, please see Item 6C "Directors, Senior Management and EmployeesCorporate Governance and Board Practices".

Change in Internal Controls

There has been no change in our internal control over financial reporting during our fiscal year ended 31 March 2005 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

193

---



ITEM 16A  AUDIT COMMITTEE FINANCIAL EXPERT

The members of our board of directors have determined that Irial Finan is an audit committee financial expert within the meaning of the applicable rules and
regulations of the U.S. Securities and Exchange Commission.

ITEM 16B  CODE OF ETHICS

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. We have
filed this code of ethics as Exhibit 11.1 to this annual report.

We
have not made any amendments to our code of ethics during the financial year ended 31 March 2005 and have not granted any waivers therefrom.

ITEM 16C  PRINCIPAL ACCOUNTANTS FEES AND SERVICES

(a) Audit Fees

Fees paid to PricewaterhouseCoopers for the audit of the annual consolidated financial statements included in our Annual Report on Form 20-F
were €0.932 million and €0.930 million for the financial years ended 31 March 2005 and 31 March 2004 respectively. Details of the aggregate
fees billed for each of the last two financial years for professional services rendered by the independent auditors, PricewaterhouseCoopers, for the audit of the Group's annual financial statements
are set out in note 3 of the consolidated financial statements ofeircomGroup contained in "Item 18Financial Statements".

(b) Other Audit-Related Fees

Audit related fees paid to PricewaterhouseCoopers were €2.785 million and €4.870 million for the financial years
ended 31 March 2005 and 2004 respectively.

(c) Tax Fees

Fees paid to PricewaterhouseCoopers associated with tax compliance and tax consultation were €0.06 million and
€0.144 million for the financial years ended 31 March 2005 and 2004 respectively.

(d) All Other Fees

Other fees paid to PricewaterhouseCoopers were €0.342 million and €3.958 million in the financial years ended
31 March 2005 and 2004 respectively.

Details
of the aggregate fees billed for each of the last three financial years for professional services rendered by the independent auditors, PricewaterhouseCoopers, for the audit of
the Group's annual financial statements are set out in note 3 to the consolidated financial statements ofeircomGroup contained in Item 18
"Financial Statements".

The
audit committee's pre-approval policies and procedures are included in Item 6C "Directors, Senior Management and EmployeesCorporate Governance and Board
PracticesAudit Committee".

The
audit committee approved one hundred percent (100%) of the services provided to the Company and its subsidiaries described in Items 16C (b) through (d) above.

194

---



ITEM 16D  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

This item is not applicable.

ITEM 16E  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

This item is not applicable.

PART III

ITEM 17
FINANCIAL STATEMENTS

The registrant has responded to Item 18 "Financial Statements" in lieu of this Item.

ITEM 18  FINANCIAL STATEMENTS

See Item 8 "Financial Information" and our financial statements beginning on page F-1 of this annual report.

195

---





ITEM 19  EXHIBITS

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1         |  | Memorandum and Articles of Association ofeircomGroup plc (incorporated herein by reference to Exhibit 4.1 to theeircomGroup plc,eircomFunding, Valentia Telecommunications andeircomLimited annual report on Form 20-F filed on July 28 2004).                                                                                                                                                                                                                                                                                                                    
|1.2         |  | Memorandum and Articles of Association of Valentia Telecommunications (incorporated herein by reference to Exhibit 3.1 to Valentia Telecommunications' Registration Statement on Form F-4 filed on October 29, 2003).                                                                                                                                                                                                                                                                                                                                             
|1.3         |  | Memorandum and Articles of Association ofeircomFunding (incorporated herein by reference to Exhibit 3.2 to Valentia Telecommunications' Registration Statement on Form F-4 filed on
October 29, 2003).                                                                                                                                                                                                                                                                                                                                                            
|1.4         |  | Memorandum and Articles of Association ofeircomLimited (incorporated herein by reference to Exhibit 3.3 to Valentia Telecommunications' Registration Statement on Form F-4 filed on
October 29, 2003).                                                                                                                                                                                                                                                                                                                                                            
|2.1         |  | Senior Registration Rights Agreement, dated as of 7 August 2003, among Valentia Telecommunications,eircomLimited and the initial purchasers relating to the €550,000,000 7.25% Senior Notes due
2013 (incorporated herein by reference to Exhibit 4.1 to Valentia Telecommunications' Registration Statement on Form F-4 filed on October 29, 2003).                                                                                                                                                                                                              
|2.2         |  | Senior Subordinated Registration Rights Agreement, dated as of 7 August 2003, amongeircomFunding, Valentia Telecommunications,eircomLimited andeircomGroup plc and the initial purchasers relating to the €285,000,000 8.25% Senior Subordinated Notes due 2013 and $250,000,000 8.25% Senior Subordinated Notes due 2013 (incorporated herein by
reference to Exhibit 4.2 to Valentia Telecommunications' Registration Statement on Form F-4 filed on October 29, 2003).                                                                                         
|2.3         |  | Supplemental Indenture, dated as of 24 March 2004, among Valentia Telecommunications,eircomLimited and The Bank of New York, as trustee, amending the Senior Indenture, dated as of 7 August
2003, relating to the €550,000,000 7.25% senior notes due 2013 (the Senior Indenture is incorporated herein by reference to Exhibit 4.3 to Valentia Telecommunications' Registration Statement of Form F-4 filed on 29 October
2003).                                                                                                                                
|2.4         |  | Supplemental Indenture dated as of 24 March 2004 amongeircomFunding, Valentia Telecommunications,eircomLimited andeircomGroup plc and The Bank of New York, as trustee, amending the Senior Subordinated Indenture, dated as of 7 August 2003, relating to the €285,000,000 8.25% senior subordinated notes due 2013 and
$250,000,000 8.25% senior subordinated notes due 2013 (the Senior Subordinated Indenture is incorporated herein by reference to Exhibit 4.4 to Valentia Telecommunications' Registration Statement on Form F-4 filed on 29 October
2003).
|2.5         |  | Euro Senior Deposit and Custody Agreement, dated as of 7 August 2003, among Valentia Telecommunications and The Bank of New York (incorporated herein by reference to Exhibit 4.5 to Valentia Telecommunications' Registration Statement on
Form F-4 filed on October 29, 2003).                                                                                                                                                                                                                                                                                  
|2.6         |  | Euro Senior Subordinated Deposit and Custody Agreement, dated as of 7 August 2003, amongeircomFunding and The Bank of New York (incorporated herein by reference to Exhibit 4.6 to Valentia
Telecommunications' Registration Statement on Form F-4 filed on October 29, 2003).                                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

196

---



|2.7  |  | Dollar Senior Subordinated Deposit and Custody Agreement, dated as of 7 August 2003, amongeircomFunding and The Bank of New York (incorporated herein by reference to Exhibit 4.7 to Valentia
Telecommunications' Registration Statement on Form F-4 filed on October 29, 2003).                                                                                                                                                                                                                                                                                                                                                                               
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1  |  | Underwriting Agreement, dated 19 March 2004 with Goldman Sachs International and Morgan Stanley & Co. International Limited as the joint sponsors (the "Joint Sponsors") and Morgan Stanley Securities Limited, Goldman Sachs International,
Deutsche Bank AG London and Citigroup Global Markets U.K. Equity Limited as joint bookrunners and BNP Paribas, Davy, Goodbody Stockbrokers, Merrill Lynch International and Merrion Stockbrokers Limited as co-lead managers (incorporated herein by
reference to Exhibit 4.1 to theeircomGroup plc,eircomFunding, Valentia Telecommunications andeircomLimited annual report on Form 20-F filed on July 28 2004).
|4.2  |  | Secured Senior Facility Agreement, dated 18 March 2004, between, amongst others, Valentia Telecommunications as original Borrower and original Guarantor, Deutsche Bank AG London, Citigroup Global Markets Limited, Goldman Sachs International and
Morgan Stanley Bank. (incorporated herein by reference to Exhibit 4.2 to theeircomGroup plc,eircomFunding, Valentia Telecommunications andeircomLimited annual report on Form 20-F filed on July 28 2004).                                                                                                                                                                                                
|4.3  |  | Intercreditor Deed, dated 18 March 2004, between, amongst others, Valentia Telecommunications,eircomFunding, and certain subsidiaries of Valentia Telecommunications; senior creditors; hedging
banks; Bayerische Landesbank;eircomGroup plc; and Deutsche Bank AG London (incorporated herein by reference to Exhibit 4.3 to theeircomGroup plc,eircomFunding, Valentia Telecommunications andeircomLimited annual report on Form 20-F filed on July 28 2004).                                                                                                                                                                                                
|8.1  |  | List of subsidiaries ofeircomGroup plc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|11.1 |  | Code of Business Conduct and Ethics foreircomGroup plc. (incorporated herein by reference to Exhibit 11.1 to theeircomGroup plc,eircomFunding, Valentia Telecommunications andeircomLimited annual report on Form 20-F filed on July 28 2004.                                                                                                                                                                                                                                                                                                                                                                                                                  
|12.1 |  | Chief Executive Officer certification, dated 27 June 2005, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|12.2 |  | Chief Financial Officer certification, dated 27 June 2005, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|12.3 |  | Chief Executive Officer certification, dated 27 June 2005, pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|12.4 |  | Chief Financial Officer certification, dated 27 June 2005, pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

197

---





SIGNATURE

The registrant and additional registrants hereby certify that they meet all the requirements for filing on Form 20-F and have duly caused and
authorised the undersigned to sign this annual report on its behalf.

| |  | Registrant:eircomGroup plc                         |  |                                    
| |  | -------------------------------------------------- |  | -----------------------------------
| |  | By:                                                |  | /s/                                
| |  |                                                    |  |                                    
| |  |                                                    |  | Name:    Philip Nolan
Title:    CEO
| |  | Additional Registrant:eircomFunding                |  |                                    
| |  | By:                                                |  | /s/                                
| |  |                                                    |  |                                    
| |  |                                                    |  | Name:    Philip Nolan
Title:    CEO
| |  | Additional Registrant: Valentia Telecommunications |  |                                    
| |  | By:                                                |  | /s/                                
| |  |                                                    |  |                                    
| |  |                                                    |  | Name:    Philip Nolan
Title:    CEO
| |  | Additional Registrant:eircomLimited                |  |                                    
| |  | By:                                                |  | /s/                                
| |  |                                                    |  |                                    
| |  |                                                    |  | Name:    Philip Nolan
Title:    CEO

Date:    30
June, 2005

198

---





GLOSSARY OF TECHNICAL TERMS

|"ADSL" or "Asymmetric Digital Subscriber Line"           |  | a DSL technology that provides for greater downstream transmission of data from the server to the client, compared with the opposite direction                                                                                                                                 
|-------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|"ADSL bitstream access"                                  |  | a broadband access product which utilises ADSL in the local loop point of presence and then transports across the network to an ADSL regional point of presence. It allows a voice and an ADSL service to be integrated over the same two-wire copper
pair                     
|"Agency re-billing"                                      |  | effectively enables an operator to bill the end customer for all services delivered over a particular line. A prerequisite for this service is that the end customer must have already taken carrier pre-selection for all call types with the relevant
operator               
|"ARO" or "Access Reference Offer"                        |  | a standard form document that sets out details of an offering of new access service to all access seekers                                                                                                                                                                      
|"ATM" or "Asynchronous Transfer Mode"                    |  | an international ISDN high-speed, high-volume, packet-switching protocol which supplies bandwidth on demand and divides any signal (voice, date or video) into efficient, manageable packets for ultra-fast switching                                                          
|"BIP"                                                    |  | Business Internet Protocol                                                                                                                                                                                                                                                     
|"Broadband"                                              |  | a descriptive term for evolving digital technologies that provide consumers with a signal-switched facility offering integrated access to voice, high-speed data service, video-demand services and interactive delivery services (typically at speeds
greater than 512 kbit/s)
|"Business IP+"                                           |  | a service that allows multi-site customers to build data networks between sites and is carried on a separate network from the public Internet and is therefore secure                                                                                                          
|"DECT"                                                   |  | digital enhanced cordless technology                                                                                                                                                                                                                                           
|"DSL"                                                    |  | digital subscriber line and access technology that allows voice and high-speed data to be sent simultaneously over local exchange service copper facilities                                                                                                                    
|"Eirpac"                                                 |  | Eirpac is a public switched data network supporting X.25 and X.28 protocols and applications. Eirpac iseircom's packet switched data network. It allows users to exchange data directly and securely
between computers and terminals                                           
|"Frame relay"                                            |  | frame relay is a high-speed open protocol that is more efficient than packet switching and is particularly suited to data-intensive applications such as connecting local area networks                                                                                        
|"FRIACO" or "Flat Rate Internet Access Call Origination" |  | an un-metered interconnection service that provides capacity from originating customers to the point of connection of an operator                                                                                                                                              
|"Gbit/s"                                                 |  | gigabits per second                                                                                                                                                                                                                                                            
|"GSM"                                                    |  | global system for mobile communications                                                                                                                                                                                                                                        
|"Interconnect"                                           |  | the connection of one telecom operator's network to another or of a piece of telephone equipment to the telephone network                                                                                                                                                      
|                                                         |  |                                                                                                                                                                                                                                                                                

199

---



|"Interconnection charge"                        |  | the charge levied for interconnection                                                                                                                                                                                                                         
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|"Internet"                                      |  | a public network based on a common communication protocol which supports communication through the world wide web                                                                                                                                             
|"IP" or "internet protocol"                     |  | the communications standard that defines the unit of information passed between computer systems that provides a basic packet delivery service                                                                                                                
|"ISDN" or "integrated services digital network" |  | an international standard which enables high speed simultaneous transmission of voice and/or data over an existing public network. An ISDN line consists of between 16 and 30 access channels.                                                                
|"ISP" or "internet service provider"            |  | a company providing Internet access                                                                                                                                                                                                                           
|"kbit/s"                                        |  | Kilobits per second                                                                                                                                                                                                                                           
|"LAN" or "local area network"                   |  | a short distance data network used to link together computers through a main control centre, enabling access to a centralised database                                                                                                                        
|"LLU"                                           |  | local loop unbundling                                                                                                                                                                                                                                         
|"Managed Internet"                              |  | a service that provides a Business IP+ customer with an Internet connection directly from their IP network and allows all sites on the customer's network to access this gateway to the Internet                                                              
|"Managed-site payphone"                         |  | a public payphone for which the operator provides installation, maintenance and cash collection services, as well as owning the telephone line and setting the tariffs                                                                                        
|"Mast access"                                   |  | a procedure for safe working on masts, antennas, feeders and channel combining equipment                                                                                                                                                                      
|"Mbit/s"                                        |  | Megabits per second                                                                                                                                                                                                                                           
|"MVNOs"                                         |  | Mobile virtual network operators                                                                                                                                                                                                                              
|"Narrowband"                                    |  | A network or circuit capacity of less than 64bit/s                                                                                                                                                                                                            
|"Next Generation Network"                       |  | a network characterised by high standards both in terms of network protection and traffic restoration, through which an operator is able to provide innovative services to its customers                                                                      
|"Number portability"                            |  | the ability of a customer to transfer from one telecom operator to another and retain the original number                                                                                                                                                     
|"Packet switching"                              |  | the process of routing and transferring data by means of addressed packets, so that a channel is occupied during the transmission of the packet only, and upon completion of the transmission, the channel is made available for the transfer of other
traffic
|"Partial private circuits"                      |  | a service consisting of the provision of capacity from a customer's premises to an operator's point of connection, whereby the operator's network will be physically and logically linked to our network                                                      
|"PCM" or "pulse-code modulation"                |  | modulation in which a signal is sampled, and the magnitude (with respect to a fixed reference) of each sample is quantised and digitised for transmission over a common transmission medium                                                                   
|                                                |  |                                                                                                                                                                                                                                                               

200

---



|"PDH" or "plesiochronous digital hierarchy"   |  | the DS1/DS2/DS3 (digital signal) family of signals which were developed as an asynchronous multiplexed hierarchy for transmission systems                                                                                                                                                                                                                                                                                                       
|--------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|"PSTN" or "public switched telephone network" |  | a domestic telecommunications network usually accessed by telephones, key telephone systems, private branch exchange trunks and data arrangements. A PSTN line consists of a single access channel                                                                                                                                                                                                                                              
|"Rate-adaptive ADSL"                          |  | a flexible version of DSL that can be used to reach customers at distances beyond the reach of fixed-rate ADSL on a given line                                                                                                                                                                                                                                                                                                                  
|"Remote access service"                       |  | a service that allows the customer to dial into the customer's network via the Internet                                                                                                                                                                                                                                                                                                                                                         
|"RIO"                                         |  | Reference Interconnect Offer                                                                                                                                                                                                                                                                                                                                                                                                                    
|"Signalling connect control point"            |  | the roaming signalling service which enables a mobile operator's customers roaming abroad to make and receive calls on the networks of their mobile operator's roaming partners and to enable customers of such roaming partners to make and receive calls
when roaming on the mobile operator network in Ireland                                                                                                                               
|"SMS" or "short messaging service"            |  | enables transmissions of alphanumeric messages of up to 160 characters among fixed-line and mobile subscribers and is only available on digital networks                                                                                                                                                                                                                                                                                        
|"Switched data services"                      |  | services that are used to transfer data between specific points in a network by means of electronic, optical or electromechanical routing of signals, including frame relay, asynchronous transfer mode, and packet switching                                                                                                                                                                                                                   
|"Traffic"                                     |  | calls or other transmissions being sent and received over a communications network                                                                                                                                                                                                                                                                                                                                                              
|"Transit services"                            |  | conveyance services provided by a network between two points of interconnection. It is a service that links two networks that are not interconnected                                                                                                                                                                                                                                                                                            
|"Unbundled local loop"                        |  | under the provision of the regulations of the European Parliament and European Council on Unbundled Access to the Local Loop, we are obliged to provide unbundled local access services to other authorised operators and to publish an access reference
offer or ARO, which describes the access services it offers. Unbundled local access comprises physical co-location in order to access the unbundled local metallic path or line sharing
|"Virtual private network"                     |  | a switched network with special services such as abbreviated dialling                                                                                                                                                                                                                                                                                                                                                                           
|"VoIP"                                        |  | Voice over IP services                                                                                                                                                                                                                                                                                                                                                                                                                          
|"Wi-Fi"                                       |  | wireless fidelity a high frequency wireless local area network technology                                                                                                                                                                                                                                                                                                                                                                       
|"WLR"                                         |  | Wholesale Line Rental                                                                                                                                                                                                                                                                                                                                                                                                                           
|"3G"                                          |  | third generation mobile                                                                                                                                                                                                                                                                                                                                                                                                                         

201

---





eircomGroup plc

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders ofeircomGroup plc:

We
have audited the accompanying consolidated balance sheets ofeircomGroup plc and its subsidiaries as of 31 March 2004 and
31 March 2005 and the related consolidated profit and loss accounts, consolidated cash flow statements and reconciliation of movements in consolidated shareholders' funds for each of the three
years in the period ended 31 March 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of eircomGroup plc and its subsidiaries at 31 March 2004 and
31 March 2005, and the results of their operations and their cash flows for
each of the three years in the period ended 31 March 2005, in conformity with accounting principles generally accepted in the United Kingdom.

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 34 to the consolidated financial statements.

PricewaterhouseCoopers
Dublin, Ireland
28 June 2005

F-1

---





eircomGroup plc        Consolidated Profit and Loss Account  For the Year Ended 31 March 2005

|                                                                                                          |  | Notes |  | 2003
€'m |   | 2004
€'m |   | 2005
€'m |  
|--------------------------------------------------------------------------------------------------------- |  | ----- |  | -------- | - | -------- | - | -------- | -
|Turnover                                                                                                  |  | 2     |  | 1,682    |   | 1,628    |   | 1,602    |  
|Cost of sales                                                                                             |  |       |  | (499     | ) | (410     | ) | (378     | )
|                                                                                                          | 
|Gross profit                                                                                              |  |       |  | 1,183    |   | 1,218    |   | 1,224    |  
|                                                                                                          | 
|Operating costs before exceptional operating (charges)/credits, depreciation and goodwill amortised       |  | 3     |  | (648     | ) | (632     | ) | (696     | )
|Exceptional operating (charges)/credits                                                                   |  | 3, 4  |  | (13      | ) | (24      | ) | 4        |  
|Depreciation (net)                                                                                        |  | 3, 11 |  | (399     | ) | (368     | ) | (316     | )
|Exceptional fixed asset impairment                                                                        |  | 3, 11 |  |         |   | (38      | ) |         |  
|Goodwill amortised on subsidiary undertakings                                                             |  | 3, 10 |  | (38      | ) | (38      | ) | (38      | )
|                                                                                                          | 
|Total operating costs                                                                                     |  | 3     |  | (1,098   | ) | (1,100   | ) | (1,046   | )
|                                                                                                          | 
|Group operating profit                                                                                    |  |       |  | 85       |   | 118      |   | 178      |  
|Group's share of operating profits of associated undertakings                                             |  |       |  |         |   |         |   | 1        |  
|                                                                                                          | 
|Total operating profit                                                                                    |  |       |  | 85       |   | 118      |   | 179      |  
|Exceptional gain on the disposal of fixed assets                                                          |  |       |  | 2        |   |         |   |         |  
|Exceptional gain on the exit from subsidiaries                                                            |  |       |  | 1        |   | 1        |   |         |  
|                                                                                                          | 
|Profit on ordinary activities before interest and taxation                                                |  |       |  | 88       |   | 119      |   | 179      |  
|Interest payable and similar charges (net)                                                                |  | 5     |  | (134     | ) | (157     | ) | (128     | )
|Exceptional interest payable and similar charges                                                          |  | 6     |  |         |   | (51      | ) | 1        |  
|                                                                                                          | 
|(Loss)/profit on ordinary activities before taxation                                                      |  |       |  | (46      | ) | (89      | ) | 52       |  
|Tax credit/(charge) on (loss)/profit on ordinary activities                                               |  | 7     |  | 6        |   | (14      | ) | (20      | )
|                                                                                                          | 
|(Loss)/profit on ordinary activities after taxation                                                       |  |       |  | (40      | ) | (103     | ) | 32       |  
|Dividend paid and proposed (including dividends and other appropriations in respect of non-equity shares) |  | 8     |  | (22      | ) | (428     | ) | (103     | )
|                                                                                                          | 
|Loss for the financial year                                                                               |  | 22    |  | (62      | ) | (531     | ) | (71      | )
|                                                                                                          | 
|                                                                                                          |  |       |  | €        |   | €        |   | €        |  
|(Loss)/earnings per 10 cent ordinary share                                                                |  |       |  |          |   |          |   |          |  
|Basic and diluted                                                                                        |  | 9     |  | (0.12    | ) | (0.24    | ) | 0.02     |  
|                                                                                                          | 

All of the group's activities are continuing.

The
accompanying notes form an integral part of these consolidated financial statements.

F-2

---



eircomGroup plc        Consolidated Balance Sheet  As at 31 March 2005

|                                                           |                                                       | Notes |    | 2004
€'m |       | 2005
€'m |      
|---------------------------------------------------------- | ----------------------------------------------------- | ----- | -- | -------- | ----- | -------- | -----
|Fixed assets                                               |                                                       |       |    |          |       |          |      
|                                                           | Intangible assets                                     |       | 10 |          | 669   |          | 633  
|                                                           | Tangible assets                                       |       | 11 |          | 2,140 |          | 2,029
|                                                           | Investments in associates                             |       | 12 |          |      |          | 1    
|                                                           |                                                      
|                                                           |                                                       |       |    | 2,809    |       | 2,663    |      
|                                                           |                                                      
|Current assets                                             |                                                       |       |    |          |       |          |      
|                                                           | Stocks                                                |       | 13 |          | 10    |          | 11   
|                                                           | Debtors: amounts falling due within one year          |       | 14 |          | 307   |          | 298  
|                                                           | Debtors: amounts falling due after more than one year |       | 14 |          | 177   |          | 162  
|                                                           | Restricted cash at bank and in hand                   |       | 15 |          | 70    |          | 1    
|                                                           | Cash at bank and in hand                              |       |    |          | 352   |          | 388  
|                                                           |                                                      
|                                                           |                                                       |       |    | 916      |       | 860      |      
|Creditors: Amounts falling due within one year             |                                                       | 16    |    | 661      |       | 663      |      
|                                                           |                                                      
|Net current assets                                         |                                                       |       |    | 255      |       | 197      |      
|                                                           |                                                      
|Total assets less current liabilities                      |                                                       |       |    | 3,064    |       | 2,860    |      
|                                                           |                                                      
|Creditors: Amounts falling due after more than one year    |                                                       | 16    |    | 2,273    |       | 2,210    |      
|Provisions for liabilities and charges                     |                                                       | 19    |    | 242      |       | 238      |      
|                                                           |                                                      
|                                                           |                                                       |       |    | 2,515    |       | 2,448    |      
|                                                           |                                                      
|Net assets                                                 |                                                       |       |    | 549      |       | 412      |      
|                                                           |                                                      
|Capital and reserves                                       |                                                       |       |    |          |       |          |      
|Called up share capital                                    |                                                       |       |    |          |       |          |      
|                                                           | Equity share capital                                 |       | 21 |          | 74    |          | 75   
|                                                           | Non-equity share capital                             |       | 21 |          | 122   |          | 86   
|Reserves                                                   |                                                       |       |    |          |       |          |      
|                                                           | Share premium account                                |       | 22 |          | 247   |          | 218  
|                                                           | Revaluation reserve                                  |       | 22 |          | 91    |          | 87   
|                                                           | Capital redemption reserve                           |       | 22 |          | 33    |          | 35   
|                                                           | Group merger reserve                                 |       | 22 |          | 180   |          | 180  
|                                                           | Other reserves                                       |       | 22 |          | 8     |          | 8    
|                                                           | Profit and loss account                              |       | 22 |          | (206  | )        | (277 
|                                                           |                                                      
|Total shareholders' funds (including non-equity interests) |                                                       |       |    | 549      |       | 412      |      
|                                                           |                                                      
|Shareholders' funds are split as follows:                  |                                                       |       |    |          |       |          |      
|Equity shareholders' funds                                 |                                                       |       |    | 306      |       | 252      |      
|Non-equity shareholders' funds                             |                                                       |       |    | 243      |       | 160      |      
|                                                           |                                                      
|                                                           |                                                       |       |    | 549      |       | 412      |      
|                                                           |                                                      

The accompanying notes form an integral part of these consolidated financial statements.

F-3

---





eircomGroup plc

Consolidated Cash Flow Statement

For the Year Ended 31 March 2005

|                                                                   |  | Notes |  | 2003
€'m |   | 2004
€'m |   | 2005
€'m |  
|------------------------------------------------------------------ |  | ----- |  | -------- | - | -------- | - | -------- | -
|Net cash inflow from operating activities                          |  | 24(a) |  | 497      |   | 490      |   | 524      |  
|Returns on investments and servicing of finance                    |  | 24(b) |  | (140     | ) | (278     | ) | (173     | )
|Taxation                                                           |  | 24(c) |  | 4        |   | (14      | ) | (55      | )
|Capital expenditure and financial investment                       |  | 24(d) |  | (239     | ) | (227     | ) | (122     | )
|Acquisitions and disposals                                         |  | 24(e) |  | 185      |   | (1       | ) |         |  
|Dividends paid to equity shareholders                              |  |       |  |         |   | (400     | ) | (37      | )
|                                                                   | 
|Cash inflow/(outflow) before use of liquid resources and financing |  |       |  | 307      |   | (430     | ) | 137      |  
|Financing                                                          |  | 24(f) |  | (182     | ) | 342      |   | (100     | )
|                                                                   | 
|Increase/(decrease) in net cash                                    |  |       |  | 125      |   | (88      | ) | 37       |  
|                                                                   | 

Reconciliation of Net Cash Flow to Decrease/(Increase) in Net Debt

|                                                           |  | Notes |   | 2003
€'m |  | 2004
€'m |   | 2005
€'m
|---------------------------------------------------------- |  | ----- | - | -------- |  | -------- | - | --------
|Increase/(decrease) in cash in the financial year          |  |       |   | 125      |  | (88      | ) | 37      
|Cash flow from decrease/(increase) in loans and other debt |  |       |   | 182      |  | (80      | ) |        
|                                                          
|Decrease/(increase) in net debt                            |  | 24(g  | ) | 307      |  | (168     | ) | 37      
|                                                          

The accompanying notes form an integral part of these consolidated financial statements.

F-4

---



eircomGroup plc

Consolidated Statement of Total Recognised Gains and Losses

For the Year Ended 31 March 2005

|                                                    |  | 2003
€'m |   | 2004
€'m |   | 2005
€'m
|--------------------------------------------------- |  | -------- | - | -------- | - | --------
|(Loss)/profit on ordinary activities after taxation |  | (40      | ) | (103     | ) | 32      
|Unrealised surplus on revaluation of properties     |  | 7        |   | 87       |   |        
|                                                   
|Total recognised (losses)/gains for the year        |  | (33      | ) | (16      | ) | 32      
|                                                   

Note of Consolidated Historical Cost Profits and Losses

The reported profit on ordinary activities before tax is €52 million (2004: loss of €89 million, 2003: loss of
€46 million).

If
account was taken of the impact of assets carried at valuation, this profit would be increased by €4 million (2004: decrease loss by
€3 million, 2003: no material difference), to produce a historical cost profit on ordinary activities before tax of €56 million (2004: loss of
€86 million, 2003: loss of €46 million). The historical cost loss absorbed after taxation and dividends would be €67 million (2004:
loss absorbed of €528 million, 2003: loss absorbed of €62 million).

The
accompanying notes form an integral part of these consolidated financial statements.

F-5

---



eircomGroup plc

Reconciliation of Movements in Consolidated Shareholders' Funds

|                                                            |                                | 2003
€'m |     | 2004
€'m |     | 2005
€'m |    
|----------------------------------------------------------- | ------------------------------ | -------- | --- | -------- | --- | -------- | ---
|(Loss)/profit on ordinary activities after taxation         |                                | (40      | )   | (103     | )   | 32       |    
|Dividends and appropriations                                |                                | (22      | )   | (428     | )   | (103     | )  
|                                                            |                               
|Loss for the financial year                                 |                                | (62      | )   | (531     | )   | (71      | )  
|Share capital issued                                        |                                |          |     |          |     |          |    
|                                                            | Equity                        |          |    |          | 20  |          |   
|                                                            | Non-equity                    |          |    |          | 33  |          |   
|Share premium on share capital issued (gross)               |                                |         |     | 317      |     | 2        |    
|Expenses paid and payable in respect of shares issued (net) |                                |         |     | (66      | )   | 1        |    
|Redemption of preference shares                             |                                |         |     | (76      | )   | (69      | )  
|Other reserves created in respect of share option schemes   |                                |         |     | 8        |     |         |    
|Revaluation surplus                                         |                                | 7        |     | 87       |     |         |    
|                                                            |                               
|Net reduction in total shareholders' funds                  |                                | (55      | )   | (208     | )   | (137     | )  
|Total shareholders' funds at beginning of year              |                                | 812      |     | 757      |     | 549      |    
|                                                            |                               
|Total shareholders' funds at end of year                    |                                | 757      |     | 549      |     | 412      |    
|                                                            |                               
|Shareholders' funds are split as follows:                   |                                |          |     |          |     |          |    
|                                                            | Equity shareholders' funds     |          | 505 |          | 306 |          | 252
|                                                            | Non-equity shareholders' funds |          | 252 |          | 243 |          | 160
|                                                            |                               
|                                                            |                                | 757      |     | 549      |     | 412      |    
|                                                            |                               

The
accompanying notes form an integral part of these consolidated financial statements.

F-6

---



eircomGroup plc

Notes to the Consolidated Financial Statements

1.     Accounting Policies and Estimation Techniques



The financial statements are prepared under the historical cost convention, as modified by the revaluation of certain tangible fixed assets, in accordance with
the Companies Act 1985 and applicable accounting standards. The group financial statements consolidate the financial statements of the company and its subsidiary undertakings. The subsidiary
undertakings' financial years are all coterminous with those of the company. A summary of the more important group accounting policies is set out below.

The
preparation of the financial statements requires the directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported amounts included in the profit and loss account for the year.

Actual
results could differ from those estimates. Estimates are used principally when accounting for interconnect revenue, provisions required in respect of doubtful debts, payments to
telecommunications operators, depreciation, impairment charges, amortisation of goodwill, pension schemes, provisions for liabilities and charges, including amounts required to settle self insured
liabilities, and taxation payable.

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

The
consolidated financial statements of the group are presented in euro denoted by the symbol "€".

Certain
amounts in prior years have been reclassified to conform with the current years presentation.



The consolidated financial statements of the group comprise a consolidation of the financial statements of the company, eircomGroup plc,
and its subsidiary undertakings.

During
the year ended 31 March 2004,eircomGroup plc became the ultimate holding company of the group, by acquiring the entire
issued share capital of Valentia Telecommunications and its subsidiaries in a share for share exchange. This acquisition has been accounted for in accordance with the principles of merger accounting.
Under FRS 6 "Acquisitions and Mergers" merger accounting is permitted to be used provided that the conditions set out in FRS 6 are met, including that merger accounting is not prohibited by the
Companies Act. Accordingly, the acquisition of Valentia Telecommunications has been accounted for in accordance with the principles of merger accounting.

The
comparative figures for, and at, the year ended 31 March 2003, are based on the audited consolidated financial statements of Valentia Telecommunications and its subsidiaries.

Other
acquisitions of companies are accounted for under acquisition accounting rules. Investments in associated undertakings are accounted for using the equity method of accounting. All
inter-group transactions are eliminated as part of the consolidation process. The results of subsidiaries sold or acquired are included in the consolidated profit and loss account up to, or from, the
date control passes.

F-7

---





The goodwill arising from the purchase of subsidiary undertakings is capitalised and amortised on a straight line basis over its expected useful life. Goodwill
represents the excess of the consideration paid for the acquisition of shares in subsidiaries and associated undertakings over the fair value of the separable net assets acquired. The useful lives of
goodwill, related to acquired businesses have been determined by reference to the years over which the values of the underlying businesses are expected to exceed the values of their identifiable net
assets, and are presumed not to exceed twenty years. The presumption that the useful life of goodwill is twenty years is considered appropriate based on the useful life of the underlying assets and
the nature of the business acquired.



Intangible assets purchased are capitalised at cost and amortised over the useful life of the related asset. They consist of purchased monitoring contracts in our
residential security systems operation.



Turnover comprises the fair value of consideration received in respect of all services provided and equipment sold to third parties, exclusive of value added tax
and after discounts. Turnover is recognised in the period earned by rendering of services or delivery of products. Turnover includes sales by group undertakings but excludes all intercompany sales.

Turnover
from calls is recognised at the time the call is made over the group's networks. Turnover from rentals is recognised evenly over the period to which the charges relate. Turnover
from installation and connection activities is recognised in the same period as the related costs. Turnover from equipment
sold to third parties is recognised at the point of sale. Turnover arising from the provision of other services, including maintenance contracts, is recognised over the term of the contract. Bundled
products (line rentals and calls) are accounted for in the same manner as the unbundled products comprising the bundle. The discount to standard call rates is normally applied to the traffic element
of the bundle.

Billings
for telephone services are made on a monthly or bi-monthly basis. Unbilled revenues from the billing cycle date to the end of each month are recognised as revenue
during the month the service is provided.

The
group acts as principal in the vast majority of transactions with its customers. Where the group sells services to customers as a network provider as opposed to service provider, the
circumstances of these transactions are reviewed, and the group believes that it carries all of the risks of the relationship and sale to the end customer, and settlement with the service originator
are separate and unrelated. Therefore, the group considers itself the principal in these transactions and accounts for the settlement and revenue recognition as two distinct transactions.

The
group is required to interconnect their networks with other telecommunications operators. In some instances, as is normal practice in the telecommunications industry, reliance is
placed on other operators to measure the traffic flows interconnecting with the group's networks. In addition, the prices at which services are charged are often regulated and can be subject to
retrospective adjustment. Estimates are used in these cases to determine the amount of income receivable from, or payments required to be made to, these other operators and to establish appropriate
provisions.

F-8

---





Costs of sales are mainly settlement fees that the group pays to other authorised operators for traffic that is routed on their networks. Costs of sales also
include the cost of equipment sold and commissions paid to third party agents. These commissions relate to sales ofeircomproducts by third parties.
Costs are recognised in the same period as the related turnover. This period is based on the term the customer is committed to a contractual service contract. Where customers have no contractual
commitment, agents commission and other costs directly attributable to the sale to the customers are recognised as incurred.



Expenditure on research is written off as incurred.



Transactions denominated in foreign currencies are translated into euro at the rate of exchange ruling at the transaction date. Assets and liabilities denominated
in foreign currencies are translated at the rates ruling at the balance sheet date, or rates of exchange contracted for under various currency management instruments, with the resulting gain or loss
being dealt with through the profit and loss account.

The
financial statements of foreign subsidiaries are translated at year end rates for the balance sheet and the weighted average rates for the year for the profit and loss account.
Translation gains and losses arising are reported as a movement on reserves. All other differences are taken to the profit and loss account.



The company is managed and controlled in the Republic of Ireland and, consequently, is tax resident in Ireland.

Corporation
tax is calculated on the profits of the year as adjusted for Group relief. Tax losses utilised for Group relief are transferred between group members. Charges for Group
relief are determined on a case by case basis.

Deferred
tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation
to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the group's taxable profits and its results
as stated in the financial statements. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax
rates and laws that have been
enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.



The group enters into transactions in the normal course of business using a variety of financial instruments in order to hedge against exposures to fluctuating
exchange and interest rates. Firmly committed transactions and the related receivable, or payable, may be hedged with forward exchange contracts.

Currency
swap agreements and forward exchange contracts are used to cover the majority of the group's foreign currency debt position. These are valued at year-end exchange
rates and the resulting

F-9

---



gains
and losses are offset against gains and losses on the translation of the related debt. The interest element of the contracts is reflected in interest payable and similar charges.

Interest
rate swap agreements are used to reduce the effect of interest rate fluctuations. Interest differentials, arising from these agreements, are accrued and reflected in interest
payable and similar charges. Gains or losses arising from interest rate swaps which are terminated upon the repayment of the related debt are reflected in interest payable and similar charges. All
borrowings are initially stated at the fair value of the consideration received after deduction of issue costs. Issue costs together with finance costs are charged to the profit and loss account over
the term of the borrowings and represent a constant proportion of the balance of capital repayments outstanding. Accrued finance costs attributable to borrowings are included in accrued charges within
current liabilities. Accrued issue costs are netted against the carrying value of borrowings.



Tangible fixed assets are stated at historical cost or valuation, less accumulated depreciation. Cost in the case of network plant comprises expenditure up to and
including the last distribution point before customers' premises and includes contractors' charges, materials and labour and related overheads directly attributable to the cost of construction. Land
and buildings, are stated at a valuation, the basis of which is depreciated replacement cost or open market value, as appropriate. Depreciated
replacement cost is the gross replacement cost of fixed assets less depreciation based on that cost and on the age of the assets.



Depreciation is provided on tangible fixed assets (excluding land), on a straight line basis, so as to write off their historical cost/valuation less residual
amounts over their estimated economic lives. A full year's depreciation is charged to the profit and loss account, on tangible fixed assets (excluding land), in the year the asset becomes available
for use. The estimated economic lives assigned to tangible assets are as follows:

Estimated Economic Life (Years)Asset ClassBuildings

40Network ServicesTransmission EquipmentDuct

20Overhead cable/poles

10-15Underground cable

14ExchangesExchange line terminations

8Core hardware/operating software

4Others

3-7


The group's policy is to review the remaining economic lives of tangible fixed assets on an ongoing basis and to adjust the depreciation charge to
reflect the remaining estimated lives of tangible fixed assets.

Fully
depreciated assets are retained in the cost/valuation of tangible fixed assets and related accumulated depreciation until they are removed from service. In the case of disposals,
assets and related depreciation are removed from the financial statements and the net amount, less proceeds from disposal, is charged or credited to the consolidated profit and loss account.

F-10

---





Assets in the course of construction represent the cost of purchasing, constructing and installing tangible fixed assets ahead of their own productive use. No
depreciation is charged on assets in the course of construction.



The group undertakes a review for impairment of tangible and intangible fixed assets if events, or changes in circumstances, indicate that the carrying amount of
the fixed asset may not be recoverable. To the extent that the carrying amount exceeds the recoverable amount, that is the higher of net realisable value and value in use, the fixed asset is written
down to its recoverable amount. The value in use of fixed assets is determined from estimated discounted future net cash flows.



Non-repayable grants are accounted for as deferred income, which is amortised to the profit and loss account at the same rate as the related assets
are depreciated.



The capital cost of fixed assets acquired under finance leases is included in tangible assets and written off over the estimated useful life of the asset. The
outstanding capital element of the lease obligations is included in loans and other debt, while the interest is charged to the profit and loss account over the primary lease term.

Operating
lease rentals are charged to the profit and loss account on a straight line basis over the term of the lease as incurred.



Stocks comprise consumable items, which may be used in the construction or maintenance of plant and goods held for resale. Stocks are stated at the lower of cost
and net realisable value. Cost includes invoice price, import duties and transportation costs. Where necessary, provisions are made for damaged, deteriorated, obsolete and unusable items.



Debtors are stated in the balance sheet at estimated net realisable value. Net realisable value is the invoiced amount less provisions for bad and doubtful debts.
Provisions are made specifically against debtors where there is evidence of a dispute or an inability to pay. An additional provision is made where necessary based on an analysis of balances by age of
debtor, payment history, previous losses experienced and general economic conditions.



The pension entitlements of employees, arising from their service with the group, are secured by contributions from the group and the employees to separately
administered superannuation schemes.

The
group operates funded defined benefit pension schemes, which are independent of the group's finances, for the majority of its employees. Actuarial valuations of the main scheme are
carried out, as determined by the trustees, at intervals of not more than three years. The rates of contribution payable and the pension cost are determined on the advice of the actuaries, having
regard to the results of these valuations.

F-11

---



The
cost of providing pensions is charged against profits over employees' working lives with the group using the projected unit method. Variations from this regular cost are allocated on
a straight-line basis over the average remaining service lives of current employees.

Additional
contributions are made to superannuation schemes in respect of employees who take early retirement. These contributions are based on the advice of a professionally qualified
actuary.

The
group also operates defined contribution pension schemes for certain of its employees and the profit and loss account is charged with the contributions payable by the group.

The
disclosures required under the transitional arrangements of Financial Reporting Standard 17 "Retirement Benefits" for the year ended 31 March 2005 are shown in Note 28.



A provision is defined as a liability of uncertain timing or amount. Provisions are recognised when the group has a legal or constructive obligation as a result
of past events and a reliable estimate of that obligation can be made. Provisions are measured, where material, on a discounted basis.



In accordance with the requirements of FRS 12 "Provisions, Contingent Liabilities and Contingent Assets", provision is made against the net cash outflow expected
to arise from contracts where the unavoidable costs under the contract exceed the economic benefit expected to be received under the contract.



TheeircomEmployee Share Ownership Plan consists of two separate trusts, the eircomEmployee Share Ownership Trust ("ESOT") and theeircomApproved Profit Sharing Scheme ("APSS"). eircomESOP Trustee Limited is the corporate trustee for
both trusts. eircomGroup plc is the registered
holder of all issued shares but does not exercise control overeircomESOP Trustee Limited or have any beneficial interest in the assets of either the
ESOT or the APSS. Consequently, the accounts of the trustee have not been, and are not, consolidated in the financial statements.



Under Urgent Issues Task Force Abstract (UITF) 17, the company is required to recognise as a charge to the profit and loss account the amount by which the value
of shares at the date of granting share options to employees exceeds the value at which employees can exercise the options granted. These costs are normally recognised over the vesting period except
where the directors are satisfied that the options have been granted in recognition of past performance. The charge is included in operating costs in the profit and loss account. The charge is
notional in that there is no underlying cash flow or other financial liability associated with the charge, nor does it give rise to a reduction in assets or shareholders' funds.

F-12

---



2.     Turnover and Segmental Analysis by Class of Business

The
group provides communications services, principally in Ireland. The group is managed on a unitary basis and has no segments. The group's share of turnover from associates is included
in the table below.

|               |            | 2003
€'m |       | 2004
€'m |       | 2005
€'m
|-------------- | ---------- | -------- | ----- | -------- | ----- | --------
|Turnover       |            |          |       |          |       |         
|               | Group      |          | 1,682 |          | 1,628 |         
|               | Associates |          | 13    |          | 15    |         
|              
|Total turnover |            | 1,695    |       | 1,643    |       | 1,622   
|              

3.     Operating Costs

|                                                                                 |                                        | 2003
€'m |     | 2004
€'m |     | 2005
€'m |    
|-------------------------------------------------------------------------------- | -------------------------------------- | -------- | --- | -------- | --- | -------- | ---
|Staff costs                                                                      |                                        |          |     |          |     |          |    
|                                                                                 | Wages and salaries & other staff costs |          | 372 |          | 376 |          | 367
|                                                                                 | Social welfare costs                   |          | 15  |          | 14  |          | 14 
|                                                                                 | Pension costs                          |          | 41  |          | 41  |          | 40 
|                                                                                 |                                       
|                                                                                 |                                        | 428      |     | 431      |     | 421      |    
|Staff costs capitalised                                                          |                                        | (44      | )   | (54      | )   | (58      | )  
|                                                                                 |                                       
|Staff costs before restructuring programme costs                                 |                                        | 384      |     | 377      |     | 363      |    
|Restructuring programme costs (including related pension costs)                  |                                        |         |     |         |     | 72       |    
|                                                                                 |                                       
|Net staff costs included in operating costs                                      |                                        | 384      |     | 377      |     | 435      |    
|Other operating costs(a)                                                         |                                        | 264      |     | 255      |     | 261      |    
|                                                                                 |                                       
|                                                                                 |                                        | 648      |     | 632      |     | 696      |    
|Exceptional operating charges/(credits) (including certain staff costs (note 4)) |                                        | 13       |     | 24       |     | (4       | )  
|Depreciation (net) (note 11)                                                     |                                        | 399      |     | 368      |     | 316      |    
|Exceptional fixed asset impairment (note 11)                                     |                                        |         |     | 38       |     |         |    
|Goodwill amortised on subsidiary undertakings (note 10)                          |                                        | 38       |     | 38       |     | 38       |    
|                                                                                 |                                       
|Total operating costs                                                            |                                        | 1,098    |     | 1,100    |     | 1,046    |    
|                                                                                 |                                       



|                                                               |  | 2003
€'000 |   | 2004
€'000 |   | 2005
€'000 |  
|-------------------------------------------------------------- |  | ---------- | - | ---------- | - | ---------- | -
|Research costs                                                 |  | 154        |   | 50         |   | 1,048      |  
|                                                               | 
|Hire of plant and machinery                                    |  | 2,891      |   | 3,053      |   | 3,367      |  
|                                                               | 
|Other operating lease rentals                                  |  | 22,748     |   | 22,449     |   | 20,096     |  
|                                                               | 
|Net exchange gain on foreign currency borrowings less deposits |  | (6,238     | ) | (1,134     | ) | (261       | )
|                                                               | 

F-13

---





The group obtained the following services from the group's auditor as detailed below:

|                                                              |  | 2003
€'000 |  | 2004
€'000 |  | 2005
€'000
|------------------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Audit services                                                |  |            |  |            |  |           
|Statutory audit                                               |  | 575        |  | 730        |  | 732       
|Other audit related services (including non-statutory audits) |  | 361        |  | 2,985      |  | 730       
|Audit related regulatory reporting                            |  | 1,421      |  | 2,085      |  | 2,255     
|                                                             
|                                                              |  | 2,357      |  | 5,800      |  | 3,717     
|Further assurance services                                    |  | 1,444      |  | 3,958      |  | 342       
|Tax advisory services                                         |  | 966        |  | 144        |  | 60        
|                                                             
|                                                              |  | 4,767      |  | 9,902      |  | 4,119     
|                                                             

Included in the table are group audit fees and expenses paid and payable to the group's auditor of €0.73 million (2004:
€0.73 million, 2003: €0.575 million), of which €0.14 million (2004: €0.14 million, 2003:
€Nil million) was paid in respect of the parent company.

Also
included above are fees paid to the group's auditor in respect of non-statutory audit services of €3.39 million (2004:
€9.17 million, 2003: €4.19 million). Total fees paid to PricewaterhouseCoopers, Dublin in respect of services (other than the statutory audit) in the year
ended 31 March 2005 were €3.29 million (2004: €7.85 million, 2003: €3.86 million).

Total
services, included in the table for the year ended 31 March 2004, in the amount of €5.6 million have not been included in operating costs as they
relate to audit related and other services provided by the auditors in respect of the group's issue of Senior and Senior Subordinated Notes and also acting as reporting accountants in respect of the eircomGroup plc Listing on the London and Irish Stock Exchanges. The share issue costs have been charged against share premium and the debt issue costs
have been offset against the fair value of the related debt and will be amortised over the life of the related debt. This amount is stated exclusive of irrecoverable VAT of
€1.2 million.



|                                                      |  | 2003
€'000 |  | 2004
€'000 |  | 2005
€'000
|----------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Aggregate emoluments                                  |  | 1,841      |  | 7,057      |  | 4,079     
|Aggregate gains made on the exercise of share options |  |           |  | 1,471      |  |          
|Company contributions to money purchase schemes       |  | 328        |  | 2,516      |  | 486       
|                                                     
|                                                      |  | 2,169      |  | 11,044     |  | 4,565     
|                                                     

Four directors (2004: 4, 2003: 1) have retirement benefits accruing under defined contribution (money purchase) schemes. In addition,
retirement benefits are accruing to two directors (2004: 2, 2003: 1) under the company's defined benefit pension scheme. One director (2004: 1, 2003: 0) participates in both
schemes at 31 March 2005.

F-14

---





|                                                                                                      |  | 2003
€'000 |  | 2004
€'000 |  | 2005
€'000
|----------------------------------------------------------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Total amount of emoluments and amounts (excluding shares) receivable under long term incentive scheme |  | 1,306      |  | 5,606      |  | 1,286     
|Aggregate gains made on the exercise of share options                                                 |  |           |  | 1,471      |  |          
|Company contributions to money purchase schemes                                                       |  | 328        |  | 2,511      |  | 354       
|                                                                                                     
|                                                                                                      |  | 1,634      |  | 9,588      |  | 1,640     
|                                                                                                     

4.     Exceptional Operating Charges/(Credits)

|                                        |  | 2003
€'m |  | 2004
€'m |  | 2005
€'m |  
|--------------------------------------- |  | -------- |  | -------- |  | -------- | -
|Exceptional operating charges/(credits) |  | 13       |  | 24       |  | (4       | )
|                                        | 

In the year ended 31 March 2005, an exceptional credit arose in respect of a €4 million adjustment to the fair
values of liabilities acquired on the acquisition by Valentia Telecommunications ofeircomLimited on 2 November 2001. The net tax effect of the
exceptional credit was to increase the Group tax charge by €1 million.

In
the year ended 31 March 2004, exceptional costs include bonus amounts payable to executives of €19 million, relating to contractual entitlements
triggered by the refinancing, which were not capitalised as debt issue costs under UK GAAP, €8 million in respect of share options issued to certain employees, in respect of
shares where the market price of the shares exceeded their exercise price at the date the options were granted, and costs incurred of €1 million in connection with refinancing.
These costs were partially offset by a €3 million credit relating to compliance matters and €1 million credit relating to restructuring. The net tax
effect of the exceptional charge was to reduce the Group tax charge by €2 million. During the year ended 31 March 2004, the group granted options to certain employees of
the company over C Shares and E Ordinary Shares. At the time of the granting of the options in respect of the E Ordinary Shares the market value of the shares, over which options were granted,
were not in excess of their exercise price at the date of grant and, consequently, there was no profit and loss account charge in respect of these schemes. A charge of
€5 million arose on the granting of shares under the options plan in respect of C shares as the market value of the shares at the date of grant was in excess of the exercise
price at the date of grant. All of the options under the C and E share plans vested as a result of the initial public offering of shares in the company. Further charges of
€3 million arose as a result of awards granted to certain directors and senior management, on Admission to the London and Irish Stock Exchanges, under the eircomGroup Key Executive Share
Award Plan. Although the awards did not vest for between 12 and 24 months, the full charge was included in the
Profit and Loss account as the options were granted in recognition of past performance at the date of Admission.

In
the year ended 31 March 2003, the group incurred a number of non-recurring costs principally in relation to (i) costs incurred in connection with potential
refinancing and (ii) charges in relation to a deficit on an annuity scheme provided as part of the restructuring programme. The net tax effect of the exceptional charge was to reduce the group
tax charge by €1 million.

The
cash outflows resulting from exceptional charges for the year ended 31 March 2005 were €nil (2004: €40 million, 2003:
€19 million). This includes certain cashflows in respect of exceptional charges included in the Profit and Loss account in earlier years.

F-15

---



5.     Interest Payable and Similar Charges (net)

|                                                                                       |                         | 2003
€'m |    | 2004
€'m |     | 2005
€'m |    
|-------------------------------------------------------------------------------------- | ----------------------- | -------- | -- | -------- | --- | -------- | ---
|Interest and associated finance costs payable in respect of bank loans and other debt: |                         |          |    |          |     |          |    
|Interest payable on bank loans and other debt                                          |                         | 159      |    | 156      |     | 132      |    
|Amortisation of issue costs of bank loan and other debt                                |                         |         |    | 7        |     | 4        |    
|                                                                                       |                        
|Total interest payable and similar charges                                             |                         | 159      |    | 163      |     | 136      |    
|Less: Interest receivable                                                              |                         | (25      | )  | (6       | )   | (8       | )  
|                                                                                       |                        
|Net interest payable                                                                   |                         | 134      |    | 157      |     | 128      |    
|Exchange differences arising on foreign currency borrowings                            |                         |          |    |          |     |          |    
|                                                                                       | Unrealised gains        |          | (1 | )        | (20 | )        | (12
|                                                                                       | Hedging contract losses |          | 1  |          | 20  |          | 12 
|                                                                                       |                        
|Net interest payable and similar charges                                               |                         | 134      |    | 157      |     | 128      |    
|                                                                                       |                        

In the year ended 31 March 2003, net interest receivable includes €11 million of interest received in respect of
taxation settlements.

6.     Exceptional Interest Payable and Similar Charges

|                                               |  | 2003
€'m |  | 2004
€'m |  | 2005
€'m |  
|---------------------------------------------- |  | -------- |  | -------- |  | -------- | -
|Debt issue costs write off                     |  |         |  | 27       |  | (1       | )
|Costs arising on exit from interest rate swaps |  |         |  | 24       |  |         |  
|                                               | 
|                                               |  |         |  | 51       |  | (1       | )
|                                               | 

In the year ended 31 March 2005, the exceptional credit of €1 million relates to savings on actual costs incurred in
conjunction with the group refinancing in March 2004.

In
the year ended 31 March 2004, exceptional costs of €27 million relate to the write-off of debt issue costs on funds borrowed of
€1,250 million as part of the reorganisation and refinancing in August 2003. Debt issue costs incurred in respect of this facility were written-off in
accordance with FRS 4 "Capital Instruments" which requires that debt issue costs are amortised up to the earliest date on which the repayment option can be exercised, unless there is no genuine
possibility that the option will be exercised on that date. The related debt was repaid in March 2004 in conjunction with a group refinancing.

In
addition, the exceptional interest charge in the year ended 31 March 2004 includes €24 million relating to the early exit from interest rate swaps
arising as a result of the early payment of the related debt in conjunction with the group refinancing in March 2004.

F-16

---



7.     Tax (credit)/charge on (Loss)/Profit on Ordinary Activities



|                                                                      |  | 2003 |   | 2004 |   | 2005 |  
|--------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Current tax:                                                          |  |      |   |      |   |      |  
|Irish corporation tax on (loss)/profit for the year                   |  | 11   |   | 21   |   | 20   |  
|Adjustments in respect of previous periods                            |  | (27  | ) | (7   | ) | (4   | )
|                                                                      | 
|Total current tax (credit)/charge (note 7(b))                         |  | (16  | ) | 14   |   | 16   |  
|Deferred tax:Origination and reversal of timing differences (note 19) |  | 10   |   |     |   | 4    |  
|                                                                      | 
|Tax (credit)/charge on loss on ordinary activities                    |  | (6   | ) | 14   |   | 20   |  
|                                                                      | 



The tax assessed for the year is different than the tax (credit)/charge that would arise on applying the standard rate of corporation tax, 12.5%, in the Republic
of Ireland. The differences are explained below:

|                                                                                                                       |  | 2003 |   | 2004 |   | 2005 |  
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|(Loss)/profit on ordinary activities before tax                                                                        |  | (46  | ) | (89  | ) | 52   |  
|                                                                                                                       | 
|(Loss)/profit on ordinary activities multiplied by standard rate of corporation tax 12.5% (2004: 12.5%, 2003: 15.125%) |  | (7   | ) | (11  | ) | 7    |  
|Effects of:                                                                                                           |  |      |   |      |   |      |  
|Adjustment in respect of previous periods                                                                              |  | (27  | ) | (7   | ) | (4   | )
|Utilisation of tax losses                                                                                              |  | (1   | ) | (1   | ) | (1   | )
|Capital Allowances in excess of Depreciation                                                                           |  | (7   | ) | (4   | ) | (6   | )
|Timing differences                                                                                                     |  |     |   | 5    |   | 3    |  
|Tax losses unutilised                                                                                                  |  | 3    |   | 2    |   |     |  
|Income not taxable                                                                                                     |  | (2   | ) |     |   |     |  
|Gains taxed in prior periods                                                                                           |  | (2   | ) | (2   | ) |     |  
|Expenses not deductible for tax purposes                                                                               |  | 27   |   | 31   |   | 16   |  
|Income liable at higher rates                                                                                          |  |     |   | 1    |   | 1    |  
|                                                                                                                       | 
|Current tax (credit)/charge for year (note 7(a))                                                                       |  | (16  | ) | 14   |   | 16   |  
|                                                                                                                       | 



The proposed adoption of IFRS for the year ending 31 March 2006 onwards may materially affect the future tax charge.

F-17

---



8.     Dividends Paid and Proposed

|                                                                                  |  | 2003 |  | 2004 |  | 2005
|--------------------------------------------------------------------------------- |  | ---- |  | ---- |  | ----
|
|EquityOrdinary:                                                                  |  |      |  |      |  |     
|Paid interim dividends of €0.05 per share                                         |  |     |  | 400  |  | 37  
|Proposed final dividends of €0.06 per share                                       |  |     |  |     |  | 45  
|Non-equityPreference:                                                            |  |      |  |      |  |     
|Preference dividends paid and payable on ESOT Preference shares                   |  | 21   |  | 26   |  | 21  
|Preference dividends paid and payable on Convertible Preference shares            |  |     |  | 1    |  |    
|Preference dividends paid and payable on Non-Voting Adviser Preference shares     |  | 1    |  |     |  |    
|Preference dividends paid and payable on Non-Voting Third Party Preference shares |  |     |  | 1    |  |    
|                                                                                 
|                                                                                  |  | 22   |  | 428  |  | 103 
|                                                                                 

The ordinary dividend paid in the year ended 31 March 2004 was funded utilising the reserves arising on the cancellation of share premium
of Valentia Telecommunications, which was available by way of merger relief toeircomGroup plc as a consequence of the
share-for-share exchange.

9.     (Loss)/Earnings Per Share

|                                                                       |  | 2003 |   | 2004 |   | 2005 |  
|---------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|(Loss)/profit on ordinary activities after taxation                    |  |      |   | (40  | ) |      |  
|Dividends and appropriations in respect of preference shares           |  |      |   | (22  | ) |      |  
|                                                                       | 
|Basic (loss)/profit attributable to ordinary shareholders              |  | (12  | ) | (62  | ) | (24  | )
|                                                                       | 
|Basic and diluted basic (loss)/earnings attributable to ordinary share |  | (12  | ) |      |   | (24  | )
|                                                                       | 

Basic (loss)/earnings per share is calculated by dividing the (loss)/profit attributable to ordinary shareholders by the weighted average number
of ordinary shares in issue during the year. The weighted average number of ordinary shares in issue is 742,977,485 (2004: 545,600,926, 2003: 541,422,144).

The
group has three classes of dilutive potential ordinary shares in respect of earnings per share and adjusted earnings per share. The weighted average number of ordinary shares in
issue is adjusted to assume conversion of all dilutive potential ordinary shares. The weighted average number of ordinary shares on a diluted basis in respect of earnings per share and adjusted
earnings per share is 745,593,702 for the year ended 31 March 2005. There were no dilutive potential ordinary shares in respect of the year ended 31 March 2004 and 31 March 2003.

F-18

---



10.   Intangible assets

Goodwill

Other Intangible
Assets

Total€'m

€'m

€'mCostAt 31 March 2003

764



764Goodwill adjustment

(3
)


(3
)At 31 March 2004

761



761Additions



2

2At 31 March 2005

761

2

763AmortisationAt 31 March 2003

54



54Charge for year

38



38At 31 March 2004

92



92Charge for year

38



38At 31 March 2005

130



130Total Net Book Value at 31 March 2005

631

2

633Total Net Book Value at 31 March 2004

669



669


F-19

---



11.   Tangible Fixed Assets

a)

Land & Buildings

Network Plant &
Equipment

Total€'m

€'m

€'mCost or ValuationAt 31 March 2003

412

2,398

2,810Additions

1

206

207Disposals/retirements



(3
)
(3
)Exit from subsidiaries

(2
)
(1
)
(3
)Revaluation surplus

70



70At 31 March 2004

481

2,600

3,081Cost

1

2,600

2,601Valuation

480



480Additions

13

196

209Disposals/retirements

(3
)
(1
)
(4
)At 31 March 2005

491

2,795

3,286Cost

13

2,795

2,808Valuation

478



478Accumulated DepreciationAt 31 March 2003

5

548

553Charge for year (note 11(c))

17

345

362Impairment charge (note 11(c))



9

9Exceptional impairment charge

38



38Disposals/retirements



(2
)
(2
)Exit from subsidiaries

(1
)
(1
)
(2
)Revaluation surplus

(17
)


(17
)At 31 March 2004

42

899

941Charge for year (note 11(c))

17

300

317Disposals/retirements



(1
)
(1
)At 31 March 2005

59

1,198

1,257Total Net Book Value at 31 March 2005

432

1,597

2,029Total Net Book Value at 31 March 2004

439

1,701

2,140


b)    The
valuation carried out by Lisney, Estate Agents, Auctioneers and Valuers, as at December 2003, valued the properties at €442 million.
Properties were valued, in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of open market value and existing use value except for
specialised properties which were valued on a depreciated replacement cost basis. As a result the carrying value of land and buildings was revalued upwards by €87 million. In
addition, there was a revaluation deficit below the net book value of certain land and buildings of €38 million, which was charged to the profit and loss account as an
exceptional impairment charge.

F-20

---



If
these land and buildings had not been revalued, they would have been included in the financial statements at the following amounts:

2004

2005€'m

€'mCost

438

448Accumulated Depreciation

(90
)
(103
)Net Book Value

348

345


c)     The
depreciation charged in the profit and loss account is net of capital grants amortised during the year as follows:

2003

2004

2005€'m

€'m

€'mDepreciation

387

362

317Impairment charge included in depreciation

15

9

Amortisation of capital grants (note 20)

(3
)
(3
)
(1
)399

368

316


The impairment charge of €9 million, included in depreciation in the year ended 31 March 2004, relates to Global
Crossing, International Cable and Synchronous Digital Hierarchy ("SDH") equipment, which has been written off.

The
impairment charge of €15 million, included in depreciation in the year ended 31 March 2003, relates to a revaluation deficit in respect of certain land
and buildings.

d)    Analysis
of net book value of land and buildings is as follows:

2004

2005€'m

€'mFreehold

289

297Leasehold:Over 50 years unexpired

113

101Under 50 years unexpired

37

34439

432


e)    Included
in tangible fixed assets is plant and equipment acquired under finance leases as follows:

2004

2005€'m

€'mCost

63

63Accumulated depreciation

(37
)
(48
)Net book value

26

15Depreciation charge for the year

13

11


f)     Assets
in course of construction

Included
in tangible fixed assets are assets in the course of construction of €85 million (2004: €75 million).

F-21

---



12.   Investment in Associates

2004

2005€'m

€'mAt beginning of year



Share of profits, interest and taxation of associated undertakings



1At end of year



1


13.   Stocks

2004

2005€'m

€'mNetwork development and maintenance stocks

4

6Consumable and other stocks

6

510

11


The net replacement cost of stocks is not expected to be materially different from that shown above.

14.   Debtors

2004

2005€'m

€'mAmounts falling due within one year:Trade debtors

219

210Prepayments and accrued income

88

88307

298Amounts falling due after more than one year:Pension scheme

177

162


Two subsidiaries of the company are party to a financing transaction under which credit balances and debit balances of the entities may be offset.
This offset has been effected in the group balance sheet. The balances of the group so offset were €149 million at 31 March 2005 (2004:
€159 million) lease receivables and €149 million at 31 March 2005 (2004: €159 million) in respect of bank loans.

The
defined benefit pension scheme, operated byeircomLimited,was assessed, at the date
of the Valentia Telecommunications acquisition ofeircomLimited, by the group's independent actuaries on a basis consistent with generally accepted
accounting principles. As part of the adjustments to determine the fair value of the assets acquired, an amount of €208 million was included in the balance sheet at
1 November 2001, representing the funding surplus at the acquisition date. This surplus is being amortised in accordance with Statement of Standard Accounting Practice 24 ("Accounting
for Pension Costs").

15.   Restricted Cash at Bank and in Hand

The restricted cash balance €1 million (2004: €70 million) can only be used by the company for the purposes of
redeeming the outstanding Redeemable Preference Shares and Trancheable Redeemable Preference Shares. The interest earned on this deposit, after deduction of any taxation payable, is payable as part of
the redemption price in respect of the Redeemable Preference Shares and

F-22

---



Trancheable
Redeemable Preference Shares to the extent not elected to be received as pre-redemption dividend.

16.   Creditors

2004

2005€'m

€'mAmounts falling due within one year:Bank overdrafts (note 17)

1

Loans and other debt (note 17)



68Trade creditors

108

81Corporation tax payable

50

11Other tax and social security payable

32

30Accruals and deferred income

469

428Dividends payable

1

45661

663Amounts falling due after more than one year:Loans and other debt (note 17)

2,263

2,201Capital grants (note 20)

10

92,273

2,210


17.   Loans and Other Debt

|                                                  |  | Within
1 Year |  | Between
1 & 2 Years |  | Between
2 & 5 Years |  | After
5 Years |  | Total
|------------------------------------------------- |  | ------------- |  | ------------------- |  | ------------------- |  | ------------- |  | -----
|
|Loans                                             |  |              |  |                    |  | 1,240               |  |              |  | 1,240
|7.25% Senior Notes due 2013 (listed)              |  |              |  |                    |  |                    |  | 532           |  | 532  
|8.25% Senior Subordinated Notes due 2013 (listed) |  |              |  |                    |  |                    |  | 491           |  | 491  
|                                                 
|                                                  |  |              |  |                    |  | 1,240               |  | 1,023         |  | 2,263
|Overdrafts                                        |  | 1             |  |                    |  |                    |  |              |  | 1    
|                                                 
|At 31 March 2004                                  |  | 1             |  |                    |  | 1,240               |  | 1,023         |  | 2,264
|                                                 
|Loans                                             |  | 68            |  | 138                 |  | 1,036               |  |              |  | 1,242
|7.25% Senior Notes due 2013 (listed)              |  |              |  |                    |  |                    |  | 534           |  | 534  
|8.25% Senior Subordinated Notes due 2013 (listed) |  |              |  |                    |  |                    |  | 493           |  | 493  
|                                                 
|                                                  |  | 68            |  | 138                 |  | 1,036               |  | 1,027         |  | 2,269
|Overdrafts                                        |  |              |  |                    |  |                    |  |              |  |     
|                                                 
|At 31 March 2005                                  |  | 68            |  | 138                 |  | 1,036               |  | 1,027         |  | 2,269
|                                                 

F-23

---



Included in the above amounts are:

Group2004

2005€'m

€'mWholly repayable within 1 year

1

Wholly repayable within 5 years



Repayable, by instalments, within 5 years

1,250

1,250Repayable, otherwise than by instalments, due after 5 years

1,060

1,060Debt issue costs (offset against loans due within 5 years)

(10
)
(8
)Debt issue costs (offset against Senior Notes due after more than 5 years)

(18
)
(16
)Debt issue costs (offset against Senior Subordinated Notes due after more than 5 years)

(19
)
(17
)2,264

2,269


Loans and other debt are split as follows:

Group2004

2005€'m

€'mSecured (Senior Credit Facility)

1,250

1,250Unsecured

1,061

1,0602,311

2,310Debt issue costs

(47
)
(41
)2,264

2,269


The Senior Credit Facility is secured, amongst other things, by a pledge of the shares ineircomLimited and Irish Telecommunications Investments Limited ("ITI") and a fixed and floating charge over the assets (subject to some exceptions) of Valentia Telecommunications, eircomLimited and ITI.

18.   Financial Instruments

The group holds or issues financial instruments for the following main purposes:



The
group finances its operations out of operating cash flows, bond issues, bank borrowings, finance leases and preference shares.

Derivative
instruments are contractual agreements whose value reflects price movements in an underlying asset and liability. The group uses derivatives, where appropriate, to generate
the desired effective profile of currency and interest rate risk. Derivative activity is carefully controlled and appropriately used and is an effective means of managing risk.

F-24

---



The main risks arising from the use of financial instruments are market rate risk, liquidity risk and credit risk. Responsibility for managing these risks rests with the Board of eircomGroup plc and, in respect of certain activities, the Treasury Committee, aneircomGroup plc
management committee chaired by the Chief Financial Officer. It is, and has been throughout the period under review, the group's policy not to trade in financial instruments.

Debtors,
creditors and provisions for liabilities and charges have been excluded from all the numerical disclosures below.

The
group conducts its business primarily in Ireland and, therefore, operating and investing cash flows are substantially denominated in euro. A limited level of foreign exchange risk
arises in relation to certain capital expenditures and foreign exchange settlements with international third party telecommunications carriers.



Market rate risk is defined as the exposure of the group's financial position to movements in interest and foreign exchange rates. The principal aim of managing
these risks is to limit the adverse impact on shareholder value of movements in interest rates and foreign exchange rates.

The
main derivatives used are interest rate swaps and currency swaps. It is group policy to hedge the majority of currency risk in currencies, which are not denominations of the euro.
The group seeks to manage the fixed/floating mix of its borrowings with the aim of controlling cost while mitigating its exposure to interest rate risk. The group achieves fixed rates on borrowings
either directly through the use of fixed rate debt or indirectly through the use of interest rate swaps. Under interest rate swaps, the group agrees with other parties to exchange, at specified
intervals, the difference between fixed-rate and floating-rate amounts calculated by reference to an agreed notional principal amount.



There were floating rate deposits outstanding of €388 million at 31 March 2005 (2004: €352 million). The
interest rate on these deposits is generally based on the appropriate Euribor rate. This excludes the restricted cash at bank and in hand of €1 million at 31 March 2005
(2004: €70 million).



|                     |  | Local Currency |  | Local Currency
|-------------------- |  | -------------- |  | --------------
|
|
|
|EUR                  |  | 1,335          |  | 751           
|Other currencies     |  | 225            |  |              
|                    
|Total all currencies |  | 1,560          |  | 751           
|                    

The
group has no interest-free financial liabilities.

At
31 March 2005, the group had currency swap contracts of €225 million (2004: €225 million) outstanding. Variable rates on loans and
swaps are based on Euribor. After adjusting for the effect of swaps, €1,560 million (2004: €1,560 million) of bank and other debt (excluding preference
shares) bore interest at fixed rates, with a weighted average interest rate of 6.6% (2004: 6.6%).

F-25

---



The
weighted average life of the fixed rate debt (excluding preference shares) and swaps is set out in the following table:



2004

2005Underlying Debt

9.4

8.4Swaps:we receive fixed interest



we pay fixed interest

3.0

2.0




Further detail in respect of the Group's preference shares are set out in Note 21.

The
effective interest rate on the Group's preference shares is as follows:



As at 31 March 2005, after taking into account the effects of currency swaps and forward foreign exchange contracts, the group has no material currency
exposure.



Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, other than a
forced or liquidation sale.

The
following tables provide comparisons of the carrying amounts and fair values of the group's fixed-rate financial assets and financial liabilities, including derivatives,
currency swaps and forward exchange contracts. The fair values of short-term deposits, floating-rate loans and overdrafts approximate to their carrying amounts.

On
an interest rate swap, the same notional principal amount is used for the paying and receiving sides. Consequently the carrying value of an interest rate swap is zero. The fair value
reflects the difference between the fixed rate and current market rates. The carrying value of currency swaps is

F-26

---



affected
by movements in the exchange rates of the currencies concerned, while the fair value reflects both interest rate and exchange rate movements.

|                              |  | 31 March 2004 |   | 31 March 2005 |  
|----------------------------- |  | ------------- | - | ------------- | -
|
|
|Financial assets              |  |               |   |               |  
|Cash                          |  | 352           |   | 352           |  
|                              | 
|Liabilities                   |  |               |   |               |  
|Underlying debt               |  |               |   |               |  
|Fixed rate                    |  | 1,040         |   | 1,116         |  
|Floating rate                 |  | 1,251         |   | 1,251         |  
|                              | 
|Total                         |  | 2,291         |   | 2,367         |  
|                              | 
|Debt net of swaps             |  |               |   |               |  
|Fixed rate                    |  | 1,560         |   | 1,642         |  
|Floating rate                 |  | 751           |   | 751           |  
|                              | 
|Total                         |  | 2,311         |   | 2,393         |  
|                              | 
|Preference shares             |  | 122           |   | 243           |  
|                              | 
|Interest rate swaps liability |  |              |   |              |  
|                              | 
|Currency swaps liability      |  | (20           | ) | (26           | )
|                              | 

The fair value of preference shares is determined as the deemed redemption price, together with any accrued dividends not yet declared, as no
market exists in respect of these shares.



The objective of liquidity management is to ensure the availability of sufficient funds to meet the group's requirements and to repay maturing debt. This
objective is met by monitoring and controlling potential cash flows and maintaining an appropriate buffer of readily realisable assets and standby credit lines.

The
maturity profile of group debt is set out in Note 17 of the Financial Statements.

The
group has a €150 million (2004: €150 million) committed borrowing facility expiring in March 2009 which was undrawn at
31 March 2005. All conditions precedent had been met at 31 March 2005.



The group is exposed to credit risk relating to its cash and current financial assets. The group places its cash and current financial assets with highly rated
financial institutions. The group's policy is designed to limit exposure with any one institution and to invest its excess cash in low risk investment accounts. The group has not experienced any
losses on such accounts.

Credit
risks are mainly related to counterparty risks associated with prepayments, amounts owed by related companies, interest in debt securities, derivative contracts, equity
investments in related companies and other debtors.

The
group's trade debtors are generated by a large number of customers, both private individuals and companies in various industries, mainly in Ireland. Exposure to credit loss and
subscriber fraud is

F-27

---



actively
monitored on a daily basis, including the processing of current credit information on subscribers from third-party sources.

Transactions
involving derivative contracts are managed by ITI; a wholly owned subsidiary, within a framework of limits approved by the Treasury Committee, which restrict the group's
dealings to highly rated financial institutions.



Under the company's accounting policy, foreign currency borrowings and currency swap agreements are valued at year end exchange rates.

Interest
differentials arising on swap agreements are accrued and reflected in interest payable. Consequently, changes in fair value attributable to movements in interest rates are not
recognised.

The
table below shows the extent to which the group had unrecognised losses, in terms of fair value, at 31 March 2004 and 31 March 2005.

2004

2005€'m

€'mUnrecognised lossesLoss on contracts outstanding at start of year

(41
)
(6
)Of which:Included in financial year

41

1Not included in financial year



(5
)Unrecognised loss arising in financial year

(6
)
(20
)Loss on contracts at end of year

(6
)
(25
)Of which:Expected to be included in next financial year

(1
)
(3
)Expected to be included in later years

(5
)
(22
)


19.   Provisions for Liabilities and Charges

|                                      |  | Staff
Restructuring |   | Onerous
Contracts |   | Other |   | Deferred
Taxation |  | Total |  
|------------------------------------- |  | ------------------- | - | ----------------- | - | ----- | - | ----------------- |  | ----- | -
|
|As at 31 March 2003                   |  | 126                 |   | 10                |   | 75    |   | 82                |  | 293   |  
|Utilised in year                      |  | (45                 | ) | (10               | ) | (6    | ) |                  |  | (61   | )
|Profit and loss (credit)/charge (net) |  | (1                  | ) |                  |   | 11    |   |                  |  | 10    |  
|                                      | 
|As at 31 March 2004                   |  | 80                  |   |                  |   | 80    |   | 82                |  | 242   |  
|                                      | 
|Transfer                              |  | (1                  | ) | 3                 |   | 1     |   |                  |  | 3     |  
|Utilised in year                      |  | (7                  | ) |                  |   | (7    | ) |                  |  | (14   | )
|Profit and loss charge/(credit) (net) |  | 6                   |   | 1                 |   | (4    | ) | 4                 |  | 7     |  
|                                      | 
|As at 31 March 2005                   |  | 78                  |   | 4                 |   | 70    |   | 86                |  | 238   |  
|                                      | 



The group has a constructive obligation in respect of the costs of a fundamental staff restructuring. The amount of the provision is based on the group's past
experience of restructuring and the

F-28

---



discussions
to date with employees and their representative unions. The provision is in respect of a net deficit on an annuity plan of €78 million (2004:
€72 million) offered as part of the restructuring programme. As at 31 March 2005, the annuity plan element of the provision is expected to be utilised over a period of
eight years.

During
the year ended 31 March 2004, €45 million of the provision was utilised primarily to pay for staff exits under the fundamental Restructuring
Programme. There was a release of €1 million in relation to a provision for restructuring in the year ended 31 March 2004.



In the year ended 31 March 2005, the group has onerous contracts in relation to leases on vacant properties. The provision is based on contracted terms and
the liability is expected to be discharged during the year ended 31 March 2006.

At
31 March 2003, the group had onerous contracts in relation to international capacity commitments. The provision was based on contracted terms and the liability was paid in the
year ended 31 March 2004.



The group is self insured in respect of certain personal injury and damage claims. There is a provision for the estimated cost of incidents which have occurred up
to 31 March 2005, based on a case by case review with actuarial assistance. The payments will be made as the cases are settled. The group also has a provision for costs arising from certain
compliance matters. There was a release of €7 million (2004: €3 million) in relation to a provision for costs arising from certain compliance matters in
the year ended 31 March 2005.



In accordance with FRS 19, the group's policy is to provide for taxation on a full liability basis. Deferred taxation liabilities arise from capital allowances
and other timing differences.

The
deferred taxation provision consists of:

2004

2005€'m

€'mTiming difference on pension prepayment

22

20Capital allowances and other timing differences

60

6682

86


No deferred tax is provided on timing differences arising from the revaluation of fixed assets unless, by the balance sheet date, a binding
commitment to sell the asset has been entered into and it is unlikely that any gain will be rolled over. The total amount unprovided for is estimated at €57 million (2004:
€60 million). Such deferred tax would become payable only if the fixed assets were sold.

F-29

---



20.   Capital Grants

2004

2005€'m

€'mReceived/ receivableAt start of year

22

23Received/receivable during year

1

At end of year

23

23AmortisationAt start of year

10

13Amortisation to profit and loss (note 11(c))

3

1At end of year

13

14Net book value at end of year

10

9


The capital grants received by the group relate to programmes to develop the Irish telecommunications infrastructure and were sponsored by the
European Union.

21.   Share Capital

The share capital at 31 March 2005 and 31 March 2004 is set out below:

|As at 31 March 2005                                
|---------------------------------------------------
|
|
|3,037,338,447 Ordinary Shares                      
|                                                   
|Ordinary Share Capital                             
|                                                   
|5,000,000 Redeemable Preference Shares             
|158,583,333 Convertible Preference Shares          
|66,000,000 Trancheable Redeemable Preference Shares
|50,000 Sterling Deferred Shares                    
|6,474,488,800 Non-Voting Deferred Shares           
|                                                   
|Preference and non-equity Share Capital            
|                                                   
|Total Share Capital                                
|                                                   

F-30

---



|As at 31 March 2004                                
|---------------------------------------------------
|
|
|3,029,999,480 Ordinary Shares                      
|                                                   
|Ordinary Share Capital                             
|                                                   
|5,000,000 Redeemable Preference Shares             
|173,000,000 Convertible Preference Shares          
|66,000,000 Trancheable Redeemable Preference Shares
|50,000 Sterling Deferred Shares                    
|52,000 Non-Voting Deferred Shares                  
|                                                   
|Preference and non-equity Share Capital            
|                                                   
|Total Share Capital                                
|                                                   

The
detailed alterations to the authorised and issued share capital of theeircomGroup plc that have taken place during the year to
31 March 2005, are as set out below:



F-31

---







Certain senior executives hold options to subscribe for 53,465 Ordinary Shares in the company at €1.164 per share under the eircomGroup Executive Share Option Plan approved by the shareholders in September 2003. These options were required to be exercised by
24 March 2005 but the individuals were unable to exercise their options on or before this date. Permission will be sought from the Chairman to exercise these options in the year ended 31
March 2006.

Certain
executive directors and senior executives hold options to subscribe for 8,349,453 Ordinary Shares in the company at €1.50 per share under the eircomGroup Employee Share Option Plan approved by the
shareholders. The exercise of options will be determined by reference to a performance target
measured over a three-year period and, provided the performance targets are met, the options are exercisable from 22 June 2007 to 22 June 2014.

During
the year ended 31 March 2004, certain directors and senior management were awarded 1,472,198 free shares under theeircomGroup Key Executive Share Award Plan (note 4). These shares vest in equal portions in March 2005 and March 2006. The portion to vest in March 2005 did not vest and it is
anticipated that these will vest during the year ended 31 March 2006.



The rights attaching to the classes of shares are as follows:



Every member who is present in person shall have one vote on a show of hands and every member present in person or by proxy shall have one vote for every Ordinary
Share held on a poll.

On
a distribution of the assets of the company, the holders of Ordinary Shares are entitled to receive the amount paid up on their ordinary shareholding plus a share of any surplus
arising after satisfaction in full of the rights of the holders of the various classes of Preference Shares and Sterling Deferred Shares but before the rights of the holders of Non-Voting
Deferred Shares.



Holders of Redeemable Preference Shares are entitled (such entitlement ranking at all times in priority to the rights of holders of Convertible Preference Shares,
Ordinary Shares, Sterling Deferred Shares and Non-Voting Deferred Shares and ranking equally with the rights of holders of the Trancheable Redeemable Preference Shares) to a preferential
cash dividend on a maximum of four dates falling in each financial year. The dividend is calculated by apportioning the aggregate interest received by eircomGroup plc on the funds standing to the
credit of the designated bank account for such Redeemable Preference Shares (less the aggregate taxation
and/or costs or expenses suffered or incurred byeircomGroup plc in respect of such interest and the aggregate amount of dividends previously paid by eircomGroup plc to the holders of Redeemable Preference Shares) between the holders of the Redeemable Preference Shares.

On
a distribution of assets ofeircomGroup plc among its members on a winding up of eircomGroup plc (or other return of capital other than a redemption or
purchase byeircomGroup plc of
its own shares) the holders of the Redeemable Preference Shares are entitled (such entitlement ranking in priority to the rights of holders of Convertible Preference Shares, Ordinary Shares, Sterling
Deferred Shares and Non-Voting Deferred Shares and ranking equally with the rights of holders of Trancheable Redeemable Preference Shares) to receive an amount equal to the subscription
price of €1 for each Redeemable Preference Share (less any capital duty payable byeircomGroup plc on the issue of such share) plus the
aggregate interest received byeircomGroup plc on the amount of the subscription price in respect of each such share deposited in the designated bank
account of such Redeemable Preference

F-32

---



Shares
(less any tax and/or costs or expenses incurred byeircomGroup plc in respect of such interest) less any amount declared and/or distributed or
payable by way of dividend or capitalised in respect of any bonus issue or distributed upon any repayment of capital in respect of such Redeemable Preference Share (the "Redeemable Preference
Amount").

Holders
of Redeemable Preference Shares are not entitled to receive notice of or to attend or vote at general meetings ofeircomGroup
plc.

eircomGroup plc is required to redeem some or all of the Redeemable Preference Shares which at any time have been appropriated to the
Beneficiaries, provided that the applicable Release Date (as defined in the ESOT Trust Deed and/or APSS Trust Deed) has passed, andeircomGroup plc has
received notice, in accordance with the Articles, from the holder of the Redeemable Preference Shares.eircomGroup plc has the option to redeem some or
all of the Redeemable Preference Shares at any time after 31 October 2006 by giving notice to the holders of the Redeemable Preference Shares.



Holders of Convertible Preference Shares are entitled (such entitlement ranking after the rights of the holders of Redeemable Preference Shares and Trancheable
Redeemable Preference Shares and in priority to the holders of any other class of share) to a fixed cumulative preferential cash dividend at the rate of 12.25% of the deemed subscription price per
annum of each Convertible Preference Share held by them (being €1 per Convertible Preference Share). Such dividends will be paid in arrears at six monthly intervals commencing from
29 September 2004. If such dividend is not paid it shall accumulate and, from the date which it is due until the date of actual payment, accrue notional dividend interest at a rate of 12.25%
per annum.

On
a distribution of assets ofeircomGroup plc among its members on a winding up of eircomGroup plc (or other return of capital other than a redemption or
purchase byeircomGroup plc of
its own shares) the holders of Convertible Preference Shares are entitled (such entitlement ranking after the rights of holders of Redeemable Preference Shares and Trancheable Redeemable Preference
Shares and ranking in priority to the rights of holders of any other class of share) to receive an amount equal to the aggregate amount of any unpaid arrears or accruals of the dividend (including any
notional dividend interest that has arisen on unpaid dividends), whether earned or declared or not, calculated up to and including the date of redemption, sale or return of capital or, as the case may
be, the date of commencement of winding up, plus the deemed subscription price of that Convertible Preference Share (the "CPS Redemption Amount").

Holders
of Convertible Preference Shares are entitled to receive notice of and to attend and speak at but not to vote at general meetings of eircomGroup plc.

eircomGroup plc has the option to redeem some or all of the Convertible Preference Shares by giving notice to the holders thereof on or
within 30 days after an offer to acquire the whole or any part of the issued share capital ofeircomGroup plc, as a result of which the offeror
will acquire the right to cast more than 50% of the votes which may ordinarily be cast at a general meeting, is declared unconditional in all respects. eircomGroup plc has the option to redeem some or
all of the Convertible Preference Shares by giving notice to the holders thereof, unless the holders of
Convertible Preference Shares have first notified the Company of their election for redemption or conversion, at any time on or after 2 November 2013.

The
holders of Convertible Preference Shares have the option to redeem some or all of the Convertible Preference Shares by notifying eircomGroup plc on or within 30 days after an offer to acquire the
whole or any part of the issued share capital of eircomGroup plc, as a result of which the offeror will acquire the right to cast more than 50% of the votes which may ordinarily be cast at a general
meeting, is declared unconditional in all respects.

F-33

---



The
holders of Convertible Preference Shares have the option to redeem some or all of the Convertible Preference Shares at any time on or after 2 November 2013 by giving the
Company notice.

The
holders of the Convertible Preference Shares have the option to convert, in aggregate, up to 14,416,667 Convertible Preference Shares into Ordinary Shares on the first eleven
conversion dates (the first such date being 30 March 2005 and, thereafter, falling at 6 monthly intervals until 29 September 2010), and to convert 14,416,663 Convertible
Preference Shares into Ordinary Shares on the last conversion date, such conversion to be made on a pro rata basis amongst holders of Convertible Preference Shares.

The
number of Ordinary Shares into which any Convertible Preference Share shall convert is calculated by dividing the CPS Redemption Amount of that Convertible Preference Share by the
volume weighted average price of an Ordinary Share on the relevant conversion date, Deferred Conversion Date (see below) or on 2 November 2013 (as appropriate).

Any
conversion of Convertible Preference Shares into Ordinary Shares on a Conversion Date, Deferred Conversion Date (see below) or on 2 November 2013 (as appropriate) is limited
so that no holder of Convertible Preference Shares would (together with persons acting in concert with him) hold, following conversion, more than a cap of 29.9% of the Ordinary Shares in issue on that
date. Furthermore, if on a Conversion Date or a deferred conversion date or on 2 November 2013 the volume weighted average price of the Ordinary Shares on that date falls below 85% of the Offer
Price (the "Floor Price"), no Convertible Preference Shares will convert on that date (the "Floor Price Restriction").

On
2 November 2013, to the extent that any Convertible Preference Shares remain in issue and these shares have been prevented from converting on the correct deferred conversion
date due to either the operation of the Floor Price Restriction or the existence of a non-routine close period, the holders of such shares shall have the option to convert them into
Ordinary Shares (again, subject to the 29.9% Cap and the Floor Price Restriction). If, at any time after 2 November 2013, such option is not exercised and the holders of Convertible Preference
Shares have not elected to redeem the Convertible Preference Shares then in issue,eircomGroup plc will have the option to convert or redeem such
shares.



Holders of Trancheable Redeemable Preference Shares are entitled (such entitlement ranking in priority to the rights of holders of Convertible Preference Shares,
Ordinary Shares, Sterling Deferred Shares and Non-Voting Deferred Shares and ranking equally with the rights of holders of any of the Trancheable Redeemable Preference Shares and
Redeemable Preference Shares) to a preferential cash dividend on the first date in any financial year ofeircomGroup plc, following the date on which
the shares are issued or arise on conversion, on which such holders notifyeircomGroup plc in writing of their wish for a dividend to be declared and
paid and on up to a maximum of four other dates falling in each financial year. The dividend is calculated by apportioning the aggregate interest received by eircomGroup plc on the funds standing to
the credit of the designated bank account for such shares (less the aggregate taxation and/or costs or
expenses suffered or incurred byeircomGroup plc in respect of such interest) and the aggregate amount of dividends previously paid by eircomGroup plc to
the holders of the Trancheable Redeemable Preference Shares.

On
a distribution of assets ofeircomGroup plc among its members on a winding up of eircomGroup plc (or other return of capital other than a redemption or
purchase byeircomGroup plc of
its own shares) the holders of the Trancheable Redeemable Preference Shares are entitled (such entitlement ranking in priority to the rights of holders of Convertible Preference Shares, Ordinary
Shares, Sterling Deferred Shares and Non-Voting Deferred Shares and ranking equally with the rights of holders of any other Trancheable Redeemable Preference Shares and Redeemable
Preference

F-34

---



Shares)
to receive an amount equal to the subscription price of each Trancheable Redeemable Preference Share (less any capital duty payable byeircomGroup plc on the issue of such share) plus the aggregate interest received byeircomGroup plc on the funds standing to the credit of the designated
bank account for such tranche (less the aggregate taxation and/or costs or expenses suffered or incurred byeircomGroup plc in respect of such
interest) less any amount declared and/or distributed or payable by way of dividend or capitalised in respect of any bonus issue or distributed upon any repayment or reduction of capital in respect of
such Trancheable Redeemable Preference Share (the "Trancheable Redeemable Preference Amount").

Holders
of Trancheable Redeemable Preference Shares are not entitled to receive notice of or to attend, speak or vote at general meetings of eircomGroup plc.

eircomGroup plc is required to redeem some or all of the Trancheable Redeemable Preference Shares which at any time have been
appropriated to the Beneficiaries, provided that the applicable Release Date (as defined in the ESOT Trust Deed and/or APSS Trust Deed) has passed, and eircomGroup plc has received notice, in
accordance with the Articles, from the holder of the Trancheable Redeemable Preference Shares.eircomGroup plc has the option to redeem some or all of the Trancheable Redeemable Preference Shares at any time after 2 November 2013.



The holders of Sterling Deferred Shares are not entitled to any dividend. On a distribution of assets ofeircomGroup plc among its members on a winding up ofeircomGroup plc (or other return of capital other than a redemption or purchase by eircomGroup plc of its
own shares) the holders of the Sterling Deferred Shares are entitled (such entitlement ranking after the rights of holders of
Redeemable Preference Shares, Trancheable Redeemable Preference Shares and Convertible Preference Shares and in priority to the rights of holders of Ordinary Shares and Non-Voting Deferred
Shares) to receive an amount equal to the aggregate of the capital paid up or credited as paid up on each Sterling Deferred Share.

The
holders of Sterling Deferred Shares are not entitled to receive notice of or to attend, speak or vote at general meetings ofeircomGroup plc.

Subject
to the Act,eircomGroup plc has the option to redeem at any time some or all Sterling Deferred Shares (provided that such shares
are credited as fully paid) at a price not exceeding £1 for all of the Sterling Deferred Shares redeemed at any one time.



The holders of Non-Voting Deferred Shares are not entitled to any dividend. On a winding up ofeircomGroup plc or other return of capital, the holders of Non-Voting Deferred Shares are entitled to receive an amount equal to the aggregate of the capital paid up or credited as paid up on
each Non-Voting Deferred Share, only after repayment to the holders of Ordinary Shares of the nominal amount paid up thereon and the payment of €1,000,000 on each Ordinary
Share.

Holders
of Non-Voting Deferred Shares are not entitled to receive notice of or to attend, speak or vote at general meetings of eircomGroup plc.

eircomGroup plc has the option to redeem at any time some or all Non-Voting Deferred Shares in issue (save for any of such
Non-Voting Deferred Shares which were created on the conversion of shares which were not created as redeemable shares) at a price not exceeding one cent for all of the
Non-Voting Deferred Shares redeemed at any one time.

F-35

---



22.   Reserves

|                                                               |  | Share
Premium
Account |   | Revaluation
Reserve |   | Capital
Redemption
Reserve |  | Group
Merger
Reserve |  | Other
Reserves |  | Profit
and Loss
Account |  
|-------------------------------------------------------------- |  | --------------------- | - | ------------------- | - | -------------------------- |  | -------------------- |  | -------------- |  | ----------------------- | -
|
|Group                                                          |  |                       |   |                     |   |                            |  |                      |  |                |  |                         |  
|As at 31 March 2003                                            |  | 539                   |   | 7                   |   |                           |  |                     |  |               |  | (149                    | )
|Surplus on nominal value of shares issued                      |  |                      |   |                    |   |                           |  | 180                  |  |               |  |                        |  
|Loss for the financial year                                    |  |                      |   |                    |   |                           |  |                     |  |               |  | (531                    | )
|Revaluation surplus                                            |  |                      |   | 87                  |   |                           |  |                     |  |               |  |                        |  
|Transfer on realisation of revalued assets                     |  |                      |   | (3                  | ) |                           |  |                     |  |               |  | 3                       |  
|Premium arising on issue of shares                             |  | 317                   |   |                    |   |                           |  |                     |  |               |  |                        |  
|Expenses payable in respect of shares issued                   |  | (66                   | ) |                    |   |                           |  |                     |  |               |  |                        |  
|Share options granted                                          |  |                      |   |                    |   |                           |  |                     |  | 8              |  |                        |  
|Transfer to capital redemption reserve on redemption of shares |  |                      |   |                    |   | 33                         |  |                     |  |               |  | (33                     | )
|Premium on redemption of shares                                |  | (4                    | ) |                    |   |                           |  |                     |  |               |  | (35                     | )
|Bonus issue and cancellation of shares                         |  | (539                  | ) |                    |   |                           |  |                     |  |               |  | 539                     |  
|                                                               | 
|As at 31 March 2004                                            |  | 247                   |   | 91                  |   | 33                         |  | 180                  |  | 8              |  | (206                    | )
|Loss for the financial year                                    |  |                      |   |                    |   |                           |  |                     |  |               |  | (71                     | )
|Transfer on realisation of revalued assets                     |  |                      |   | (4                  | ) |                           |  |                     |  |               |  | 4                       |  
|Expenses payable in respect of shares issued (credit)          |  | 1                     |   |                    |   |                           |  |                     |  |               |  |                        |  
|Shares issued                                                  |  | 2                     |   |                    |   |                           |  |                     |  |               |  |                        |  
|Transfer to capital redemption reserve on redemption of shares |  |                      |   |                    |   | 2                          |  |                     |  |               |  | (2                      | )
|Redemption of preference shares                                |  | (32                   | ) |                    |   |                           |  |                     |  |               |  | (2                      | )
|                                                               | 
|As at 31 March 2005                                            |  | 218                   |   | 87                  |   | 35                         |  | 180                  |  | 8              |  | (277                    | )
|                                                               | 

23.   Profit of Holding Company

The parent company's profit and loss account has not been included in these financial statements. The parent company's profit after taxation, including dividend
receivable and before dividends payable, was €154 million (2004: €122 million).

F-36

---



24.   Amounts in Group Cash Flow Statement

Amounts included in the group cash flow statement are reconciled or analysed as follows:



|                                                                                      |                               | 31 March
2003
€'m |      | 31 March
2004
€'m |     | 31 March
2005
€'m |   
|------------------------------------------------------------------------------------- | ----------------------------- | ----------------- | ---- | ----------------- | --- | ----------------- | --
|Group operating profit                                                                |                               | 85                |      | 118               |     | 178               |   
|Depreciation, impairment and amortisation                                             |                               | 437               |      | 444               |     | 354               |   
|Amortisation of pension surplus                                                       |                               | 16                |      | 16                |     | 15                |   
|Cash flows relating to fundamental restructuring, business exits and other provisions |                               | (63               | )    | (59               | )   | (49               | ) 
|Non-cash restructuring programme costs                                                |                               |                  |      |                  |     | 25                |   
|Non-cash exceptional charges/(credits)                                                |                               | 10                |      | 3                 |     | (4                | ) 
|Cash flows relating to prior year exceptional charges                                 |                               | (7                | )    | (8                | )   | (1                | ) 
|Working Capital                                                                       |                               |                   |      |                   |     |                   |   
|                                                                                      | Decrease/(increase) in stocks |                   | 4    |                   |    |                   | (1
|                                                                                      | Decrease in creditors         |                   | (127 | )                 | (32 | )                 | (2
|                                                                                      | Decrease in debtors           |                   | 142  |                   | 8   |                   | 9 
|                                                                                      |                              
|Net cash inflow from operating activities                                             |                               | 497               |      | 490               |     | 524               |   
|                                                                                      |                              



|                                                      |  | 31 March
2003
€'m |   | 31 March
2004
€'m |   | 31 March
2005
€'m |  
|----------------------------------------------------- |  | ----------------- | - | ----------------- | - | ----------------- | -
|Interest received                                     |  | 24                |   | 4                 |   | 7                 |  
|Interest paid                                         |  | (161              | ) | (146              | ) | (132              | )
|Exceptional interest on exit from interest rate swaps |  |                  |   |                  |   | (24               | )
|Debt issue costs paid                                 |  | (3                | ) | (75               | ) | (2                | )
|Non-equity dividends paid                             |  |                  |   | (61               | ) | (22               | )
|                                                      | 
|                                                      |  | (140              | ) | (278              | ) | (173              | )
|                                                      | 



|                                                                |  | 31 March
2003
€'m |   | 31 March
2004
€'m |   | 31 March
2005
€'m |  
|--------------------------------------------------------------- |  | ----------------- | - | ----------------- | - | ----------------- | -
|Corporation tax refund received                                 |  | 17                |   |                  |   | 3                 |  
|Corporation tax paid                                            |  | (13               | ) | (14               | ) | (20               | )
|Taxation paid on exceptional gain on the exit from Golden Pages |  |                  |   |                  |   | (38               | )
|                                                                | 
|                                                                |  | 4                 |   | (14               | ) | (55               | )
|                                                                | 

F-37

---





|                                          |  | 31 March
2003
€'m |   | 31 March
2004
€'m |   | 31 March
2005
€'m |  
|----------------------------------------- |  | ----------------- | - | ----------------- | - | ----------------- | -
|Payments to acquire tangible fixed assets |  | (197              | ) | (209              | ) | (194              | )
|(Payment to)/repayment from ESOT          |  | (50               | ) | 50                |   |                  |  
|Movement in restricted cash balance (net) |  |                  |   | (70               | ) | 69                |  
|Receipts from disposal of fixed assets    |  | 8                 |   | 1                 |   | 3                 |  
|Capital grants received                   |  |                  |   | 1                 |   |                  |  
|                                          | 
|                                          |  | (239              | ) | (227              | ) | (122              | )
|                                          | 



|                                             |  | 31 March
2003
€'m |   | 31 March
2004
€'m |   | 31 March
2005
€'m
|-------------------------------------------- |  | ----------------- | - | ----------------- | - | -----------------
|Purchase of subsidiary undertakings          |  | (9                | ) |                  |   |                 
|Disposal of subsidiary undertaking           |  | 3                 |   |                  |   |                 
|Receipt in respect of assets held for resale |  | 191               |   |                  |   |                 
|Cash disposed with subsidiary undertakings   |  |                  |   | (1                | ) |                 
|                                            
|                                             |  | 185               |   | (1                | ) |                 
|                                            



|                                          |  | 31 March
2003
€'m |   | 31 March
2004
€'m |   | 31 March
2005
€'m |  
|----------------------------------------- |  | ----------------- | - | ----------------- | - | ----------------- | -
|Repayment of loan capital                 |  | (181              | ) | (2,230            | ) |                  |  
|Issue of senior and subordinated notes    |  |                  |   | 1,060             |   |                  |  
|Additions to loan capital                 |  |                  |   | 1,250             |   |                  |  
|Issue of share capital (gross)            |  |                  |   | 370               |   | 2                 |  
|Expenses paid in respect of shares issued |  |                  |   | (32               | ) | (33               | )
|Redemption of preference shares           |  |                  |   | (76               | ) | (69               | )
|Capital element of finance lease payments |  | (1                | ) |                  |   |                  |  
|                                          | 
|Net cash (outflow)/inflow from financing  |  | (182              | ) | 342               |   | (100              | )
|                                          | 



|                         |  | At
31 March
2003
€'m |   | Cash
flows
€'m |   | Other
€'m |  | At
31 March
2004
€'m |   | Cash
flows
€'m |  | Other
€'m |   | At
31 March
2005
€'m |  
|------------------------ |  | -------------------- | - | -------------- | - | --------- |  | -------------------- | - | -------------- |  | --------- | - | -------------------- | -
|Cash at bank and in hand |  | 440                  |   | (88            | ) |          |  | 352                  |   | 36             |  |          |   | 388                  |  
|Overdrafts               |  | (1                   | ) |               |   |          |  | (1                   | ) | 1              |  |          |   |                     |  
|                         | 
|                         |  | 439                  |   | (88            | ) |          |  | 351                  |   | 37             |  |          |   | 388                  |  
|Debt due within one year |  | (105                 | ) | 105            |   |          |  |                     |   |               |  | (68       | ) | (68                  | )
|Debt due after one year  |  | (2,125               | ) | (185           | ) | 47        |  | (2,263               | ) |               |  | 62        |   | (2,201               | )
|                         | 
|                         |  | (1,791               | ) | (168           | ) | 47        |  | (1,912               | ) | 37             |  | (6        | ) | (1,881               | )
|                         | 

F-38

---



25.   Post Balance Sheet Events



The following changes to the share capital of the company have occurred between 31 March 2005 and 22 June 2005:



Since the year end the group has disposed of certain properties. The group expects to realise a profit (after tax) of circa €34 million on
these sales based on the excess of net sales proceeds receivable over the carrying value of these assets at year end.

26.   Principal Subsidiary and Associated Undertakings

|Subsidiary Companies                                      |  | Interest in Ordinary
Shares at 31 March
2005 |  | Business                                                                 |  | Registered Office and
Country of Incorporation  
|--------------------------------------------------------- |  | -------------------------------------------- |  | ------------------------------------------------------------------------ |  | ------------------------------------------------
|Valentia Telecommunications (an unlimited public company) |  | 100%                                         |  | Holding Company                                                          |  | 114 St. Stephen's Green West, Dublin 2, Ireland 
|eircomFunding (an unlimited public company)               |  | 100%                                         |  | Financing Company                                                        |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|eircomLimited                                             |  | 100%                                         |  | Provision of telecommunications and related services                     |  | 114 St. Stephen's Green West, Dublin 2, Ireland 
|Irish Telecommunications Investments Limited              |  | 100%                                         |  | Telecommunications Financing and Treasury Management                     |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|eircom(U.S.) Limited                                      |  | 100%                                         |  | Marketing of Telecom Services in U.S.A.                                  |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|Osprey Property Limited                                   |  | 100%                                         |  | Property Development Company                                             |  | Leitrim House, Upper Stephen's Street, Dublin 8.
|Eirtrade Services Limited                                 |  | 100%                                         |  | Provision of Electronic Trading Services                                 |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|eircomPhonewatch Limited                                  |  | 100%                                         |  | Installation, Monitoring and Maintenance of Residential Security Systems |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|Indigo Group Limited                                      |  | 100%                                         |  | Provision of Internet Services                                           |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|                                                          |  |                                              |  |                                                                          |  |                                                 

F-39

---



|eircomUK Limited                          |  | 100% |  | Provision of Telecommunications and Related Services |  | South Quay Plaza II, 183 Marsh Wall, London E14 9SH, UK.    
|----------------------------------------- |  | ---- |  | ---------------------------------------------------- |  | ------------------------------------------------------------
|Lan Communications Limited                |  | 100% |  | Systems Integrator                                   |  | 114 St. Stephen's Green West, Dublin 2, Ireland.            
|eircomInvestments BV                      |  | 100% |  | Investment Holding Company                           |  | Strawinskylaan 3105 7HG 1077 ZX, Amsterdam, The Netherlands.
|Eircable Limited                          |  | 100% |  | Investment Holding Company                           |  | 114 St. Stephen's Green West, Dublin 2, Ireland.            
|eircomHoldings Limited                    |  | 100% |  | Investment Holding Company                           |  | 114 St. Stephen's Green West, Dublin 2, Ireland.            
|Continuous Communications Systems Limited |  | 100% |  | Communications Contractors                           |  | 114 St. Stephen's Green West, Dublin 2, Ireland.            
|eircom(Infonet Ireland) Limited           |  | 100% |  | Provision of Global Data Services                    |  | 114 St. Stephen's Green West, Dublin 2, Ireland.            
|GoFree Limited                            |  | 100% |  | Property Investment Company                          |  | 114 St. Stephen's Green West, Dublin 2, Ireland.            
|eircomNet BV                              |  | 100% |  | Investment Holding Company                           |  | Strawinskylaan 3105 7HG 1077 ZX, Amsterdam, The Netherlands.
|eircomInternational Networks Limited      |  | 100% |  | Provision of Telecommunications and Related Services |  | 114 St. Stephen's Green West, Dublin 2, Ireland.            

|Associated undertakings              |  | Interest in Ordinary
Shares at 31 March
2005 |  | Business                                          |  | Registered Office and
Country of Incorporation               
|------------------------------------ |  | -------------------------------------------- |  | ------------------------------------------------- |  | -------------------------------------------------------------
|eircomEnterprise Fund Limited        |  | 50%                                          |  | Seed Capital Company and Early Stage Fund Company |  | 114 St. Stephen's Green West Dublin 2, Ireland.              
|Beacon Integrated Solutions Limited  |  | 49%                                          |  | Information Technology Consultancy                |  | Howley's Quay, Limerick, Ireland                             
|Telecom Engineering Services Limited |  | 35%                                          |  | Telecommunications Engineering Services           |  | Unit 14, Cherry Orchard Industrial Estate, Dublin 10, Ireland
|Altion Limited                       |  | 33%                                          |  | Telecommunications Software Solutions             |  | AIB Investment Building, Percy Place, Dublin 4, Ireland.     
|                                     |  |                                              |  |                                                   |  |                                                              

F-40

---



|Buy4Now Limited |  | 22% |  | E-commerce Software Developer |  | 9 The Mall, Beacon Court, Bracken Road, Sandyford Industrial Estate, Dublin 18, Ireland.
|--------------- |  | --- |  | ----------------------------- |  | ----------------------------------------------------------------------------------------

Telecom Engineering Services Limited has a financial year ending on 31 July 2004.

27.   Employees

The average number of persons employed by the group during the year was as follows:-

|                                            |                        | 31 March
2003 |       | 31 March
2004 |       | 31 March
2005
|------------------------------------------- | ---------------------- | ------------- | ----- | ------------- | ----- | -------------
|Fixed line network and other communications |                        |               |       |               |       |              
|                                            | Operations/Technical   |               | 5,700 |               | 5,335 |              
|                                            | Sales/Customer Support |               | 2,871 |               | 2,439 |              
|                                            | Administration         |               | 558   |               | 532   |              
|                                           
|Total                                       |                        | 9,129         |       | 8,306         |       | 7,595        
|                                           

28.   Pensions

(a)   The
group's pension commitments are funded through separately administered Superannuation Schemes and are principally of a defined benefit nature. The total group
pension charge, including contributions to the group's defined contribution scheme, in respect of the year ended 31 March 2005 was €40 million (2004:
€41 million, 2003: €41 million). In respect of the principal scheme, the contributions represent a rate of 8.2% of pensionable emoluments, as advised by
the group's Actuaries. The results for the year ended 31 March 2005 include amortisation of €15 million (2004: €16 million, 2003:
€16 million) in respect of a pension surplus of €208 million, arising on the Valentia Telecommunications acquisition of eircomLimited.

The
last Actuarial Valuation of the principal scheme was carried out, using the attained age method, as at 31 March 2005 by Mercer Human Resource Consulting who are actuaries to
the Scheme but are neither officers nor employees of the group.

The
actuarial method used involved determining an appropriate future group contribution rate designed to fund the projected liabilities of the Scheme related to service subsequent to 1
January 1984 over the remaining working lifetime of the current members. The primary financial assumption underlying the actuarial valuation was that the Scheme's investments will earn a real
rate of investment return, over and above salary inflation and pension increases, between 2.5% and 2.75% per annum. At the date of the last actuarial valuation, the market value of the pension scheme
assets was €2,190 million and the actuarial valuation of the assets attributable to the pension fund was sufficient to meet more than 100% of the value of the scheme's accrued
liabilities making due allowance for future increases in salaries and pensions.

The
actuarial report is available for inspection by the members of the scheme at 114 St. Stephen's Green West, Dublin 2. The actuarial report is not available for public
inspection.

(b)   The
Irish Minister for Finance is responsible for meeting and discharging the liability of: (i) the pension costs of former staff of the Irish Department of Posts
and Telegraphs who retired or died before the vesting Day (1 January 1984); (ii) costs in respect of the pension entitlements, related

F-41

---



to
pre-vesting day reckonable service, of staff who transferred toeircomfrom the Irish Civil Service. Such benefit payments are made from
theeircomNumber 2 Pension Fund, which was established in March 1999 and received a contribution of €1,016 million from
the Irish Minister for Finance in accordance with arrangements set out in theeircomSuperannuation (Amendment) Scheme, 1999. However, the Minister
retains liability for these payments.

(c)   Financial
Reporting Standard 17 "Retirement Benefits' disclosures

The
updated actuarial valuations for Financial Reporting Standard 17 disclosure purposes were carried out by a qualified independent actuary. The main financial assumptions used
in the valuations were:

|                                        |  | 31 March
2002 |   | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005 |  
|--------------------------------------- |  | ------------- | - | ------------- | - | ------------- | - | ------------- | -
|Rate of increase in salaries            |  | 4.00          | % | 3.50          | % | 3.50          | % | 3.50          | %
|Rate of increase in pensions in payment |  | 4.00          | % | 3.50          | % | 3.50          | % | 3.50          | %
|Discount rate                           |  | 6.10          | % | 5.50          | % | 5.00          | % | 4.75          | %
|Inflation assumption                    |  | 2.25          | % | 2.25          | % | 2.25          | % | 2.25          | %

The assets in the scheme were:

|         |  | Market value at
31 March 2002
€'m |  | Market value at
31 March 2003
€'m |  | Market value at
31 March 2004
€'m |  | Market value at
31 March 2005
€'m
|-------- |  | --------------------------------- |  | --------------------------------- |  | --------------------------------- |  | ---------------------------------
|Equities |  | 1,479                             |  | 1,027                             |  | 1,419                             |  | 1,542                            
|Bonds    |  | 349                               |  | 294                               |  | 248                               |  | 241                              
|Cash     |  | 98                                |  | 60                                |  | 67                                |  | 89                               
|Property |  | 240                               |  | 309                               |  | 334                               |  | 390                              
|        
|         |  | 2,166                             |  | 1,690                             |  | 2,068                             |  | 2,262                            
|        

The expected rate of return were:

|         |  | Long-term rate
of return
expected at
31 March 2002 |   | Long-term rate
of return
expected at
31 March 2003 |   | Long-term rate
of return
expected at
31 March 2004 |   | Long-term rate
of return
expected at
31 March 2005 |  
|-------- |  | -------------------------------------------------- | - | -------------------------------------------------- | - | -------------------------------------------------- | - | -------------------------------------------------- | -
|Equities |  | 8.00                                               | % | 7.75                                               | % | 7.50                                               | % | 7.25                                               | %
|Bonds    |  | 5.00                                               | % | 4.75                                               | % | 4.50                                               | % | 3.75                                               | %
|Cash     |  | 3.50                                               | % | 3.00                                               | % | 3.00                                               | % | 3.00                                               | %
|Property |  | 6.50                                               | % | 6.25                                               | % | 6.00                                               | % | 5.00                                               | %

The following amounts were measured in accordance with the requirements of Financial Reporting Standard 17:

|                                       |  | 31 March
2002
€'m |   | 31 March
2003
€'m |   | 31 March
2004
€'m |   | 31 March
2005
€'m |  
|-------------------------------------- |  | ----------------- | - | ----------------- | - | ----------------- | - | ----------------- | -
|Total market value of assets           |  | 2,166             |   | 1,690             |   | 2,068             |   | 2,262             |  
|Present value of scheme liabilities    |  | (1,807            | ) | (2,015            | ) | (2,360            | ) | (2,923            | )
|                                       | 
|Surplus/(deficit) in the scheme        |  | 359               |   | (325              | ) | (292              | ) | (661              | )
|Related deferred tax (liability)/asset |  | (45               | ) | 41                |   | 36                |   | 83                |  
|                                       | 
|Net pension asset/(liability)          |  | 314               |   | (284              | ) | (256              | ) | (578              | )
|                                       | 

F-42

---



If the above amounts had been recognised in the financial statements, the group's net assets/(liabilities) and profit and loss reserves would be
as follows:

|                                                                                    |  | 31 March
2002
€'m |   | 31 March
2003
€'m |   | 31 March
2004
€'m |   | 31 March
2005
€'m |  
|----------------------------------------------------------------------------------- |  | ----------------- | - | ----------------- | - | ----------------- | - | ----------------- | -
|Net assets excluding FRS 17 pension asset/(liability)                               |  | 812               |   | 757               |   | 549               |   | 412               |  
|Net FRS 17 Pension asset/(liability)                                                |  | 314               |   | (284              | ) | (256              | ) | (578              | )
|Liability already recognised in financial statements (net of deferred taxation)     |  | 32                |   | 51                |   | 64                |   | 68                |  
|Pension asset already recognised in financial statements (net of deferred taxation) |  | (182              | ) | (168              | ) | (155              | ) | (142              | )
|                                                                                    | 
|Net assets/(liabilities) including pension asset/(liability)                        |  | 976               |   | 356               |   | 202               |   | (240              | )
|                                                                                    | 
|Profit and loss reserves excluding pension asset/(liability)                        |  | (87               | ) | (149              | ) | (206              | ) | (277              | )
|Net FRS 17 Pension asset/(liability)                                                |  | 314               |   | (284              | ) | (256              | ) | (578              | )
|Liability already recognised in financial statements (net of deferred taxation)     |  | 32                |   | 51                |   | 64                |   | 68                |  
|Pension asset already recognised in financial statements (net of deferred taxation) |  | (182              | ) | (168              | ) | (155              | ) | (142              | )
|                                                                                    | 
|Profit and loss reserves including pension asset/(liability)                        |  | 77                |   | (550              | ) | (553              | ) | (929              | )
|                                                                                    | 

F-43

---



The following amounts would have been recognised in the performance statements for the years ended 31 March 2003, 31 March 2004 and
31 March 2005 under the requirements of FRS 17.

|                                                                                       |  | 31 March
2003
€'m |    | 31 March
2004
€'m |    | 31 March
2005
€'m |   
|-------------------------------------------------------------------------------------- |  | ----------------- | -- | ----------------- | -- | ----------------- | --
|Operating profit                                                                       |  |                   |    |                   |    |                   |   
|Current service cost                                                                   |  | 36                |    | 40                |    | 46                |   
|Past service cost                                                                      |  | 8                 |    |                  |    | 9                 |   
|                                                                                       | 
|                                                                                       |  | 44                |    | 40                |    | 55                |   
|                                                                                       | 
|Other finance income                                                                   |  |                   |    |                   |    |                   |   
|Expected return on pension scheme assets                                               |  | 154               |    | 114               |    | 139               |   
|Interest on pension scheme liabilities                                                 |  | (112              | )  | (111              | )  | (118              | ) 
|                                                                                       | 
|                                                                                       |  | 42                |    | 3                 |    | 21                |   
|                                                                                       | 
|Statement of total recognised gains and losses                                         |  |                   |    |                   |    |                   |   
|Actual return less expected return on pension scheme assets                            |  | (623              | )  | 292               |    | 67                |   
|Changes in assumptions underlying the present value of the scheme liabilities          |  | (34               | )  | (211              | )  | (446              | ) 
|Experience (losses)/gains arising on the pension scheme liabilities                    |  | (47               | )  | (32               | )  | 6                 |   
|                                                                                       | 
|Actuarial (loss)/gain recognised in the statement of total recognised gains and losses |  | (704              | )  | 49                |    | (373              | ) 
|                                                                                       | 
|Movement in surplus/(deficit) during the year                                          |  |                   |    |                   |    |                   |   
|Surplus/(deficit) in scheme at start of year                                           |  | 359               |    | (325              | )  | (292              | ) 
|Current service cost                                                                   |  | (36               | )  | (40               | )  | (46               | ) 
|Contributions paid                                                                     |  | 22                |    | 21                |    | 38                |   
|Past service costs                                                                     |  | (8                | )  |                  |    | (9                | ) 
|Other finance income                                                                   |  | 42                |    | 3                 |    | 21                |   
|Actuarial (loss)/gain                                                                  |  | (704              | )  | 49                |    | (373              | ) 
|                                                                                       | 
|Deficit in scheme at end of year                                                       |  | (325              | )  | (292              | )  | (661              | ) 
|                                                                                       | 
|Experience gains and losses for the year                                               |  |                   |    |                   |    |                   |   
|Difference between the expected returns and actual return on scheme assets             |  | (623              | )  | 292               |    | 67                |   
|Percentage of scheme assets                                                            |  | (37               | )% | 14                | %  | 3                 | % 
|Experience (losses)/gains on scheme liabilities                                        |  | (47               | )  | (32               | )  | 6                 |   
|Percentage of the present value of scheme liabilities                                  |  | (2                | )% | (1                | )% |                  |   
|Total recognised in statement of total recognised gains and losses                     |  | (704              | )  | 49                |    | (373              | ) 
|Percentage of the present value of scheme liabilities                                  |  | (35               | )% | 2                 | %  | (13               | )%

F-44

---



29.   Operating Lease Commitments

At 31 March 2005 the group had annual commitments in respect of lease agreements in respect of properties, vehicles, plant and equipment, for which the
payments extend over a number of years. The analysis of the group's annual commitments is as follows:-

|                                                                   |  | 2004 |  | 2005
|------------------------------------------------------------------ |  | ---- |  | ----
|
|Annual commitments under non-cancellable operating lease expiring: |  |      |  |     
|Within one year                                                    |  |     |  | 1   
|Within two to five years                                           |  |     |  | 2   
|After five years                                                   |  | 22   |  |    
|                                                                  
|                                                                   |  | 22   |  | 3   
|                                                                  

30.   Contingent Liabilities



On 17 October 2002, the Commission for Communication Regulation ("ComReg"), the Irish regulator for telecommunications, determined that the group was not
in compliance with its obligations under the voice telephony regulations by providing telephone services to specific customers at prices which were not in accordance with the specific terms and
conditions of the group's discount schemes and published prices. No penalties were levied on the Group as a result of this determination. By agreement with ComReg and at its direction, the Group put
internal controls in place that the Group believe will prevent this from re-occurring and an independent audit of the related internal controls has been conducted. The final audit findings
report including management comments and the group's statement of compliance were submitted to ComReg on 9 March 2005. If ComReg concludes that the Group is not complying with its obligations,
ComReg could begin an enforcement action. If the Group is found to be in violation of applicable laws and regulations, it may become subject to substantial criminal and civil penalties and fines.

Ocean
Communications Limited and ESAT Telecommunications Limited issued proceedings in the Irish High Court in December 2002 against the Group, seeking damages including punitive
damages resulting from the matters that were the subject of the ComReg decision. The Group submitted its defence on 26 January 2004. The plaintiffs submitted general particulars of their
damages claim on 3 February 2004 under the headings loss of existing customers, loss of prospective customers, economic loss and loss of future profits. In those particulars, the plaintiffs
have identified claims for loss of revenue on existing customers (€7.4 million), failure to meet the plaintiffs' alleged budget growth (€25 million) and
loss of revenue on the plaintiffs' pricing (€5 million). The Directors do not believe that these figures represent damages which would be properly recoverable from the Group
even if it had a liability to the plaintiffs, which is denied
by the Group in the proceedings. The particulars also include further unquantified damages. The plenary summons and statement of claim of Ocean Communications Ltd and ESAT
Communications Ltd were amended, inter alia, in April 2005 to include a claim for alleged breach of certain constitutional rights.



Consequent on the Demerger of Eircell Limited 2001, the group has given certain warranties and indemnities to Eircell 2000 plc and Vodafone Group plc, some of
which are subject to various limitations. The group has also given indemnities to Vodafone Group plc, unlimited in time and

F-45

---



quantum,
in relation to the efficacy of the Demerger. Except for certain warranties relating to taxation and the indemnities in relation to the efficacy of the Demerger (in respect of which the
liability of the group is unlimited in quantum), the liability of the group for breach of the warranties is limited to €500 million. The group has no liability in respect of
claims under the warranties unless and until the amount of such claims, excluding claims which are for amounts less than €250,000 each, exceeds €25 million, in
which event Vodafone Group plc are entitled to recover the full value of the claims including claims previously notified.

eircomLimited has agreed certain other indemnities in relation to costs and liabilities. The Directors are not aware of any such
liabilities which would have a material effect on the group's financial position.



The Group has given certain warranties to Promedia GCV following the exit from Golden Pages. The liability period for non-tax warranties has expired.
The Group has also given certain taxation indemnities and undertakings, which are generally subject to a cap of €10 million.



The Group gave various tax and other warranties and indemnities to NTL Communications Corporation in connection with the disposal of its shareholding in Cablelink
Limited in July 1999. The liability period for non-tax warranties has expired. Notice of any breach in respect of tax warranties must be given by 9 July 2006 and the Group's
liability is capped at approximately €500 million.



Other than disclosed above, a number of other lawsuits or claims arise in the normal course of business. While any litigation has an element of uncertainty, the
directors believe that there were no other contingent liabilities which would have a material adverse effect on the Group's financial position.

In
the normal course of business, the Group has entered into contracts involving the exchange or purchase and sale of foreign currencies and various performance bonds. No material losses
are expected in respect of these transactions other than losses for which provision has been made in the financial statements.

31.   Guarantees



The Senior Credit Facility consists of a €1.4 billion credit facility which has the benefit of guarantees of all amounts payable by a
borrower under the terms of the Senior Credit Facility. The Senior Credit Facility and its related guarantee are secured, amongst other things, by a charge of the shares in eircomLimited and ITI and a
fixed and floating charge over the assets (subject to some exceptions) of Valentia Telecommunications,eircomLimited and ITI.

The
borrowers under the Senior Credit Facility are Valentia Telecommunications andeircomLimited. Valentia Telecommunications is the
borrower of the €1.250 billion term loan facility andeircomLimited is a borrower under the €150 million
revolving credit facility, which is currently undrawn.

The
obligations of Valentia Telecommunications,eircomLimited and ITI under the Senior Credit Facilities are guaranteed by Valentia
Telecommunications,eircomLimited and ITI.

F-46

---



Valentia
Telecommunications has granted a security interest over substantially all of its assets, including a fixed charge over all estates and freehold interests; benefits, rights,
title and interest in contracts or leases; equipment; securities; intellectual property; insurance proceeds; debts, revenue and claims and accounts and a floating charge over all of its other
undertakings and assets. In addition, the shares ofeircomLimited have been charged in favour of Deutsche Bank AG London as security agent for the
creditors under the senior credit facility.

eircomLimited and ITI have granted a security interest over substantially all of their assets, including a demise over their mortgaged
property, fixed charges over all registerable mortgaged property; estates and freehold interests; benefits, rights, title and interest in contracts or leases; equipment; shares and derivative assets;
securities; intellectual property; insurance proceeds; debts, revenue and claims; rights from the local authority under covenants, agreements or statute and accounts and a floating charge over all of
its other undertakings and assets.



There is a full and unconditional guarantee of all amounts of Senior Notes payable. This is a senior, unsecured obligation by eircom,
ranking equally in right of payment with all existing and future unsecured senior indebtedness of eircomLimited.



Both Valentia Telecommunications andeircomLimited have guaranteed all amounts payable in respect of all Senior
Subordinated Notes. The Valentia Telecommunications guarantee is an unsecured, senior subordinated obligation which ranks junior in right of payment to all existing and future senior indebtedness of
Valentia Telecommunications, including the Senior Credit Facility and the Senior Notes, and ranks at least equally in right of payment with any existing or future unsecured subordinated indebtedness
of Valentia Telecommunications. TheeircomLimited guarantee of all amounts payable under the Senior Subordinated Notes is an unsecured senior
subordinated obligation which ranks junior in right of payment to all existing and future senior indebtedness ofeircomLimited, including its
obligation under the Senior Credit Facility, and ranks at least equally in right of payment with any existing or future unsecured subordinated indebtedness of eircomLimited. In addition, eircomGroup plc has also guaranteed on a subordinated basis all amounts
payable in respect of all Senior Subordinated Notes. TheeircomGroup plc guarantee is a general, unsecured subordinated obligation which ranks junior
in right of payment to all existing and future senior indebtedness ofeircomGroup plc.

32.   Commitments



The holders of certain preference shares have the right to require the company to redeem such shares at the redemption price and dates as set out in
Note 21 to the financial statements.



Capital commitments of the group, approved by the Board, amounted to €Nil (2004: €200 million).
€33 million (2004: €29 million) was contracted for by the group.

F-47

---



33.   Related Party Transactions

The company has availed of the exemption contained in Financial Reporting Standard 8 "Related Party Disclosures' in respect of subsidiaries, 90 per cent or
more of whose voting rights are controlled within a group. Consequently the financial statements do not include disclosure of transactions with entities in the group.



There were no related party transactions during the year ended 31 March 2005.



During the year ended 31 March 2004, entities affiliated with Soros Private Equity Partners ("Soros"), to which at that time certain directors of the
company were affiliated, were paid €0.3 million of arrangement fees in respect of commitments to subscribe for shares under certain circumstances. This amount was charged to the
profit and loss account. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, entities affiliated with Providence Equity Partners Inc ("Providence"), to which at that time certain directors of the company were
affiliated, were paid €0.7 million of arrangement fees in respect of commitments to subscribe for shares under certain circumstances. This amount was charged to the profit and
loss account. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, Lionheart Ventures (Overseas) Limited, a company which Sir Anthony O'Reilly owns and controls, were paid €0.1 million
of arrangement fees in
respect of commitments to subscribe for shares under certain circumstances. This amount was charged to the profit and loss account. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, A&L Goodbody, solicitors, a partnership that Paul Carroll, who was a director of Valentia Telecommunications up to 18 March 2004, is a
partner of, provided legal services to the Group. The total fees in respect of these services amounted to €5.8 million. During the year, costs of
€1.5 million, in relation to the Reorganisation and Refinancing, were included as debt issue costs and costs of €3.1 million, in relation to the flotation
were capitalised against share premium. The remaining costs incurred of €1.2 million were included in operating costs in the profit and loss account. At 31 March 2004,
there was a balance due to A&L Goodbody solicitors of €3.4 million in respect of these costs. The amounts are stated exclusive of VAT.

During
the year ended 31 March 2004, Lionheart Ventures (Overseas) Limited invoiced the Group for costs of €0.5 million in relation to the Reorganisation
and Refinancing of the Group. These costs are included as debt issue costs. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, Soros invoiced the Group for costs of €1.8 million in relation to the Reorganisation and Refinancing of the Group.
These costs are included as debt issue costs. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, Providence invoiced the Group for costs of €4.5 million in relation to the Reorganisation and Refinancing of the Group.
These costs are included as debt issue costs. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, the ESOT, which controlled over 20% of the voting rights ofeircomGroup plc, reclaimed
€3 million of professional fees that it incurred in relation to the Reorganisation and Refinancing of the Group. These costs are included as debt issue costs. The ESOT also
reclaimed €3 million of professional fees that it incurred in relation to the flotation of the group.

F-48

---



These
costs were capitalised against share premium. At 31 March 2004, there was a balance due to ESOT of €4.1 million in respect of these costs.

During
the year ended 31 March 2004, €6.4 million of the payments to related parties in respect of the amounts included as debt issue costs were charged to
the profit and loss account as a result of the exceptional write off of certain debt issue costs and amortisation of debt issue costs included in the interest payable.



During the year ended 31 March 2003, A&L Goodbody solicitors, provided legal services to the group. The total fees in respect of these services amounted to
€5.1m. All of these costs were expensed in the year in the Profit and Loss Account.

During
the year ended 31 March 2003, ESOT was loaned €50 million by Valentia Telecommunications. This loan was unsecured, interest free and originally had a
fixed repayment date within one year but this was extended to October 2003. The ESOT agreed to waive their dividend entitlements in relation to 474 ESOT preference shares for the duration of
the ESOT loan from Valentia Telecommunications. This loan was repaid during the year ended 31 March 2004.

During
the year ended 31 March 2003, Lionheart Ventures (Overseas) Limited, was paid €0.2 million of arrangement fees in respect of commitments to subscribe
for shares under certain circumstances. This amount was charged to the profit and loss account. There were no amounts outstanding at 31 March 2003.

During
the year ended 31 March 2003, Soros were paid €0.7 million of arrangement fees in respect of commitments to subscribe for shares under certain
circumstances. This amount was charged to the profit and loss account. There were no amounts outstanding at 31 March 2003.

During
the year ended 31 March 2003, Providence were paid €1.7 million of arrangement fees in respect of commitments to subscribe for shares under certain
circumstances. This amount was charged to the profit and loss account. There were no amounts outstanding at 31 March 2003.

34.   Reconciliation to United States Generally Accepted Accounting Principles

The Group's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("UK GAAP"), which
differ in certain respects from United States generally accepted accounting principles ("U.S. GAAP"). These differences are described below together, where appropriate, with an explanation of the
method used to determine the adjustments to net (loss)/profit attributable to ordinary shareholders for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005,
and shareholder's equity as at 31 March 2004 and 31 March 2005.

The
following statements summarise the material adjustments, gross of their tax effect, which reconcile the net (loss)/profit attributable to ordinary shareholders amount and the equity
shareholders'

F-49

---



funds
amount under UK GAAP to the amounts which would have been reported had U.S. GAAP been applied.

|                                                                                           |                                                                         | Notes |     | Financial
Year Ended
31 March
2003 |      | Financial
Year Ended
31 March
2004 |      | Financial
Year Ended
31 March
2005 |    
|------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------- | ----- | --- | ---------------------------------- | ---- | ---------------------------------- | ---- | ---------------------------------- | ---
|
|Reconciliation of net (loss)/profit:                                                       |                                                                         |       |     |                                    |      |                                    |      |                                    |    
|Net (loss)/profit attributable to Group Shareholders (equity and non-equity) under UK GAAP |                                                                         | (q)   |     | (40                                | )    | (103                               | )    | 32                                 |    
|U.S. GAAP adjustments:                                                                     |                                                                         |       |     |                                    |      |                                    |      |                                    |    
|                                                                                           | Goodwill                                                                |       | (a) |                                    | 38   |                                    | 38   |                                    | 38 
|                                                                                           | Intangible Assets                                                       |       | (a) |                                    | (18  | )                                  | (11  | )                                  | (11
|                                                                                           | Revenue                                                                 |       | (b) |                                    | (9   | )                                  | (4   | )                                  | (5 
|                                                                                           | Revaluations                                                            |       | (c) |                                    |     |                                    | 3    |                                    | 4  
|                                                                                           | Provisions for restructuring and transformation costs                   |       | (d) |                                    | (94  | )                                  | (60  | )                                  | (8 
|                                                                                           | Provision for exit from certain international and multimedia activities |       | (e) |                                    | 1    |                                    |     |                                    |   
|                                                                                           | Debt issue costs                                                        |       | (f) |                                    | (7   | )                                  | (42  | )                                  | (1 
|                                                                                           | Pension costs                                                           |       | (g) |                                    | 35   |                                    | (22  | )                                  | 4  
|                                                                                           | Derivative financial instruments                                        |       | (h) |                                    | (47  | )                                  | 35   |                                    | (19
|                                                                                           | ESOT Trust                                                              |       | (i) |                                    | (128 | )                                  | (92  | )                                  |   
|                                                                                           | Capitalised interest costs                                              |       | (j) |                                    | 5    |                                    | 3    |                                    | 3  
|                                                                                           | Indefeasible rights to use (IRU)                                        |       | (k) |                                    | 1    |                                    | 1    |                                    | 1  
|                                                                                           | Impairment of long-lived assets                                         |       | (l) |                                    | 15   |                                    | 38   |                                    |   
|                                                                                           | Asset held for sale                                                     |       | (m) |                                    | (5   | )                                  |     |                                    |   
|                                                                                           | Share options                                                           |       | (n) |                                    |     |                                    | 1    |                                    | (2 
|                                                                                           | Deferred taxes                                                          |       | (o) |                                    | 10   |                                    | 5    |                                    | 7  
|                                                                                           | Net Deferred taxes on U.S. GAAP adjustments                             |       | (o) |                                    | 26   |                                    | 11   |                                    | 4  
|                                                                                           |                                                                        
|Net (loss)/profit under U.S. GAAP                                                          |                                                                         |       |     | (217                               | )    | (199                               | )    | 47                                 |    
|                                                                                           | Dividends on Preference Shares                                          |       | (p) |                                    | (22  | )                                  | (29  | )                                  | (21
|                                                                                           |                                                                        
|Net (loss)/profit under U.S. GAAP attributable to ordinary shareholders                    |                                                                         |       |     | (239                               | )    | (228                               | )    | 26                                 |    
|                                                                                           |                                                                        
|U.S. GAAP net (loss)/profit consists of (loss)/profit from:                                |                                                                         |       |     |                                    |      |                                    |      |                                    |    
|                                                                                           | Continuing operations                                                   |       |     |                                    | (212 | )                                  | (199 | )                                  | 47 
|                                                                                           | Discontinued operations                                                 |       |     |                                    | (5   | )                                  |     |                                    |   
|                                                                                           |                                                                        
|                                                                                           | Net (loss)/profit                                                       |       |     |                                    | (217 | )                                  | (199 | )                                  | 47 
|                                                                                           |                                                                        
|Operating (loss)/profit from continuing operations                                         |                                                                         |       |     | (72                                | )    | 11                                 |      | 199                                |    
|                                                                                           |                                                                        

F-50

---



|                                                              |                          | Financial
Year Ended
31 March
2003 |             | Financial
Year Ended
31 March
2004 |             | Financial
Year Ended
31 March
2005 |            
|------------------------------------------------------------- | ------------------------ | ---------------------------------- | ----------- | ---------------------------------- | ----------- | ---------------------------------- | -----------
|
|Basic and diluted (loss)/earnings per share:                  |                          |                                    |             |                                    |             |                                    |            
|                                                              | Continuing operations    |                                    | (0.47       | )                                  | (0.43       | )                                  | 0.03       
|                                                              | Discontinuing operations |                                    | (0.01       | )                                  |            |                                    |           
|                                                              |                         
|Total basic and diluted (loss)/earnings per share             |                          | (0.48                              | )           | (0.43                              | )           | 0.03                               |            
|                                                              |                         
|Weighted average number of shares outstanding under U.S GAAP: |                          |                                    |             |                                    |             |                                    |            
|                                                              | Basic                    |                                    | 502,394,689 | (1)                                | 535,861,158 | (2)                                | 742,977,485
|                                                              | Diluted                  |                                    | 502,394,689 | (1)                                | 535,861,158 | (2)                                | 745,593,702

---

|                                        |                                                      | Notes |     | As at
31 March 2004 |      | As at
31 March 2005 |     
|--------------------------------------- | ---------------------------------------------------- | ----- | --- | ------------------- | ---- | ------------------- | ----
|
|Reconciliation of shareholders' equity: |                                                      |       |     |                     |      |                     |     
|Shareholders' funds under UK GAAP       |                                                      |       |     | 549                 |      | 412                 |     
|U.S. GAAP adjustments:                  |                                                      |       |     |                     |      |                     |     
|                                        | Goodwill                                             |       | (a) |                     | (177 | )                   | (139
|                                        | Intangible assets                                    |       | (a) |                     | 161  |                     | 150 
|                                        | Revenue                                              |       | (b) |                     | (20  | )                   | (25 
|                                        | Revaluations                                         |       | (c) |                     | (91  | )                   | (87 
|                                        | Provision for restructuring and transformation costs |       | (d) |                     | 8    |                     |    
|                                        | Debt issue costs                                     |       | (f) |                     | 2    |                     | 1   
|                                        | Pension costs                                        |       | (g) |                     | (23  | )                   | (19 
|                                        | Derivative financial instruments                     |       | (h) |                     | (6   | )                   | (25 
|                                        | Capitalised interest costs                           |       | (j) |                     | 13   |                     | 16  
|                                        | Indefeasible rights to use (IRU)                     |       | (k) |                     | (24  | )                   | (23 
|                                        | Impairment of long-lived assets                      |       | (l) |                     | 53   |                     | 53  
|                                        | Deferred taxes                                       |       | (o) |                     | (70  | )                   | (63 
|                                        | Deferred taxes on U.S. GAAP adjustments              |       | (o) |                     | (13  | )                   | (9  
|                                        | Redeemable preference shares                         |       | (p) |                     | (243 | )                   | (160
|                                        |                                                     
|Shareholders' equity under U.S. GAAP    |                                                      |       |     | 119                 |      | 82                  |     
|                                        |                                                     



On 2 November 2001,eircomLimited was acquired by Valentia Telecommunications. Under UK GAAP, the
consideration paid for a business is assigned first to the separable tangible assets acquired

F-51

---



and
liabilities assumed on the basis of their fair values at the acquisition date. Any excess of consideration over the fair value of the net tangible assets acquired was allocated to goodwill and
amortised over 20 years.

Under
U.S. GAAP, SFAS No. 141 "Business Combinations" applies, which addresses the accounting and reporting for all business
combinations initiated after 30 June 2001. SFAS No. 141 requires that the cost of an investment is assigned to assets acquired and liabilities assumed on the basis of their fair values
at the date of acquisition. In addition, SFAS No. 141 requires that an intangible asset must be separately identified and recognised apart from goodwill, and disclosed accordingly. An
intangible asset should be recognised apart from goodwill if it arises from contractual or other legal rights, or if it is capable of being separated or divided from the acquired entity and sold,
transferred, licensed or exchanged. For U.S. GAAP purposes, the fair values have been assigned to certain intangible assets as shown in the table below.

Effective
1 April 2002, under U.S. GAAP, the Group adopted SFAS No. 142, which established new standards related to how acquired goodwill and other intangible assets are to
be recorded upon their acquisition as well as how they are to be accounted for after they have been initially recognised in the financial statements. As a result of the adoption of this standard, the
Group will not amortise goodwill, rather, they will test it for impairment on an annual basis based on a fair value approach. Additionally under SFAS No. 142, since the acquisition of the Group
by Valentia Telecommunications was after 30 June 2001, goodwill has not been amortised for periods after 2 November 2001 (the acquisition date). Upon adoption of this standard, the Group
completed a transitional impairment test for its goodwill and intangible assets and determined that there were no impairments to be recorded. The Group also completed its annual impairment test for
its goodwill and indefinite-lived intangible assets as at 31 March 2005 and determined that there was no impairment to be recorded.

The
following table represents the allocation of the purchase price to net assets acquired in accordance with U.S. GAAP:

€'mConsideration





3,030Fair value of net assets acquired under UK GAAP





2,269Goodwill arising under UK GAAP





761Less: additional fair value adjustments under U.S. GAAP:Regulatory asset

(i
)
13Customer base

(i
)
105Trade names/trademark

(i
)
82ESOT trust

(ii
)
107Pensions

(iii
)
(46
)Restructuring and redundancy costs not recognised

(iv
)
182Indefeasible rights to use

(v
)
(27
)Deferred taxes on UK GAAP fair value adjustments

(vi
)
(89
)Deferred taxes on U.S. GAAP adjustments

(vi
)
(58
)
269Goodwill arising under U.S. GAAP





492


---

F-52

---





Under UK GAAP, the Group recognises the revenue related to connection fees at the time the service is provided. Under U.S. GAAP, the connection fees are
recognised over the average customer life of three to six years. Expenses, where exceeding revenue, are only deferred to the extent of revenue.

"Staff Accounting Bulletin No. 104" ("SAB 104") provides guidance on revenue recognition under U.S. GAAP. Amongst other
items, SAB 104 addresses the timing of revenue recognition relating to non-refundable, up-front fees. The Group performs a detailed analysis of their connection fees and
associated expenses accordingly.



In accordance with UK GAAP, the Group's consolidated financial statements are prepared in accordance with the historical cost convention except that property is
periodically restated on the basis of appraised values. Subsequent depreciation is computed on the revalued amounts. Under U.S. GAAP, such revaluations are not permitted and depreciation is computed
on the historical cost. Under U.S. GAAP depreciation charges would have been €3 million and €4 million lower, for the financial years ended
31 March 2004 and 31 March 2005 respectively, since the assets would have had a lower depreciable base.

Under
U.S. GAAP, such revaluations are not permitted and depreciation is computed on the historical cost. Adjustment of the amounts reported under UK GAAP for property to the amounts
reportable under U.S. GAAP would result in a reduction of the book value of tangible fixed assets by €91 million and €87 million as at 31 March
2004 and 31 March 2005 respectively.



Under UK GAAP, the Group had recorded provisions for fundamental restructuring and certain voluntary redundancy schemes in respect of staff restructuring and
other aspects of its business transformation, which are in the course of implementation, when a legal or constructive obligation exists, and the amount can be reasonably estimated.

Under
U.S. GAAP, costs related to voluntary early retirement and severance schemes are accounted for in accordance with SFAS No. 88. Generally the timing of expense recognition
differs between UK GAAP and U.S. GAAP because, under UK GAAP, a constructive obligation is deemed to exist when the Group agrees to accept and discharge responsibility under the terms of voluntary
early retirement and severance schemes with the employees and their unions. U.S. GAAP requires that the

F-53

---



individual
employees have accepted the offer to retire or to participate in severance programs before the expense is recognised.

The
following table reconciles the movement in the staff restructuring provisions as presented under UK GAAP to the amounts presented under U.S. GAAP (see note 19):

|                                                                                      |  | Staff
Restructuring
Provision
Under UK GAAP |   | Adjustment |   | Staff
Restructuring
Provision Under
U.S. GAAP |  
|------------------------------------------------------------------------------------- |  | ------------------------------------------- | - | ---------- | - | --------------------------------------------- | -
|
|As at 31 March 2002                                                                   |  | 153                                         |   | (153       | ) |                                              |  
|Utilised                                                                              |  | (83                                         | ) |           |   | (83                                           | )
|Charged to the consolidated profit and loss account                                   |  | 11                                          |   | 94         |   | 105                                           |  
|Transfer from accruals                                                                |  | 36                                          |   |           |   | 36                                            |  
|Transfer from provision for exit from certain international and multimedia activities |  | 9                                           |   | (9         | ) |                                              |  
|                                                                                      | 
|As at 31 March 2003                                                                   |  | 126                                         |   | (68        | ) | 58                                            |  
|                                                                                      | 
|Utilised                                                                              |  | (45                                         | ) |           |   | (45                                           | )
|(Credited)/charged to the consolidated profit and loss account                        |  | (1                                          | ) | 60         |   | 59                                            |  
|                                                                                      | 
|As at 31 March 2004                                                                   |  | 80                                          |   | (8         | ) | 72                                            |  
|                                                                                      | 
|Utilised                                                                              |  | (7                                          | ) |           |   | (7                                            | )
|Transfer                                                                              |  | (1                                          | ) |           |   | (1                                            | )
|Charged to the consolidated profit and loss account                                   |  | 6                                           |   | 8          |   | 14                                            |  
|                                                                                      | 
|As at 31 March 2005                                                                   |  | 78                                          |   |           |   | 78                                            |  
|                                                                                      | 



Under UK GAAP, the Group had recorded provisions for the exit from certain international and multimedia activities as part of its business transformation, which
are in the course of implementation when a legal or constructive obligation exists, and the amount can be reasonably estimated.

Under
U.S. GAAP, these transformation costs, which mainly relate to involuntary contract termination and voluntary staff exit costs, did not qualify as exit costs based on guidance
provided by the Emerging Issues Task Force Consensus 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including certain costs incurred in a restructuring)"("EITF 94-3"). Certain costs related to warranties accrued under UK GAAP, as a result of
discontinuing certain activities, did qualify for accrual under EITF 94-3.

F-54

---



The
following table reconciles the movement in the provision for exit from certain international and multimedia activities as presented under UK GAAP to the amounts presented under U.S.
GAAP:

|                                                                 |  | Provisions for Exit
from Certain
International and
Multi-Media
Activities under
UK GAAP |   | Adjustment |   | Provisions for Exit
from Certain
International and
Multi-Media
Activities under
U.S. GAAP |  
|---------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- | - | ---------- | - | ----------------------------------------------------------------------------------------- | -
|
|As at 31 March 2002                                              |  | 11                                                                                      |   | (8         | ) | 3                                                                                         |  
|Utilised                                                         |  | (2                                                                                      | ) |           |   | (2                                                                                        | )
|Credited to the consolidated profit and loss account             |  |                                                                                        |   | (1         | ) | (1                                                                                        | )
|Transfer to provision for restructuring and transformation costs |  | (9                                                                                      | ) | 9          |   |                                                                                          |  
|                                                                 | 
|As at 31 March 2003 and 2004 and 2005                            |  |                                                                                        |   |           |   |                                                                                          |  
|                                                                 | 



Under UK GAAP, debt issuance costs associated with Debt are required to be amortised up to the earliest date on which the repayment option can be exercised unless
there is no genuine possibility that the option will be exercised. Under U.S. GAAP, debt issuance costs are amortised to income based on the contractual life of the loan using the effective interest
method.

The
Group completed a Reorganisation and Refinancing programme in July and August 2003, which resulted in the previous debt being repaid in August 2003. Under U.S. GAAP,
the remaining unamortised portion of the debt issue costs of €44 million, included in the balance sheet under U.S. GAAP at 31 March 2003, has been charged to the
statement of profit and loss during the financial year ended March 2004. In addition, under UK GAAP a charge of €2 million was recorded in relation to the intended early
repayment of a portion of the debt. This charge is not permitted under U.S. GAAP.

The
adjustment of €1 million for the year ending 31 March 2005 relates to differences in the timing of amortisation arising under UK GAAP and U.S. GAAP.



Under UK GAAP, pension costs are determined in accordance with Statement of Standard Accounting Practice No. 24, "Accounting for
Pension Costs", and costs are expensed over employees' working lives. Under U.S. GAAP, pension costs are determined in accordance with the requirements of SFAS No. 87,
"Employers Accounting for Pensions", ("SFAS No. 87") and SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits", ("SFAS No. 88"). In accordance with the requirements of U.S. GAAP, the Group performs annual
pension valuations. Differences between the amounts under UK GAAP and U.S. GAAP arise from the requirement to use different actuarial methods and assumptions and the method of amortising surpluses or
deficits.



In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,"Accounting for Derivative Instruments
and Hedging Activities"("SFAS No. 133"). This Statement became effective for the Group on 1 April 2001 and establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all freestanding and many embedded derivatives on the
balance sheet at their fair value, regardless of any hedging relationship designation. Derivative instruments must

F-55

---



be
classified as hedging transactions (either fair-value hedges, cash flow hedges or net investment hedges in a foreign operation) or non-hedging transactions, and the
accounting treatment of derivative instruments and hedged items depends on this classification. Changes in the fair value of derivative instruments that do not qualify for, or are not designated in,
hedging relationships are recognised immediately in current period earnings when they occur.



On 1 April 1999, theeircomEmployee Share Ownership Trust ("ESOT") was established for the benefit of
eligible employees. The ESOT was funded by a combination of third party loans, loans from the Group and contributions of shares by the Group.

The
net assets of the ESOT were divided into approximately 329 million units. The units were allocated to employees, subject to a minimum period of twelve months of qualifying
employment with the Group, who had entered into contracts of participation with the ESOT. Employees that ceased to be employed by the Group retained their right to the units allocated before the
termination of their service. Each eligible employee was allocated the same number of units (pro rated if the service period is less than 5 years at 1 November 2003). The units of the
ESOT have been allocated to eligible employees through eleven notional allocations over a five year period ending 1 November 2003.

At
31 March 2003, 31 March 2004 and 31 March 2005, the Trust held the following allocated and unallocated shares in the Group based on the proportion of allocated
and unallocated units of the Trust:

|                                                   |  | Valentia
Telecommunications |  | eircomGroup plc |  | eircomGroup plc
|-------------------------------------------------- |  | --------------------------- |  | --------------- |  | ---------------
|
|Ordinary Shares allocated                          |  |                            |  | 216,213,709     |  | 157,031,531    
|Convertible Preference Shares allocated            |  |                            |  | 173,000,000     |  | 158,583,333    
|Trancheable Redeemable Preference Shares allocated |  |                            |  | 66,000,000      |  | 671,083        
|Redeemable Preference Shares allocated             |  |                            |  | 4,169,893       |  | 531,870        
|Non-voting Deferred Shares                         |  |                            |  | 598             |  | 6,474,437,398  
|Class A shares allocated                           |  | 19,928,792                  |  |                |  |               
|Class A shares unallocated                         |  | 4,406,208                   |  |                |  |               
|Class B shares allocated                           |  | 6,502,347                   |  |                |  |               
|Class B shares unallocated                         |  | 1,437,653                   |  |                |  |               
|ESOT Preference Shares allocated                   |  | 1,957                       |  |                |  |               
|ESOT Preference Shares unallocated                 |  | 433                         |  |                |  |               

At 31 March 2004 and 31 March 2005, the Trust held the following allocated shares in Vodafone Group plc:

Number of shares
at
31 March 2004

Number of shares
at
31 March 2005Vodafone Group plc shares allocated

67,943,924

67,941,845


Under UK GAAP, the lump sum payment in respect of establishing the ESOT Trust of €127 million, paid to the ESOT by the
Group, was expensed in the consolidated profit and loss account of the Group in the financial year ended 31 March 1999. No further expense arises under UK GAAP.

F-56

---



Under
U.S. GAAP, the Group applies the provisions of AICPA Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership
Plans" ("SOP 93-6"). Accordingly, at 31 March 2003, the unallocated third party debt of the ESOT, and related accrued interest, were recorded in the
Group's consolidated balance sheet. At 31 March 2004 and 31 March 2005, since all units of the trust had been allocated, there was no third party debt recorded in the Group's
consolidated balance sheet.

The
unallocated note payable from the Trust to the Group and the related unallocated note receivable from the Trust at 31 March 2003 were not recorded on the consolidated balance
sheet of the Group. The unallocated Class A and B shares of the Group held by the Trust at 31 March 2003 were recorded as unearned ESOT shares in stockholders' equity at their fair
values at the time they were acquired by the ESOT. Dividends on unallocated shares were used to repay the unallocated ESOT debt and interest. The dividends on unallocated ordinary shares were not
considered dividends under U.S. GAAP for financial reporting purposes and were reported as a reduction of debt and dividends payable. Both the unallocated and allocated ESOT Preference Shares as of
31 March 2003, and the allocated Convertible Preference Shares, Trancheable Redeemable Shares and Redeemable Preference Shares as of 31 March 2004 and 31 March 2005 have been
recorded outside of permanent equity since they are redeemable for cash by the participants.

As
of 31 March 2003, the unallocated cash and shares in Vodafone Group plc held by the Trust were recorded on the balance sheet of the Group in proportion to the unallocated units
of the Trust as part of the ESOT trust assets under U.S. GAAP. The unallocated Vodafone Group plc shares were classified as available for sale securities. Management determined that the decline in the
fair value of these shares was other than temporary. As a result, the Group recognised an impairment on the Vodafone Group plc shares of €29 million for the financial year ended
31 March 2003. There was no further decline in the fair value of the unallocated Vodafone Group plc shares during the financial year ended 31 March 2004. All shares were allocated at
31 March 2004.

Under
U.S. GAAP, the Group recognised administrative charges incurred by the ESOT, interest expense on the unallocated ESOT debt, and trust expense equal to the average fair value of the
Trust units allocated during the period that the employees earn the allocation. As all units were allocated at 31 March 2004, no charge arises during the financial year ended 31 March
2005.

Trust
units allocated to employees totalled 60.0 million and 60.7 million in the financial year ended 31 March 2003 and the financial year ended 31 March
2004, respectively. Trust expense totalled €99 million and €92 million in the financial year ended 31 March 2003 and the financial year ended
31 March 2004, respectively. Since all units of the Trust have been allocated as of 31 March 2004, there will be no further compensation charges related to the allocation of shares by
the ESOT in the financial year ended 31 March 2005.



Under UK GAAP, the Group does not capitalise interest. Under U.S. GAAP, in accordance with the provisions of SFAS No. 34,
"Capitalisation of Interest Costs", the estimated amount of interest incurred while constructing major capital projects is required to be capitalised
and depreciated over the lives of the related assets, resulting in an increase in the Group's non-current assets under U.S. GAAP. The amount of interest capitalised is determined by
reference to the weighted average interest rates on outstanding borrowings.

F-57

---



The U.S. GAAP, adjustments resulted in cumulative gross recognised interest of €19 million and €25 million and accumulated amortisation of
€6 million and €9 million as at 31 March 2004 and 31 March 2005, respectively. Interest recognised amounted to
€7 million, €6 million and €7 million and amortisation amounted to €2 million,
€3 million and €4 million for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005, respectively.



During the financial year ended 31 March 2002, the Group entered into indefeasible rights to use ("IRU") contracts to sell capacity on its network as well
as IRU contracts to purchase capacity from a third party. Under UK GAAP, the income associated with the service portion of the sales contract is being recognised over a seven-year period,
and the remaining IRU income was recognised when the contract was entered into. Under U.S. GAAP, the sales contracts were accounted for as service contracts with the entire income being deferred and
recognised on a straight-line basis over a 17 to 25 year period. Under UK GAAP, the purchase contracts have been accounted for as a capital asset depreciated over a
seven-year period. Under U.S. GAAP, the purchase contracts are accounted for as service contracts and accordingly, the pre-paid balance has been recorded as a deferred debtor
and is being amortised on a straight line basis as rent expense over a seven year period.



Under UK GAAP, the Group recognised impairments for certain assets based on results of revaluations and other factors including a review of discounted future cash
flows where appropriate. Under SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), an asset is considered to be impaired when its
carrying amount exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The undiscounted cash flows include only the future cash flows
that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset. Under UK GAAP, the Group also recognised impairment losses arising
from revaluations of land and buildings where the revalued amount of a fixed asset is below the carrying value of the fixed asset. To the extent that the revalued amount of the fixed assets are below
the historical cost, the impairment charge is recognised
in the profit and loss account under UK GAAP. For certain long-lived assets impaired by the Group under UK GAAP, the sum of the undiscounted cash flows directly associated with the assets
exceeded their carrying value. Thus, the criteria for impairment under SFAS No. 144 were not met, and a portion of the impairment expense recognised under UK GAAP was added back to net income
for U.S. GAAP purposes.

During
the financial year ended 31 March 2004 the Group noted changes in circumstances and business climate affecting Global Crossing and Gemini International Cables that were
indicative of a potential impairment. Specifically, the Group noted significant over capacity in the international telecommunications market in which the Group operates. As a result, the Group
undertook an assessment of the recoverability of the carrying value of these assets. In this assessment, the Group examined separate undiscounted expected future cash flows resulting from these assets
over their remaining useful lives, which indicated an aggregate net negative cash flow for the period. These forecasts represented management's best estimates of future results of the forecast period.
Based on the projected negative cash flows for these assets over their remaining useful lives, the Group recorded an impairment charge during the financial year ended 31 March 2004 of
€9 million under both UK GAAP and U.S. GAAP, to reduce the carrying value of the assets to their recoverable value of zero.

During
the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 the Group recognised impairment charges in respect of land & buildings of
€15 million, €38 million and €nil, respectively, where the revalued amount was below the historical cost of the relevant fixed assets.
Under US GAAP the sum of the undiscounted cash flows directly associated with the assets exceeded

F-58

---



their
carrying value. Thus, the criteria for impairment under SFAS No. 144 were not met, and the impairment expense recognised under UK GAAP was added back to net income for U.S. GAAP purposes.



From 2 November 2001, when eircom Limited was acquired by Valentia Telecommunications, under UK GAAP, the results of Golden Pages Limited were not
consolidated into the Group since it was required to be reclassified as an asset held for sale under UK GAAP, up to its date of exit in May 2002. Under U.S. GAAP, in accordance with APB
No. 30, "Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions", ("APB No. 30"), Golden Pages Limited did not meet the criteria of an asset held for sale at 2 November 2001. For purposes of U.S. GAAP, the
results of operations of Golden Pages Limited have been included in the financial statements as a discontinued operation up until its exit in May 2002.

The
net assets of Golden Pages Limited at the exit date consisted of the following:

As at
2 May 2002€'mTangible assets

10Intangible assets

139Stocks

9Debtors

4Cash

12Creditors

(9
)Minority interest

(10
)Net assets

155




Under UK GAAP, the Group has recognised compensation expense on share option grants where the exercise price is below the market price of the underlying share on
the date of grant. This expense is recognised over the vesting period of the option. Additionally, the Group has recognised compensation expense for share awards under the Key Executive Share Award
Plan in full at the date of grant for the full fair value of the share award.

Under
U.S. GAAP, compensation expense on share option grants is recognised as the difference between the exercise price of the share options granted and the quoted market price of the
shares at the date of grant or measurement date and accrued over the vesting period of the options.

Under
U.S. GAAP, where options are granted over junior stock, compensation expense is not recognised until the transferability restrictions on the underlying junior stock lapse. At the
Admission date (24 March 2004), the transferability restrictions on the junior stock lapsed and compensation expense was recognised for outstanding junior stock awards and for option awards
over junior stock for the difference between the Admission price and the exercise price of the option (see note 35 (g)).

Under
U.S. GAAP, compensation expense for awards under the Key Executive Share Award Plan for the fair value of the share award on the date of grant is recognised over the
two-year vesting period (see note 35 (g)).

F-59

---





Under UK GAAP, deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions
or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the
Group's taxable profits and its results as stated in the financial statements. Deferred tax assets are recognised to the extent they are regarded as recoverable. They are regarded as recoverable to
the extent that on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits for which the future reversal of the underlying timing
differences can be deducted. Under U.S. GAAP, SFAS 109 "Accounting for Income Taxes" ("SFAS 109") requires that deferred taxation
liabilities and assets are recorded in full for all temporary differences between book income and tax income and a valuation allowance is established to reduce deferred tax assets to the amounts which
are more likely than not to be recognised in future tax returns. For the purposes of the reconciliation, the principles of SFAS No. 109 have been applied. Under UK GAAP, deferred taxes are not
provided with respect to fair value adjustments made to record the Group's basis in the assets acquired. Under U.S. GAAP, deferred taxes related to fair value adjustments must be provided.



Under U.S. GAAP, the Redeemable Preference Shares, the Convertible Preference Shares and the Trancheable Redeemable Preference Shares are considered mandatorily
redeemable since the conditions for redemption are not solely within the control of the Group. Under U.S. GAAP, mandatorily redeemable securities are initially recorded at their fair value and
subsequently accreted to their redemption value, such that the carrying value is equivalent to the redemption value on the date the option to redeem is exercisable. The Redeemable Preference Shares
and the Trancheable Redeemable Preference Shares are redeemable at the option of the holder once they have been appropriated to the beneficiaries of the ESOT (see note 21 and
note 34(i)). The Convertible Preference Shares are first redeemable at the option of the holder from November 2013. All preference shares are redeemable at their deemed subscription
prices plus cumulative unpaid dividends and interest. Therefore, the initial fair value of the preference shares approximates their redemption value.

In
accordance with U.S. GAAP, the Redeemable Preference Shares and the Trancheable Redeemable Preference Shares are recorded initially at their fair value and classified as liabilities.
For the financial years ended 31 March 2004 and 31 March 2005, dividends accrued on these shares are recorded as interest expense. The Convertible Preference Shares are recorded
initially at their fair value and classified outside of permanent shareholders equity as temporary equity.

During
the financial year ended 31 March 2004, Non Voting Third Party Preference shares and Non Voting Adviser Preference shares in existence on 31 March 2003 were redeemed
in accordance with their terms. All unpaid dividends were also paid. For purposes of U.S. GAAP, the €29 million dividends on preference shares includes the redemption premium of
€1 million related to the Non-Voting Third Party Preference Shares paid during the financial year ended 31 March 2004.

During
the financial year ended 31 March 2005, 3,638,023 Redeemable Preference Shares and 65,328,917 Trancheable Redeemable Preference Shares were redeemed in accordance with
their terms.

F-60

---



The
following table presents the Redemption Value of the classes of mandatorily Redeemable Preference Shares at 31 March 2004 and 31 March 2005:

As at31 March 2004

31 March 2005€'m

€'mConvertible Preference Shares

174

159Trancheable Redeemable Preference Shares

66

1Redeemable Preference Shares

4

Less: cumulative unpaid preference dividends accrued

(1
)
243

160


On a distribution of the assets ofeircomGroup plc among its members on a winding up of eircomGroup plc (or other return of capital other than a redemption or purchase byeircomGroup plc of
its own shares): (i) holders of Convertible Preference Shares are entitled to receive an amount equal to the aggregate amount of any unpaid arrears or accruals of the dividend (including any
notional dividend interest that has arisen on unpaid dividends), whether earned or declared or not, calculated up to and including the date of redemption, sale or return of capital or, as the case may
be, the date of commencement of winding up, plus the deemed subscription price of that Convertible Preference Share, and (ii) the holders of the Redeemable Preference Shares and the Trancheable
Redeemable Preference Shares are entitled to receive an amount equal to the deemed subscription price of €1 for each share (less any capital duty payable by eircomGroup plc on the issue of such
share) plus the aggregate interest received byeircomGroup plc on
the funds standing to the credit of the designated bank account for such shares (less the aggregate taxation and/or costs or expenses suffered or incurred by eircomGroup plc in respect of such
interest) less any amount declared and/or distributed or payable by way of dividend or capitalised in respect of any
bonus issue or distributed upon any repayment or reduction of capital in respect of such Shares.



Under UK GAAP, exceptional items are items which are derived from events or transactions which individually, or if of a similar type, in aggregate, need to be
disclosed by virtue of their size or incidence. Additionally, some of these exceptional charges under UK GAAP are included after operating profit if certain criteria are met. Under U.S. GAAP, only
items which are considered unusual in nature and infrequent in occurrence (not reasonably expected to recur in the foreseeable future) qualify for presentation as "extraordinary" items. Under U.S.
GAAP, extraordinary items are presented below income before extraordinary items in the income statement. Under U.S. GAAP, restructuring charges, fixed asset impairments, gains and losses on disposals,
and other charges, disclosed as exceptional expenses under UK GAAP, do not meet the criteria for presentation as extraordinary items under U.S GAAP. Additionally, under U.S. GAAP these exceptional
items would be separated between continuing and discontinued operations.

Under
UK GAAP, the Group elects to present "gross profit" in its consolidated profit and loss account, which is calculated, as turnover minus cost of sales. Under UK GAAP, the Group
elects to include only costs relating to payments to other carriers, commissions and the cost of customers' premises equipment in cost of sales.

Under
U.S. GAAP, the presentation of cost of sales and gross profit on the basis used under UK GAAP is not appropriate, as not all direct costs incurred to generate turnover are included
in cost of sales, such as a portion of depreciation, amortisation, provisions for doubtful accounts and net staff costs.

F-61

---



A
summary of the Group's income statements, as calculated under UK GAAP and classified in accordance with U.S. GAAP, follows:

|                                    |                                           | Financial
Year Ended
31 March
2003 |      | Financial
Year Ended
31 March
2004 |      | Financial
Year Ended
31 March
2005 |     
|----------------------------------- | ----------------------------------------- | ---------------------------------- | ---- | ---------------------------------- | ---- | ---------------------------------- | ----
|
|Sales                               |                                           | 1,682                              |      | 1,628                              |      | 1,602                              |     
|Cost of sales                       |                                           | (1,354                             | )    | (1,243                             | )    | (1,189                             | )   
|                                    |                                          
|Gross profit                        |                                           | 328                                |      | 385                                |      | 413                                |     
|Operating expenses                  |                                           |                                    |      |                                    |      |                                    |     
|                                    | Selling, general and administration costs |                                    | (243 | )                                  | (267 | )                                  | (235
|                                    |                                          
|Net operating income                |                                           | 85                                 |      | 118                                |      | 178                                |     
|Other income/(expenses)             |                                           |                                    |      |                                    |      |                                    |     
|                                    | Interest income                           |                                    | 25   |                                    | 6    |                                    | 8   
|                                    | Interest expense                          |                                    | (159 | )                                  | (214 | )                                  | (135
|                                    | Income from Associates' operations        |                                    |     |                                    |     |                                    | 1   
|                                    | Gain on disposal of fixed assets          |                                    | 2    |                                    |     |                                    |    
|                                    | Gain on exit of business divisions        |                                    | 1    |                                    | 1    |                                    |    
|                                    |                                          
|Other expenses (net)                |                                           | (131                               | )    | (207                               | )    | (126                               | )   
|(Losses)/income before income taxes |                                           | (46                                | )    | (89                                | )    | 52                                 |     
|Income taxes                        |                                           | 6                                  |      | (14                                | )    | (20                                | )   
|                                    |                                          
|Net (loss)/income                   |                                           | (40                                | )    | (103                               | )    | 32                                 |     
|                                    |                                          



The Group entered into certain lease transactions whereby assets were leased or sold and leased back from the purchaser. In conjunction with each lease
transaction, the Group entered into arrangements with third party financial institutions whereby the Group maintains deposits and other financial assets in return for their undertaking to pay the
Group's lease payment obligations to the lessor, including the repurchase of the assets. Under UK GAAP and U.S. GAAP, these leases are accounted for as finance leases (capital leases as defined under
SFAS No. 13, "Accounting for Leases"). Under UK GAAP, as the Group's lease obligations are fully defeased from the inception of the leases, the
deposits and related lease obligations are not recognised as separate assets and liabilities of the Group. Accordingly, the Group records no asset for the deposits and shows no liability for the lease
obligations in its consolidated balance sheet. Under U.S. GAAP, the outstanding lease obligations to the lessor would not be regarded as defeased by the deposit held by the third party financial
institution, since no legal right of offset exists. As a result, total assets and liabilities as at 31 March 2004 and 31 March 2005, are
higher under U.S. GAAP by €146 million and €127 million, respectively.

35.   Additional Disclosure Requirements under U.S. GAAP



For purposes of the U.S. GAAP reconciliation, the Group adopted the provisions of SFAS No. 87, amended by SFAS No. 132 "Employer's Disclosures about
Pensions and Other Postretirement Benefits, an

F-62

---



Amendment of FASB Statements No. 87, 88 and 106". The following table provides the components of net periodic pension costs under U.S. GAAP:

|                                                                  |  | Financial
Year Ended 31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March 2005 |  
|----------------------------------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Service costs                                                     |  | 35,911                             |   | 41,462                             |   | 45,562                             |  
|Interest costs                                                    |  | 112,061                            |   | 110,588                            |   | 117,917                            |  
|Expected return on plan assets                                    |  | (154,124                           | ) | (113,960                           | ) | (137,637                           | )
|Amortisation of experience                                        |  |                                   |   | 20,982                             |   | 13,990                             |  
|Special termination benefits                                      |  | 7,954                              |   |                                   |   | 8,946                              |  
|                                                                  | 
|Net periodic benefit cost recognised in accordance with U.S. GAAP |  | 1,802                              |   | 59,072                             |   | 48,778                             |  
|                                                                  | 

The accumulated benefit obligation was €1,594 million and €2,007 million as at 31 March 2004
and 31 March 2005 respectively.

The
charge for special termination benefits is the result of the Group's early retirement schemes, which provide eligible employees with the opportunity to retire early, resulting in
additional pension costs.

The
following table provides details about the weighted-average assumptions used to calculate the pension costs during the years ending:

|                                          |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|----------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|Discount rate                             |  | 6.1                                | % | 5.5                                | % | 5.0                                | %
|Expected return on plan assets            |  | 7.1                                | % | 6.8                                | % | 6.7                                | %
|Rate of compensation and pension increase |  | 4.0                                | % | 3.5                                | % | 3.5                                | %

To develop the expected long-term rate of return on assets assumption, the company considered the historical returns and the future
expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.7% long-term rate of return on
assets assumption for the year ended 31 March 2005.

The
following table provides details about the weighted-average assumptions used to calculate the pension obligation as of:

31 March
2004

31 March
2005Discount rate

5.00
%
4.75
%Rate of compensation and pension increase

3.50
%
3.50
%


The dates used to determine pension movements under U.S. GAAP were 31 March 2003, 31 March 2004 and 31 March 2005.

F-63

---



The
following table presents changes in benefit obligation, changes in plan assets and a reconciliation to amounts recorded in accordance with U.S. GAAP:

|                                                |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|----------------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Changes in benefit obligation:                  |  |                                    |   |                                    |   |                                    |  
|Benefit obligation at the beginning of the year |  | 1,807,314                          |   | 2,014,305                          |   | 2,360,373                          |  
|Service cost                                    |  | 35,911                             |   | 41,462                             |   | 45,562                             |  
|Interest cost                                   |  | 112,061                            |   | 110,588                            |   | 117,917                            |  
|Plan participants' contributions                |  | 17,948                             |   | 17,099                             |   | 16,776                             |  
|Actuarial losses                                |  | 81,347                             |   | 242,718                            |   | 439,949                            |  
|Benefits paid                                   |  | (62,254                            | ) | (65,799                            | ) | (66,411                            | )
|Other contributions                             |  | 14,024                             |   |                                   |   |                                   |  
|Special termination benefits                    |  | 7,954                              |   |                                   |   | 8,946                              |  
|                                                | 
|Benefit obligations at the end of the year      |  | 2,014,305                          |   | 2,360,373                          |   | 2,923,112                          |  
|                                                | 

|                                                       |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------------------------------ |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Changes in plan assets:                                |  |                                    |   |                                    |   |                                    |  
|Fair value of plan assets at the beginning of the year |  | 2,166,462                          |   | 1,689,775                          |   | 2,068,485                          |  
|Actual return on plan assets                           |  | (468,282                           | ) | 405,977                            |   | 205,847                            |  
|Group's contribution                                   |  | 21,877                             |   | 21,433                             |   | 37,727                             |  
|Plan participants' contribution                        |  | 17,948                             |   | 17,099                             |   | 16,776                             |  
|Benefits paid                                          |  | (62,254                            | ) | (65,799                            | ) | (66,411                            | )
|Other contributions                                    |  | 14,024                             |   |                                   |   |                                   |  
|                                                       | 
|Fair value of plan assets at the end of the year       |  | 1,689,775                          |   | 2,068,485                          |   | 2,262,424                          |  
|                                                       | 

Financial
Year Ended
31 March
2004

Financial
Year Ended
31 March
2005€'000

€'000Funded status:Funded status

(291,888
)
(660,688
)Unrecognised actuarial losses

445,882

803,631Prepaid benefit cost under U.S. GAAP

153,994

142,943


F-64

---



The pension plan weighted-average asset allocations by asset category are as follows:

Financial
Year Ended
31 March
2004

Financial
Year Ended
31 March
2005Asset CategoryEquity securities

68
%
68
%Debt securities

12
%
11
%Real estate

16
%
17
%Other

4
%
4
%Total

100
%
100
%


The Trustees of the pension plan approve the target asset allocation as well as deviation limits. The objective of the investment activities is to
maximise investment return within an acceptable level of risk, taking into consideration the liabilities of the main pension scheme.

The
assumption for the expected return in scheme assets is a weighted average based on an assumed expected return for each asset class and the proportions held of each asset class at the
beginning of the year. The expected returns on bonds are based on the gross redemption yields at the start of the year. Expected returns on other asset classes reflect consensus economic forecasts of
future returns.

The
expected rates of return are included in note 28(c).



Contributions.The Group expects to contribute €26 million to its defined benefit pension plan in the
year ended 31 March 2006.



The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Pension
Benefits€'000For the years ended 31 March2006

68,5002007

72,0002008

76,0002009

81,0002010

84,500Years 2011-15

496,500




The Group sponsors a defined contribution pension plan primarily covering executive employees and new entrants. For the financial years ended 31 March
2003, 31 March 2004 and 31 March 2005, contributions made by the Group totalled €3 million, €4 million and
€4 million respectively.

F-65

---





U.S. GAAP deferred tax assets and liabilities are as follows:

As at
31 March 2004

As at
31 March 2005€'m

€'mNon-current deferred tax liability:Restructuring provisions

1

Prepaid pension obligation

19

18Capital allowances in excess of depreciation

50

56Fixed assets uplift

70

62Intangible assets

20

19Income to be taxed in future periods

21

20Other

1

2Deferred tax liability

182

177Current deferred tax asset-interest

(2
)
(2
)Non-current deferred tax assets:Provisions for expenses

(9
)
(8
)Deferred revenue

(3
)
(3
)Derivative financial instruments

(1
)
(3
)Other

(2
)
(3
)Non-current deferred tax assets

(15
)
(17
)Net deferred tax liability

165

158




The consolidated balance sheet of the Group prepared under UK GAAP presents substantially the same information as that presented under U.S. GAAP. However,
presentation, classification and the U.S. GAAP reconciling items have a significant effect on the U.S. GAAP consolidated balance sheet.

The
following summarised balance sheet has been adjusted to reflect the U.S. GAAP reconciling items and is presented and classified in accordance with U.S. GAAP:

As at
31 March 2004

As at
31 March 2005€'m

€'mAssets:Assets:Current assets

739

698Non-current assets

3,200

3,040Total assets

3,939

3,738Liabilities and shareholders' equity:Current liabilities

731

664Non-current liabilities

2,916

2,833Total liabilities

3,647

3,497Redeemable preference shares

173

159Shareholders' equity

119

82Total liabilities and shareholders' equity

3,939

3,738


F-66

---





The consolidated statement of cash flows prepared under UK GAAP presents substantially the same information as that required under U.S. GAAP by SFAS
No. 95, "Statement of Cash Flows" ("SFAS No. 95"). This standard differs, however, with regard to the classification of items within the
cash flow statements, including the classification of bank overdrafts, which are included as cash equivalents in the cashflow statement prepared for UK GAAP purposes.

Under
UK GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment,
acquisitions and disposals, equity dividends paid and management of liquid resources and financing. U.S. GAAP, however, would require only three categories of cash flow activity to be reported:
operating, investing and financing. Cash flows from taxation and returns on investments and servicing of finance shown under UK GAAP are included as operating activities under U.S. GAAP. The payment
of dividends to the Company's shareholders, which is presented separately under UK GAAP, is included as a financing activity under U.S. GAAP. Dividends paid to minority shareholders in Group companies
are classified as returns on investment and servicing of finance in the UK GAAP cash flow statement and cash flows from financing activities under U.S. GAAP.

The
following condensed cash flow statement represents cash flows based on UK GAAP measurement presented and classified in accordance with the U.S. GAAP requirements laid out in SFAS
No. 95:

|                                                 |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------------------------ |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Cash inflow from operating activities            |  | 364                                |   | 273                                |   | 298                                |  
|Cash outflow from investing activities           |  | (54                                | ) | (228                               | ) | (122                               | )
|Cash outflow from financing activities           |  | (186                               | ) | (133                               | ) | (140                               | )
|                                                 | 
|Increase/(decrease) in cash and cash equivalents |  | 124                                |   | (88                                | ) | 36                                 |  
|Cash and cash equivalents at beginning of period |  | 316                                |   | 440                                |   | 352                                |  
|                                                 | 
|Cash and cash equivalents at end of period       |  | 440                                |   | 352                                |   | 388                                |  
|                                                 | 



The Group's total continuing turnover is comprised of revenue from the following products and services as indicated in the table below:

|                                |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Access (rental and connections) |  | 423                                |   | 489                                |   | 557                                |  
|Voice traffic                   |  | 651                                |   | 596                                |   | 538                                |  
|Data traffic                    |  | 104                                |   | 112                                |   | 97                                 |  
|Data communications             |  | 204                                |   | 195                                |   | 180                                |  
|Interconnect                    |  | 210                                |   | 159                                |   | 165                                |  
|Other                           |  | 187                                |   | 159                                |   | 154                                |  
|Discounts                       |  | (97                                | ) | (82                                | ) | (89                                | )
|                                | 
|Total                           |  | 1,682                              |   | 1,628                              |   | 1,602                              |  
|                                | 

F-67

---



Of the Group's total turnover of €1,682 million, €1,628 million and
€1,602 million for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 respectively, approximately €41 million
(2%), €37 million (2%) and €49 million (3%) respectively, was generated from foreign customers located outside of Ireland.

The
Group does not hold significant long-lived assets outside of Ireland.



Commitments for minimum rentals for all capital leases, including defeased leases of €127 million (see note 34(r)) which would be
included on the consolidated balance sheet prepared in accordance with U.S. GAAP, as at 31 March 2005 are as follows:

Capital leases€'000For the years ended 31 March2006

16,8922007

29,2442008

36,2372009

40,3582010 and thereafter

31,816Total minimum lease payments

154,547Less: amount representing interest

(27,055
)127,492


The weighted average interest rate of capital leases under U.S. GAAP as at 31 March 2004 was approximately 4.5% and at 31 March 2005
was approximately 5.7%.



In January 2002, Valentia Telecommunications, the parent ofeircomLimited and 100% owned subsidiary of eircomGroup plc, entered into separate agreements with six executives of the Group whereby Valentia Telecommunications had agreed to grant options
exercisable over yet to be issued
Valentia Telecommunications E Ordinary shares ("E Ordinary shares"). In January 2003, Valentia Telecommunications agreed to give these six recipients the alternative to exercise their options
over yet to be authorised Valentia Telecommunications C Shares ("C Shares") in lieu of E Ordinary shares.

The
E Ordinary shares and the C Shares carried no voting rights or rights to receive dividends, and were restricted as to their transferability. In accordance with the guidance provided
by FIN 38, "Determining the Measurement Date for Stock Option, Purchase, and Award Plans Involving Junior Stock" ("FIN 38"), the E Ordinary shares were
considered junior stock. The options vested in full and were exercisable twelve months after the date of grant at the fair market value of the E Ordinary shares as of the date the obligation to grant
became effective, January 2002. Fair market value as of this date was determined by an independent valuation. If unexercised, these options would have expired on the seventh anniversary of
their grant date.

During
the financial year ended 31 March 2004, all existing options under the C Scheme were exercised and in March 2004, the C Shares ultimately converted to Ordinary
Shares upon Admission to the London and Irish Stock Exchanges. No further options will be granted under this plan.

F-68

---



The
following table summarises the transactions of the Group's share option activity for the financial years ended 31 March 2004 and 31 March 2005.

|                                                                          |  | Number of
Shares |   | Weighted-average
Exercise price
|------------------------------------------------------------------------- |  | ---------------- | - | -------------------------------
|
|Unexercised options committed to issuance 31 March 2003                   |  | 3,558,800        |   | 5.82                           
|Options granted                                                           |  | 49,710           |   | 5.82                           
|Options exercised                                                         |  | (3,608,510       | ) | 5.82                           
|                                                                         
|Unexercised options committed to issuance 31 March 2004 and 31 March 2005 |  |                 |   | 5.82                           
|                                                                         



During September 2003, the shareholders of the Group approved a plan to grant options to acquire 862,598 E Ordinary shares at an exercise price of
€5.82 per share to selected senior employees. Upon Admission in March 2004, the plan was amended following the conversion of the E Ordinary Shares into Ordinary Shares such that
the exercise price was €5.82 for every five Ordinary Shares, or €1.164 per Ordinary Share. The total number of Ordinary Shares that may be acquired by the option
holders under the E Scheme did not exceed 4,312,970. Upon Admission, the options granted under the E Scheme became immediately exercisable for a period of 30 days. The Board had discretion to
permit options granted under the E Scheme to be exercised during the period of 12 months following Admission, up to March 2005. All outstanding options under the E Scheme not exercised
during this 12-month period lapsed or in certain circumstances may be allowed to be exercised after this date. No further options will be granted under this plan.

The
following table summarises the transactions of the Group's share option activity for the financial years ended 31 March 2004 and 31 March 2005.

|                                                        |  | Number of
Shares |   | Weighted-average
Exercise price
|------------------------------------------------------- |  | ---------------- | - | -------------------------------
|
|Unexercised options committed to issuance 31 March 2003 |  |                 |   |                               
|Options granted                                         |  | 4,312,970        |   | 1.16                           
|Options exercised                                       |  | (2,065,265       | ) | 1.16                           
|                                                       
|Unexercised options committed to issuance 31 March 2004 |  | 2,247,705        |   | 1.16                           
|Options lapsed                                          |  | (16,540          | ) | 1.16                           
|Options exercised                                       |  | (2,177,700       | ) | 1.16                           
|                                                       
|Unexercised options committed to issuance 31 March 2005 |  | 53,465           |   | 1.16                           
|                                                       



The Share Option Plan allows eligible employees (including Executive Directors and Senior Management) to be granted options over existing or unissued ordinary
shares. The first grant of 8,402,442 options was made under the Share Option Plan to selected senior employees including the Executive Directors, on 22 June 2004 at a price of
€1.50.

The
exercise of any options granted under the Share Option Plan is conditional on achievement of performance targets over a three year period. For options granted during the financial
year ended 31 March 2005, the Remuneration Committee determined that the exercise of these options would be subject to the following performance target: (i) that the Company's normalised
adjusted earnings per share, based on UK GAAP, for the financial year ended 31 March 2007 must exceed 12.05 cents; and

F-69

---



(ii) payment
of a dividend of not less than 11 cents per share in each of the financial years ended 31 March 2005, 31 March 2006 and 31 March 2007 which reflects the
assumed dividend yield as described in the Listing Particulars published in connection with Listing. Normalised adjusted earnings per share will be calculated by an independent third party. These
options become exercisable, once the performance criteria are achieved, on 22 June 2007 and remain exercisable until 22 June 2014.

|                                                        |  | Number of
Shares |   | Weighted-average
Exercise price
|------------------------------------------------------- |  | ---------------- | - | -------------------------------
|
|Unexercised options committed to issuance 31 March 2004 |  |                 |   |                               
|Options granted                                         |  | 8,402,442        |   | 1.50                           
|Options lapsed                                          |  | (52,989          | ) | 1.50                           
|                                                       
|Unexercised options committed to issuance 31 March 2005 |  | 8,349,453        |   | 1.50                           
|                                                       

The following table summarises all of the transactions of the entire Group's share option activity for the financial years ended 31
March 2004 and 31 March 2005.

|                                                        |  | Number of
Shares |   | Weighted-average
Exercise price
|------------------------------------------------------- |  | ---------------- | - | -------------------------------
|
|Unexercised options committed to issuance 31 March 2003 |  | 3,558,800        |   | 5.82                           
|Options granted                                         |  | 4,362,680        |   | 1.22                           
|Options exercised                                       |  | (5,673,775       | ) | 4.13                           
|                                                       
|Unexercised options committed to issuance 31 March 2004 |  | 2,247,705        |   | 1.16                           
|Options granted                                         |  | 8,402,442        |   | 1.50                           
|Options lapsed                                          |  | (69,529          | ) | 1.42                           
|Options exercised                                       |  | (2,177,700       | ) | 1.16                           
|                                                       
|Unexercised options committed to issuance 31 March 2005 |  | 8,402,918        |   | 1.50                           
|                                                       

The exercise price of all options was greater than the market value of the shares at the date of grant.

The
fair value of options granted for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 reported below has been estimated at the date of grant
using Black-Scholes option pricing model with the following assumptions:

|                                           |  | 2003 |  | 2004 |   | 2005  |  
|------------------------------------------ |  | ---- |  | ---- | - | ----- | -
|Expected life from vesting date (in years) |  | N/A  |  | 2.75 |   | 10.00 |  
|Risk-free interest rate                    |  | N/A  |  | 3.2  | % | 4.5   | %
|Volatility                                 |  | N/A  |  | 36   | % | 19    | %
|Dividend yield                             |  | N/A  |  |     |   | 7.33  | %

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. The Group's options granted prior to Admission, had characteristics significantly
different from those of traded options, and changes in the subjective input assumptions could materially affect the fair value estimate. Based upon the above assumptions the weighted average fair
value of the stock options granted under the E Scheme over Ordinary Shares was €0.06 per option during the financial year ended 31 March 2004. The weighted average fair value of
the stock options granted under the Share Option Plan over Ordinary Shares was €0.10 per option during the year ended 31 March 2005.

F-70

---





Certain executive directors and senior executives were granted awards over 1,472,198 Ordinary Shares in March 2004 at a fair value of
€1.55 per share. The awards vest 50% annually over two years on the anniversary of the date of Admission, which was 24 March 2004, and will be exercisable at no cost to the
holder. The portion to vest in March 2005 did not vest and it is anticipated that these will vest during the year ended 31 March 2006. No further awards will be granted under this plan.



On Admission, the Group granted 500,000 Ordinary Shares to two of its non-executive directors. The awards were immediately vested. The holders of
these shares have agreed not to dispose of more than 50% of their holdings in the Ordinary Shares until 31 December 2005.

Under
U.S. GAAP, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), as amended by
SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure" ("SFAS No. 148"), the Group has accounted
for its share based compensation in accordance with APB No. 25, "Accounting for Stock Issued to Employees". Additionally as the E Ordinary Shares and C Shares were considered junior stock, the
Group applied the guidance in FIN 38 to the awards under the C Scheme and E Scheme. In accordance with U.S. GAAP, the Group recorded a compensation charge of €6.6 million
related to the C Scheme and the E Scheme during the financial year ended 31 March 2004, since the transferability restrictions and the repurchase provisions lapsed upon Admission.

Under
U.S. GAAP, there was no compensation charge recorded under the Share Award Plan during the financial year ended 31 March 2004 since the shares were granted on
24 March 2004 and vest over two years. During the financial year 31 March 2005, the compensation charge relating to 50% of the shares under the Share Award Plan was
€1.1 million.

Under
U.S. GAAP, the compensation charge related to the 500,000 Ordinary Share awards was €775,000, during the financial year ended 31 March 2004.

Total
equity compensation charges under U.S. GAAP were €7.4 million for the financial year ended 31 March 2004 and €2.4 million for
the financial year ended 31 March 2005.

F-71

---



Had
the options and awards been accounted for in accordance with the provisions of SFAS No.123, pro forma net income and basic and diluted net earnings per share would have been as
follows for the financial years ended 31 March 2004 and 31 March 2005:

|                                                                                                                                                 |                               | Financial year ended |      
|------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------- | -------------------- | -----
|
|
|Net (loss)/profit under U.S. GAAP attributable to ordinary shareholders, as reported                                                             |                               | (228                 | )    
|Add: Total equity related employee compensation expense determined under intrinsic value based method for all awards, net of related tax effects |                               | 7                    |      
|Deduct: Total equity related employee compensation expense determined under fair value based method for all awards, net of related tax effects   |                               | (4                   | )    
|                                                                                                                                                 |                              
|Pro forma net (loss)/profit                                                                                                                      |                               | (225                 | )    
|                                                                                                                                                 |                              
|                                                                                                                                                 |                               | €                    |      
|(Loss)/earnings per share:                                                                                                                       |                               |                      |      
|                                                                                                                                                 | Basic and Diluted-as reported |                      | (0.43
|                                                                                                                                                 | Basic and Diluted-pro forma   |                      | (0.42



Under UK GAAP, on 1 January 1984 tangible assets valued, in accordance with the Postal and Telecommunications Services Act, 1983, at
€798.7 million were transferred to the Group. Since the Group did not maintain sufficiently detailed records to determine the historical cost for all assets, the valuation for
certain assets was based on the estimated replacement cost, adjusted for depreciation and inflation ("depreciated replacement cost"). The Company has adopted consistent treatment for purposes of U.S.
GAAP and thus no UK/U.S. GAAP difference has been recorded.



The Group established an annuity scheme whereby employees participating in a voluntary termination scheme could accept payment in one lump sum or in an annuity to
be paid out over a period of ten years. Under UK GAAP, the Group calculates the net of the present value of the fixed payment stream due to employees and the fair value of the assets set aside to fund
the payment stream on the balance sheet date. Under U.S. GAAP, the liability for the annuity due to the employee is treated separately from the assets set aside to fund the liability. The assets have
been classified as trading securities under SFAS No. 115,"Accounting for Certain Investments in Debt and Equity Securities", with all unrealised
gains or losses recorded through current earnings as a restructuring charge.

The
annuity scheme liability and the fair value of the assets set aside to fund the liability were €155 million and €83 million at
31 March 2004, and €150 million and €72 million at 31 March 2005, respectively.

F-72

---





As at
31 March 2004

As at
31 March 2005€'m

€'mTrade Debtors

285

285Provision for Doubtful accounts

(66
)
(75
)219

210


36.   Recently Issued Accounting Standards Applicable to U.S. GAAP



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R"Share-Based
Payment"("SFAS 123R") which revises SFAS 123 and eliminates the option to apply the intrinsic value measurement provisions of APB 25. SFAS 123R requires
that the cost of all share-based payment transactions be recognised in the financial statements. SFAS 123R also establishes fair value as the measurement method in accounting for share-based
payments to employees. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. For public entities that do
not file as small business issuers, the standard is effective for the first interim or annual reporting period that begins after June 15, 2005. The Group adopted SFAS 123R on
1 April 2005 using the modified prospective transition method. Under the modified prospective method, and in accordance with Staff Accounting Bulletin 107 ("SAB 107"), the Group is not required
to restate prior year amounts. The Group estimates the application of the expensing provisions of SFAS 123R will result in a pre-tax expense of approximately
€2 million in the financial year ending 31 March 2006 excluding additional grants and awards.

In March
2004, FASB's Emerging Issues Task Force ("EITF") reached consensus on EITF 03-01,"The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"("EITF 03-01"). The guidance prescribed a
three-step model for determining whether an investment is other-than-temporarily impaired and requires disclosure for unrealised losses on investments.
In September 2004, the FASB issued FASB Staff Position ("FSP") EITF 03-1-1 "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1"
("FSP EITF 03-1-1"). FSP EITF 03-1-1 delays the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of
EITF 03-01. The disclosure requirements of EITF 03-01 remain effective for fiscal years ending after June 15, 2004. No effective date for the measurement and recognition
guidance has been established in FSP EITF 01-1-1. During the period of delay, FSP EITF 01-1-1 states that companies should continue to apply current
guidance to determine if an impairment is other-than-temporary. The adoption of EITF 03-01, excluding paragraphs 10-20, did not impact the Group's
consolidated position, results of operations or cash flows. The Group will assess the impact of paragraphs 10-20 of EITF 03-01 once the guidance has been finalised.

In December
2003, the Securities and Exchange Commission issued "Staff Accounting Bulletin 104" ("SAB 104"). SAB 104 addresses certain aspects of the accounting by a vendor
for arrangements that involve more than one deliverable, or unit of accounting, and how arrangement consideration should be measured and allocated to the separate units of accounting in the
arrangement. SAB 104 has no impact on these financial statements.

F-73

---





VALENTIA TELECOMMUNICATIONS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of Valentia Telecommunications:

We
have audited the accompanying consolidated balance sheets of Valentia Telecommunications and its subsidiaries as of 31 March 2004 and 31 March 2005 and the related
consolidated profit and loss accounts, consolidated cash flow statements and reconciliation of movements in consolidated shareholders' funds for each of the three years in the period ended
31 March 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Valentia Telecommunications and its
subsidiaries at 31 March 2004 and 31 March 2005, and the results of their operations and their cash flows for each of the three years in the period ended 31 March 2005, in
conformity with accounting principles generally accepted in Ireland.

Accounting
principles generally accepted in Ireland 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 31 to the consolidated financial statements.

PricewaterhouseCoopers
Dublin, Ireland
28 June 2005

F-74

---



Valentia Telecommunications

Consolidated Profit and Loss Account

For the Year Ended 31 March 2005

|                                                                                                         |  | Notes |  | 2003   |   | 2004   |   | 2005   |  
|-------------------------------------------------------------------------------------------------------- |  | ----- |  | ------ | - | ------ | - | ------ | -
|
|Turnover                                                                                                 |  | 2     |  | 1,682  |   | 1,628  |   | 1,602  |  
|Cost of sales                                                                                            |  |       |  | (499   | ) | (410   | ) | (378   | )
|                                                                                                         | 
|Gross profit                                                                                             |  |       |  | 1,183  |   | 1,218  |   | 1,224  |  
|                                                                                                         | 
|Operating costs before exceptional operating (charges)/credits, depreciation and goodwill amortised      |  | 3     |  | (648   | ) | (632   | ) | (695   | )
|Exceptional operating (charges)/credits                                                                  |  | 3, 4  |  | (13    | ) | (16    | ) | 4      |  
|Depreciation (net)                                                                                       |  | 3, 10 |  | (399   | ) | (368   | ) | (316   | )
|Exceptional fixed asset impairment                                                                       |  | 3, 10 |  |       |   | (38    | ) |       |  
|Goodwill amortised on subsidiary undertakings                                                            |  | 3, 9  |  | (38    | ) | (38    | ) | (38    | )
|                                                                                                         | 
|Total operating costs                                                                                    |  | 3     |  | (1,098 | ) | (1,092 | ) | (1,045 | )
|Group operating profit                                                                                   |  |       |  | 85     |   | 126    |   | 179    |  
|                                                                                                         | 
|Group's share of operating profits of associated undertakings                                            |  |       |  |       |   |       |   | 1      |  
|Total operating profit                                                                                   |  |       |  | 85     |   | 126    |   | 180    |  
|                                                                                                         | 
|Exceptional gain on the disposal of fixed assets                                                         |  |       |  | 2      |   |       |   |       |  
|Exceptional gain on the exit from subsidiaries                                                           |  |       |  | 1      |   | 1      |   |       |  
|                                                                                                         | 
|Profit on ordinary activities before interest and taxation                                               |  |       |  | 88     |   | 127    |   | 180    |  
|Interest payable and similar charges (net)                                                               |  | 5     |  | (134   | ) | (157   | ) | (129   | )
|Exceptional interest payable and similar charges                                                         |  | 6     |  |       |   | (51    | ) | 1      |  
|                                                                                                         | 
|(Loss)/profit on ordinary activities before taxation                                                     |  |       |  | (46    | ) | (81    | ) | 52     |  
|Tax credit/(charge) on (loss)/profit on ordinary activities                                              |  | 7     |  | 6      |   | (14    | ) | (20    | )
|                                                                                                         | 
|(Loss)/profit on ordinary activities after taxation                                                      |  |       |  | (40    | ) | (95    | ) | 32     |  
|Dividend paid and payable (including dividends and other appropriations in respect of non-equity shares) |  | 8     |  | (22    | ) | (609   | ) | (153   | )
|                                                                                                         | 
|Loss for the financial year                                                                              |  | 20    |  | (62    | ) | (704   | ) | (121   | )
|                                                                                                         | 

All of the group's activities are continuing.

The
accompanying notes form an integral part of these consolidated financial statements.

F-75

---



Valentia Telecommunications

Consolidated Balance Sheet

As at 31 March 2005

|                                                        |                                                       | Notes |    | 2004  |       | 2005  |      
|------------------------------------------------------- | ----------------------------------------------------- | ----- | -- | ----- | ----- | ----- | -----
|
|Fixed assets                                            |                                                       |       |    |       |       |       |      
|                                                        | Intangible assets                                     |       | 9  |       | 669   |       | 633  
|                                                        | Tangible assets                                       |       | 10 |       | 2,140 |       | 2,029
|                                                        | Investments in associates                             |       | 11 |       |      |       | 1    
|                                                        |                                                      
|                                                        |                                                       |       |    | 2,809 |       | 2,663 |      
|                                                        |                                                      
|Current assets                                          |                                                       |       |    |       |       |       |      
|                                                        | Stocks                                                |       | 12 |       | 10    |       | 11   
|                                                        | Debtors: amounts falling due within one year          |       | 13 |       | 327   |       | 328  
|                                                        | Debtors: amounts falling due after more than one year |       | 13 |       | 177   |       | 162  
|                                                        | Cash at bank and in hand                              |       |    |       | 285   |       | 245  
|                                                        |                                                      
|                                                        |                                                       |       |    | 799   |       | 746   |      
|                                                        |                                                      
|Creditors: Amounts falling due within one year          |                                                       | 14    |    | 733   |       | 722   |      
|Net current assets                                      |                                                       |       |    | 66    |       | 24    |      
|                                                        |                                                      
|Total assets less current liabilities                   |                                                       |       |    | 2,875 |       | 2,687 |      
|                                                        |                                                      
|Creditors: Amounts falling due after more than one year |                                                       | 14    |    | 2,273 |       | 2,210 |      
|Provisions for liabilities and charges                  |                                                       | 17    |    | 242   |       | 238   |      
|                                                        |                                                      
|                                                        |                                                       |       |    | 2,515 |       | 2,448 |      
|                                                        |                                                      
|Net assets                                              |                                                       |       |    | 360   |       | 239   |      
|                                                        |                                                      
|Capital and reserves                                    |                                                       |       |    |       |       |       |      
|Called up share capital                                 |                                                       |       |    |       |       |       |      
|                                                        | Equity share capital                                 |       | 19 |       | 360   |       | 360  
|Reserves                                                |                                                       |       |    |       |       |       |      
|                                                        | Share premium account                                |       | 20 |       |      |       |     
|                                                        | Revaluation reserve                                  |       | 20 |       | 91    |       | 87   
|                                                        | Capital contribution                                 |       | 20 |       | 220   |       | 220  
|                                                        | Profit and loss account                              |       | 20 |       | (311  | )     | (428 
|                                                        |                                                      
|Total equity shareholders' funds                        |                                                       |       |    | 360   |       | 239   |      
|                                                        |                                                      

The accompanying notes form an integral part of these consolidated financial statements.

F-76

---





Valentia Telecommunications

Consolidated Cash Flow Statement

For the Year Ended 31 March 2005

|                                                                   |  | Notes |     | 2003 |   | 2004 |   | 2005 |  
|------------------------------------------------------------------ |  | ----- | --- | ---- | - | ---- | - | ---- | -
|
|Net cash inflow from operating activities                          |  | 22    | (a) | 497  |   | 490  |   | 524  |  
|Returns on investments and servicing of finance                    |  | 22    | (b) | (140 | ) | (218 | ) | (152 | )
|Taxation                                                           |  | 22    | (c) | 4    |   | (14  | ) | (55  | )
|Capital expenditure and financial investment                       |  | 22    | (d) | (239 | ) | (177 | ) | (201 | )
|Acquisitions and disposals                                         |  | 22    | (e) | 185  |   | (1   | ) |     |  
|Dividends paid to equity shareholders                              |  |       |     |     |   | (535 | ) | (155 | )
|                                                                   | 
|Cash inflow/(outflow) before use of liquid resources and financing |  |       |     | 307  |   | (455 | ) | (39  | )
|Financing                                                          |  | 22    | (f) | (182 | ) | 300  |   |     |  
|                                                                   | 
|Increase/(decrease) in net cash                                    |  |       |     | 125  |   | (155 | ) | (39  | )
|                                                                   | 

Reconciliation of Net Cash Flow to Decrease/(Increase) in Net Debt

|                                                           |  | Notes |     | 2003 |  | 2004 |   | 2005 |  
|---------------------------------------------------------- |  | ----- | --- | ---- |  | ---- | - | ---- | -
|
|Increase/(decrease) in cash in the financial year          |  |       |     | 125  |  | (155 | ) | (39  | )
|Cash flow from decrease/(increase) in loans and other debt |  |       |     | 182  |  | (80  | ) |     |  
|                                                           | 
|Decrease/(increase) in net debt                            |  | 22    | (g) | 307  |  | (235 | ) | (39  | )
|                                                           | 

The accompanying notes form an integral part of these consolidated financial statements.

F-77

---



Valentia Telecommunications

Consolidated Group Statement of Total Recognised Gains and Losses

For the Year Ended 31 March 2005

|                                                    |  | 2003 |   | 2004 |   | 2005
|--------------------------------------------------- |  | ---- | - | ---- | - | ----
|
|(Loss)/profit on ordinary activities after taxation |  | (40  | ) | (95  | ) | 32  
|Unrealised surplus on revaluation of properties     |  | 7    |   | 87   |   |    
|                                                   
|Total recognised (losses)/gains for the year        |  | (33  | ) | (8   | ) | 32  
|                                                   

Note of Consolidated Historical Cost Profits and Losses

The reported profit on ordinary activities before tax is €52 million (2004: loss of €81 million, 2003: loss of
€46 million).

If
account was taken of the impact of assets carried at valuation, this profit would be increased by €4 million (2004: decrease loss by
€3 million, 2003: no material difference), to produce a historical cost profit on ordinary activities before tax of €56 million (2004: loss of
€78 million, 2003: loss of €46 million). The historical cost loss absorbed after taxation and dividends would be €117 million
(2004: loss absorbed of €701 million, 2003: loss absorbed of €62 million).

The
accompanying notes form an integral part of these consolidated financial statements.

F-78

---



Reconciliation of Movements in Consolidated Shareholders' Funds

|                                                    |  | 2003 |   | 2004 |   | 2005 |  
|--------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|(Loss)/profit on ordinary activities after taxation |  | (40  | ) | (95  | ) | 32   |  
|Dividends and appropriations                        |  | (22  | ) | (609 | ) | (153 | )
|                                                    | 
|Loss for the financial year                         |  | (62  | ) | (704 | ) | (121 | )
|Capital contribution received from parent company   |  |     |   | 220  |   |     |  
|Revaluation surplus                                 |  | 7    |   | 87   |   |     |  
|                                                    | 
|Net reduction in total shareholders' funds          |  | (55  | ) | (397 | ) | (121 | )
|Total shareholders' funds at beginning of year      |  | 812  |   | 757  |   | 360  |  
|                                                    | 
|Total shareholders' funds at end of year            |  | 757  |   | 360  |   | 239  |  
|                                                    | 
|Shareholders' funds are split as follows:           |  |      |   |      |   |      |  
|Equity shareholders' funds                          |  | 505  |   | 360  |   | 239  |  
|Non-equity shareholders' funds                      |  | 252  |   |     |   |     |  
|                                                    | 
|                                                    |  | 757  |   | 360  |   | 239  |  
|                                                    | 

The accompanying notes form an integral part of these consolidated financial statements.

F-79

---



Valentia Telecommunications

Notes to the Consolidated Financial Statements

1.     Accounting Policies and Estimation Techniques



The financial statements are prepared under the historical cost convention, as modified by the revaluation of certain tangible fixed assets, in accordance with
the Companies Acts, 1963 to 2003, and the European Communities (Companies: Group Accounts) Regulations 1992, and applicable accounting standards. The group financial statements consolidate the
financial statements of the company and its subsidiary undertakings. The subsidiary undertakings' financial years are all coterminous with those of the company. A summary of the more important group
accounting policies is set out below.

The
preparation of the financial statements requires the directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported amounts included in the profit and loss account for the year.

Actual
results could differ from those estimates. Estimates are used principally when accounting for interconnect revenue, provisions required in respect of doubtful debts, payments to
telecommunications operators, depreciation, impairment charges, amortisation of goodwill, pension schemes, provisions for liabilities and charges, including amounts required to settle self insured
liabilities, and taxation payable.

As
permitted by the Companies (Amendment) Act, 1986, the directors have adapted the prescribed format of the profit and loss account in a manner appropriate to the nature of the group's
business.

The
consolidated financial statements of the group are presented in euro denoted by the symbol "€".

Certain
amounts in prior years have been reclassified to conform with the current years presentation.



The consolidated financial statements of the group comprise a consolidation of the financial statements of the company, Valentia Telecommunications, and its
subsidiary undertakings.

Acquisitions
of companies are accounted for under acquisition accounting rules. Investments in associated undertakings are accounted for using the equity method of accounting. All
inter-group transactions are eliminated as part of the consolidation process. The results of subsidiaries sold or acquired are included in the consolidated profit and loss account up to, or from, the
date control passes.



The goodwill arising from the purchase of subsidiary undertakings is capitalised and amortised on a straight line basis over its expected useful life. Goodwill
represents the excess of the consideration paid for the acquisition of shares in subsidiaries and associated undertakings over the fair value of the separable net assets acquired. The useful lives of
goodwill, related to acquired businesses have been determined by reference to the years over which the values of the underlying businesses are expected

F-80

---



to
exceed the values of their identifiable net assets, and are presumed not to exceed twenty years. The presumption that the useful life of goodwill is twenty years is considered appropriate based on
the useful life of the underlying assets and the nature of the business acquired.



Intangible assets purchased are capitalised at cost and amortised over the useful life of the related asset. They consist of purchased monitoring contracts in our
residential security systems operation.



Turnover comprises the fair value of consideration received in respect of all services provided and equipment sold to third parties, exclusive of value added tax
and after discounts. Turnover is recognised in the period earned by rendering of services or delivery of products. Turnover includes sales by group undertakings but excludes all intercompany sales.

Turnover
from calls is recognised at the time the call is made over the group's networks. Turnover from rentals is recognised evenly over the period to which the charges relate. Turnover
from installation and connection activities is recognised in the same period as the related costs. Turnover from equipment sold to third parties is recognised at the point of sale. Turnover arising
from the provision of other services, including maintenance contracts, is recognised over the term of the contract.

Bundled
products (line rentals and calls) are accounted for in the same manner as the unbundled products comprising the bundle. The discount to standard call rates is normally applied to
the traffic element of the bundle.

Billings
for telephone services are made on a monthly or bi-monthly basis. Unbilled revenues from the billing cycle date to the end of each month are recognised as revenue
during the month the service is provided.

The
group acts as principal in the vast majority of transactions with its customers. Where the group sells services to customers as a network provider as opposed to service provider, the
circumstances of these transactions are reviewed, and the group believes that it carries all of the risks of the relationship and sale to the end customer, and settlement with the service originator
are separate and unrelated. Therefore, the group considers itself the principal in these transactions and accounts for the settlement and revenue recognition as two distinct transactions.

The
group is required to interconnect their networks with other telecommunications operators. In some instances, as is normal practice in the telecommunications industry, reliance is
placed on other operators to measure the traffic flows interconnecting with the group's networks. In addition, the prices at which services are charged are often regulated and can be subject to
retrospective adjustment. Estimates are used in these cases to determine the amount of income receivable from, or payments required to be made to, these other operators and to establish appropriate
provisions.



Costs of sales are mainly settlement fees that the group pays to other authorised operators for traffic that is routed on their networks. Costs of sales also
include the cost of equipment sold and commissions paid to third party agents. These commissions relate to sales ofeircomproducts by third parties.
Costs are recognised in the same period as the related turnover. This period is based on the term the customer is committed to a contractual service contract. Where customers have no contractual
commitment, agents commission and other costs directly attributable to the sale to the customers are recognised as incurred.

F-81

---





Expenditure on research is written off as incurred.



Transactions denominated in foreign currencies are translated into euro at the rate of exchange ruling at the transaction date. Assets and liabilities denominated
in foreign currencies are translated at the rates ruling at the balance sheet date, or rates of exchange contracted for under various currency management instruments, with the resulting gain or loss
being dealt with through the profit and loss account.

The
financial statements of foreign subsidiaries are translated at year end rates for the balance sheet and the weighted average rates for the year for the profit and loss account.
Translation gains and losses arising are reported as a movement on reserves. All other differences are taken to the profit and loss account.



The company is managed and controlled in the Republic of Ireland and, consequently, is tax resident in Ireland.

Corporation
tax is calculated on the profits of the year as adjusted for Group relief. Tax losses utilised for Group relief are transferred between group members. Charges for Group
relief are determined on a case by case basis.

Deferred
tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation
to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the group's taxable profits and its results
as stated in the financial statements. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax
rates and laws that have been
enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.



The group enters into transactions in the normal course of business using a variety of financial instruments in order to hedge against exposures to fluctuating
exchange and interest rates. Firmly committed transactions and the related receivable, or payable, may be hedged with forward exchange contracts.

Currency
swap agreements and forward exchange contracts are used to cover the majority of the group's foreign currency debt position. These are valued at year-end exchange
rates and the resulting gains and losses are offset against gains and losses on the translation of the related debt. The interest element of the contracts is reflected in interest payable and similar
charges.

Interest
rate swap agreements are used to reduce the effect of interest rate fluctuations. Interest differentials, arising from these agreements, are accrued and reflected in interest
payable and similar charges. Gains or losses arising from interest rate swaps which are terminated upon the repayment of the related debt are reflected in interest payable and similar charges.

All
borrowings are initially stated at the fair value of the consideration received after deduction of issue costs. Issue costs together with finance costs are charged to the profit and
loss account over the term of the borrowings and represent a constant proportion of the balance of capital repayments

F-82

---



outstanding.
Accrued finance costs attributable to borrowings are included in accrued charges within current liabilities. Accrued issue costs are netted against the carrying value of borrowings.



Tangible fixed assets are stated at historical cost or valuation, less accumulated depreciation. Cost in the case of network plant comprises expenditure up to and
including the last distribution point before customers' premises and includes contractors' charges, materials and labour and related overheads
directly attributable to the cost of construction. Land and buildings, are stated at a valuation, the basis of which is depreciated replacement cost or open market value, as appropriate. Depreciated
replacement cost is the gross replacement cost of fixed assets less depreciation based on that cost and on the age of the assets.



Depreciation is provided on tangible fixed assets (excluding land), on a straight line basis, so as to write off their historical cost/valuation less residual
amounts over their estimated economic lives. A full year's depreciation is charged to the profit and loss account, on tangible fixed assets (excluding land), in the year the asset becomes available
for use. The estimated economic lives assigned to tangible assets are as follows:

Estimated Economic Life (Years)Asset ClassBuildings

40Network ServicesTransmission EquipmentDuct

20Overhead cable/poles

10-15Underground cable

14ExchangesExchange line terminations

8Core hardware/operating software

4Others

3-7


The group's policy is to review the remaining economic lives of tangible fixed assets on an ongoing basis and to adjust the depreciation charge to
reflect the remaining estimated lives of tangible fixed assets.

Fully
depreciated assets are retained in the cost/valuation of tangible fixed assets and related accumulated depreciation until they are removed from service. In the case of disposals,
assets and related depreciation are removed from the financial statements and the net amount, less proceeds from disposal, is charged or credited to the consolidated profit and loss account.



Assets in the course of construction represent the cost of purchasing, constructing and installing tangible fixed assets ahead of their own productive use. No
depreciation is charged on assets in the course of construction.

F-83

---





The group undertakes a review for impairment of tangible and intangible fixed assets if events, or changes in circumstances, indicate that the carrying amount of
the fixed asset may not be recoverable. To the extent that the carrying amount exceeds the recoverable amount, that is the higher of net realisable value and value in use, the fixed asset is written
down to its recoverable amount. The value in use of fixed assets is determined from estimated discounted future net cash flows.



Non-repayable grants are accounted for as deferred income, which is amortised to the profit and loss account at the same rate as the related assets
are depreciated.



The capital cost of fixed assets acquired under finance leases is included in tangible assets and written off over the estimated useful life of the asset. The
outstanding capital element of the lease obligations is included in loans and other debt, while the interest is charged to the profit and loss account over the primary lease term.

Operating
lease rentals are charged to the profit and loss account on a straight line basis over the term of the lease as incurred.



Stocks comprise consumable items, which may be used in the construction or maintenance of plant and goods held for resale. Stocks are stated at the lower of cost
and net realisable value. Cost includes invoice price, import duties and transportation costs. Where necessary, provisions are made for damaged, deteriorated, obsolete and unusable items.



Debtors are stated in the balance sheet at estimated net realisable value. Net realisable value is the invoiced amount less provisions for bad and doubtful debts.
Provisions are made specifically against debtors where there is evidence of a dispute or an inability to pay. An additional provision is made where necessary based on an analysis of balances by age of
debtor, payment history, previous losses experienced and general economic conditions.



The pension entitlements of employees, arising from their service with the group, are secured by contributions from the group and the employees to separately
administered superannuation schemes.

The
group operates funded defined benefit pension schemes, which are independent of the group's finances, for the majority of its employees. Actuarial valuations of the main scheme are
carried out, as determined by the trustees, at intervals of not more than three years. The rates of contribution payable and the pension cost are determined on the advice of the actuaries, having
regard to the results of these valuations.

The
cost of providing pensions is charged against profits over employees' working lives with the group using the projected unit method. Variations from this regular cost are allocated on
a straight-line basis over the average remaining service lives of current employees.

Additional
contributions are made to superannuation schemes in respect of employees who take early retirement. These contributions are based on the advice of a professionally qualified
actuary.

F-84

---



The
group also operates defined contribution pension schemes for certain of its employees and the profit and loss account is charged with the contributions payable by the group.

The
disclosures required under the transitional arrangements of Financial Reporting Standard 17 "Retirement Benefits" for the year ended 31 March 2005 are shown in Note 25.



A provision is defined as a liability of uncertain timing or amount. Provisions are recognised when the group has a legal or constructive obligation as a result
of past events and a reliable estimate of that obligation can be made. Provisions are measured, where material, on a discounted basis.



In accordance with the requirements of FRS 12 "Provisions, Contingent Liabilities and Contingent Assets", provision is made against the net cash outflow expected
to arise from contracts where the unavoidable costs under the contract exceed the economic benefit expected to be received under the contract.

2.     Turnover and Segmental Analysis by Class of Business

The group provides communications services, principally in Ireland. The group is managed on a unitary basis and has no segments. The group's share of turnover
from associates is included in the table below.

|               |            | 2003  |       | 2004  |       | 2005 
|-------------- | ---------- | ----- | ----- | ----- | ----- | -----
|
|Turnover       |            |       |       |       |       |      
|               | Group      |       | 1,682 |       | 1,628 |      
|               | Associates |       | 13    |       | 15    |      
|              
|Total turnover |            | 1,695 |       | 1,643 |       | 1,622
|              

F-85

---



3.     Operating Costs

|                                                                                 |                                        | 2003  |     | 2004  |     | 2005  |    
|-------------------------------------------------------------------------------- | -------------------------------------- | ----- | --- | ----- | --- | ----- | ---
|
|Staff costs                                                                      |                                        |       |     |       |     |       |    
|                                                                                 | Wages and salaries & other staff costs |       | 372 |       | 376 |       | 367
|                                                                                 | Social welfare costs                   |       | 15  |       | 14  |       | 14 
|                                                                                 | Pension costs                          |       | 41  |       | 41  |       | 40 
|                                                                                 |                                       
|                                                                                 |                                        | 428   |     | 431   |     | 421   |    
|Staff costs capitalised                                                          |                                        | (44   | )   | (54   | )   | (58   | )  
|                                                                                 |                                       
|Staff costs before restructuring programme costs                                 |                                        | 384   |     | 377   |     | 363   |    
|Restructuring programme costs (including related pension costs)                  |                                        |      |     |      |     | 72    |    
|                                                                                 |                                       
|Net staff costs included in operating costs                                      |                                        | 384   |     | 377   |     | 435   |    
|Other operating costs (a)                                                        |                                        | 264   |     | 255   |     | 260   |    
|                                                                                 |                                       
|                                                                                 |                                        | 648   |     | 632   |     | 695   |    
|Exceptional operating charges/(credits) (including certain staff costs (note 4)) |                                        | 13    |     | 16    |     | (4    | )  
|Depreciation (net) (note 10)                                                     |                                        | 399   |     | 368   |     | 316   |    
|Exceptional fixed asset impairment (note 10)                                     |                                        |      |     | 38    |     |      |    
|Goodwill amortised on subsidiary undertakings (note 9)                           |                                        | 38    |     | 38    |     | 38    |    
|                                                                                 |                                       
|Total operating costs                                                            |                                        | 1,098 |     | 1,092 |     | 1,045 |    
|                                                                                 |                                       



|                                                               |  | 2003   |   | 2004   |   | 2005   |  
|-------------------------------------------------------------- |  | ------ | - | ------ | - | ------ | -
|
|Research costs                                                 |  | 154    |   | 50     |   | 1,048  |  
|                                                               | 
|Hire of plant and machinery                                    |  | 2,891  |   | 3,053  |   | 3,367  |  
|                                                               | 
|Other operating lease rentals                                  |  | 22,748 |   | 22,449 |   | 20,096 |  
|                                                               | 
|Net exchange gain on foreign currency borrowings less deposits |  | (6,238 | ) | (1,134 | ) | (261   | )
|                                                               | 



The group obtained the following services from the group's auditor as detailed below:

|                                                              |  | 2003  |  | 2004  |  | 2005 
|------------------------------------------------------------- |  | ----- |  | ----- |  | -----
|
|Audit services                                                |  |       |  |       |  |      
|Statutory audit                                               |  | 575   |  | 590   |  | 592  
|Other audit related services (including non-statutory audits) |  | 361   |  | 2,235 |  | 730  
|Audit related regulatory reporting                            |  | 1,421 |  | 2,085 |  | 2,255
|                                                             
|                                                              |  | 2,357 |  | 4,910 |  | 3,577
|Further assurance services                                    |  | 1,444 |  | 1,815 |  | 342  
|Tax advisory services                                         |  | 966   |  | 144   |  | 60   
|                                                             
|                                                              |  | 4,767 |  | 6,869 |  | 3,979
|                                                             

F-86

---



Total services, included in the table for the year ended 31 March 2004, in the amount of €2.0 million have not been
included in operating costs as they are in respect of audit related and other services provided by the auditors in respect of the group's issue of Senior and Senior
Subordinated Notes. The debt issue costs have been offset against the fair value of the related debt and will be amortised over the life of the related debt. This amount is stated exclusive of
irrecoverable VAT of €0.2 million.



|                           |  | 2003  |  | 2004   |  | 2005 
|-------------------------- |  | ----- |  | ------ |  | -----
|
|Emoluments                 |  |       |  |        |  |      
|for services as Directors |  | 535   |  | 1,338  |  | 763  
|for other services        |  | 1,306 |  | 5,707  |  | 3,392
|pension contributions     |  | 328   |  | 3,726  |  | 525  
|                          
|                           |  | 2,169 |  | 10,771 |  | 4,680
|                          

4.     Exceptional Operating Charges/(Credits)

|                                        |  | 2003 |  | 2004 |  | 2005 |  
|--------------------------------------- |  | ---- |  | ---- |  | ---- | -
|
|Exceptional operating charges/(credits) |  | 13   |  | 16   |  | (4   | )
|                                        | 

In the year ended 31 March 2005, an exceptional credit arose in respect of a €4 million adjustment to the fair
values of liabilities acquired on the acquisition by Valentia Telecommunications ofeircomLimited on 2 November 2001. The net tax effect of the
exceptional credit was to increase the Group tax charge by €1 million.

In
the year ended 31 March 2004, exceptional costs include bonus amounts payable to executives of €19 million, relating to contractual entitlements
triggered by the refinancing, which were not capitalised as debt issue costs under UK GAAP and costs incurred of €1 million in connection with refinancing. These costs were
partially offset by a €3 million credit relating to compliance matters and €1 million credit relating to restructuring. The net tax effect of the
exceptional charge was to reduce the Group tax charge by €2 million.

In
the year ended 31 March 2003, the group incurred a number of non-recurring costs principally in relation to (i) costs incurred in connection with potential
refinancing and (ii) charges in relation to a deficit on an annuity scheme provided as part of the restructuring programme. The net tax effect of the exceptional charge was to reduce the group
tax charge by €1 million.

The
cash outflows resulting from exceptional charges for the year ended 31 March 2005 were €nil (2004: €40 million, 2003:
€19 million). This includes certain cashflows in respect of exceptional charges included in the Profit and Loss account in earlier years.

F-87

---



5.     Interest Payable and Similar Charges (net)

|                                                                                       |                         | 2003 |    | 2004 |     | 2005 |    
|-------------------------------------------------------------------------------------- | ----------------------- | ---- | -- | ---- | --- | ---- | ---
|
|Interest and associated finance costs payable in respect of bank loans and other debt: |                         |      |    |      |     |      |    
|Repayable within 5 years                                                               |                         | 17   |    | 43   |     | 51   |    
|Repayable wholly or partly in more than 5 years                                        |                         | 142  |    | 112  |     | 81   |    
|Amortisation of issue costs of bank loan and other debt                                |                         |     |    | 7    |     | 4    |    
|                                                                                       |                        
|Total interest payable and similar charges                                             |                         | 159  |    | 162  |     | 136  |    
|Less: Interest receivable                                                              |                         | (25  | )  | (5   | )   | (7   | )  
|                                                                                       |                        
|Net interest payable                                                                   |                         | 134  |    | 157  |     | 129  |    
|Exchange differences arising on foreign currency borrowings                            |                         |      |    |      |     |      |    
|                                                                                       | Unrealised gains        |      | (1 | )    | (20 | )    | (12
|                                                                                       | Hedging contract losses |      | 1  |      | 20  |      | 12 
|                                                                                       |                        
|Net interest payable and similar charges                                               |                         | 134  |    | 157  |     | 129  |    
|                                                                                       |                        

6.     Exceptional Interest Payable and Similar Charges

|                                               |  | 2003 |  | 2004 |  | 2005 |  
|---------------------------------------------- |  | ---- |  | ---- |  | ---- | -
|
|Debt issue costs write off                     |  |     |  | 27   |  | (1   | )
|Costs arising on exit from interest rate swaps |  |     |  | 24   |  |     |  
|                                               | 
|                                               |  |     |  | 51   |  | (1   | )
|                                               | 

In the year ended 31 March 2005, the exceptional credit of €1 million relates to savings on actual costs incurred in
conjunction with the group refinancing in March 2004.

In
the year ended 31 March 2004, exceptional costs of €27 million relate to the write-off of debt issue costs on funds borrowed of
€1,250 million as part of the reorganisation and refinancing in August 2003. Debt issue costs incurred in respect of this facility were written-off in
accordance with FRS 4 "Capital Instruments" which requires that debt issue costs are amortised up to the earliest date on which the repayment option can be exercised, unless there is no genuine
possibility that the option will be exercised on that date. The related debt was repaid in March 2004 in conjunction with a group refinancing.

In
addition, the exceptional interest charge in the year ended 31 March 2004 includes €24 million relating to the early exit from interest rate swaps
arising as a result of the early payment of the related debt in conjunction with the group refinancing in March 2004.

F-88

---



7.     Tax (credit)/charge on (Loss)/Profit on Ordinary Activities



|                                                                      |  | 2003 |   | 2004 |   | 2005 |  
|--------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Current tax:                                                          |  |      |   |      |   |      |  
|Irish corporation tax on (loss)/profit for the year                   |  | 11   |   | 21   |   | 20   |  
|Adjustments in respect of previous periods                            |  | (27  | ) | (7   | ) | (4   | )
|                                                                      | 
|Total current tax (credit)/charge (note 7(b))                         |  | (16  | ) | 14   |   | 16   |  
|Deferred tax:Origination and reversal of timing differences (note 17) |  | 10   |   |     |   | 4    |  
|                                                                      | 
|Tax (credit)/charge on loss on ordinary activities                    |  | (6   | ) | 14   |   | 20   |  
|                                                                      | 



The tax assessed for the year is different than the tax (credit)/charge that would arise on applying the standard rate of corporation tax, 12.5%, in the Republic
of Ireland. The differences are explained below:

|                                                                                                                       |  | 2003 |   | 2004 |   | 2005 |  
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|(Loss)/profit on ordinary activities before tax                                                                        |  | (46  | ) | (81  | ) | 52   |  
|                                                                                                                       | 
|(Loss)/profit on ordinary activities multiplied by standard rate of corporation tax 12.5% (2004: 12.5%, 2003: 15.125%) |  | (7   | ) | (10  | ) | 7    |  
|Effects of:                                                                                                           |  |      |   |      |   |      |  
|Adjustment in respect of previous periods                                                                              |  | (27  | ) | (7   | ) | (4   | )
|Utilisation of tax losses                                                                                              |  | (1   | ) | (1   | ) | (1   | )
|Capital Allowances in excess of Depreciation                                                                           |  | (7   | ) | (4   | ) | (6   | )
|Timing differences                                                                                                     |  |     |   | 5    |   | 3    |  
|Tax losses unutilised                                                                                                  |  | 3    |   | 2    |   |     |  
|Income not taxable                                                                                                     |  | (2   | ) |     |   |     |  
|Gains taxed in prior periods                                                                                           |  | (2   | ) | (2   | ) |     |  
|Expenses not deductible for tax purposes                                                                               |  | 27   |   | 30   |   | 16   |  
|Income liable at higher rates                                                                                          |  |     |   | 1    |   | 1    |  
|                                                                                                                       | 
|Current tax (credit)/charge for year (note 7(a))                                                                       |  | (16  | ) | 14   |   | 16   |  
|                                                                                                                       | 



The proposed adoption of IFRS for the year ending 31 March 2006 onwards may materially affect the future tax charge.

F-89

---



8.     Dividends Paid and Payable

|                                                                     |  | 2003 |  | 2004 |   | 2005
|-------------------------------------------------------------------- |  | ---- |  | ---- | - | ----
|
|EquityOrdinary:                                                     |  |      |  |      |   |     
|Interim dividends of €Nil per share (2004: €1.486 per share)         |  |     |  | 535  |   |    
|Proposed final dividend of €Nil per share (2004: €0.297 per share)   |  |     |  | 107  |   |    
|Declared final dividend of €0.425 per share (2004: €Nil per share)   |  |     |  |     |   | 153 
|Non-equityPreference:                                               |  |      |  |      |   |     
|Preference dividends payable/(waived) on ESOT Preference shares      |  | 21   |  | (32  | ) |    
|Preference dividends payable on Non Voting Adviser Preference shares |  | 1    |  | (1   | ) |    
|                                                                    
|                                                                     |  | 22   |  | 609  |   | 153 
|                                                                    

In July 2003, the holders of the preference shares waived their rights to dividends on the preference shares. The ordinary dividend paid
during the financial year ended 31 March 2004 was funded utilising the reserves arising on the cancellation of share premium.

9.     Intangible Assets

|                                      |  | Goodwill |   | Other Intangible
Assets |  | Total |  
|------------------------------------- |  | -------- | - | ----------------------- |  | ----- | -
|
|Cost                                  |  |          |   |                         |  |       |  
|At 31 March 2003                      |  | 764      |   |                        |  | 764   |  
|Goodwill adjustment                   |  | (3       | ) |                        |  | (3    | )
|                                      | 
|At 31 March 2004                      |  | 761      |   |                        |  | 761   |  
|Additions                             |  |         |   | 2                       |  | 2     |  
|                                      | 
|At 31 March 2005                      |  | 761      |   | 2                       |  | 763   |  
|                                      | 
|Amortisation                          |  |          |   |                         |  |       |  
|At 31 March 2003                      |  | 54       |   |                        |  | 54    |  
|Charge for year                       |  | 38       |   |                        |  | 38    |  
|                                      | 
|At 31 March 2004                      |  | 92       |   |                        |  | 92    |  
|Charge for year                       |  | 38       |   |                        |  | 38    |  
|                                      | 
|At 31 March 2005                      |  | 130      |   |                        |  | 130   |  
|                                      | 
|Total Net Book Value at 31 March 2005 |  | 631      |   | 2                       |  | 633   |  
|                                      | 
|Total Net Book Value at 31 March 2004 |  | 669      |   |                        |  | 669   |  
|                                      | 

F-90

---



10.   Tangible Fixed Assets

a)

Land & Buildings
€'m

Network Plant &
Equipment
€'m

Total
€'mCost or ValuationAt 31 March 2003

412

2,398

2,810Additions

1

206

207Disposals/retirements



(3
)
(3
)Exit from subsidiaries

(2
)
(1
)
(3
)Revaluation surplus

70



70At 31 March 2004

481

2,600

3,081Cost

1

2,600

2,601Valuation

480



480Additions

13

196

209Disposals/retirements

(3
)
(1
)
(4
)At 31 March 2005

491

2,795

3,286Cost

13

2,795

2,808Valuation

478



478Accumulated DepreciationAt 31 March 2003

5

548

553Charge for year (note 10(c))

17

345

362Impairment charge (note 10(c))



9

9Exceptional impairment charge

38



38Disposals/retirements



(2
)
(2
)Exit from subsidiaries

(1
)
(1
)
(2
)Revaluation surplus

(17
)


(17
)At 31 March 2004

42

899

941Charge for year (note 10(c))

17

300

317Disposals/retirements



(1
)
(1
)At 31 March 2005

59

1,198

1,257Total Net Book Value at 31 March 2005

432

1,597

2,029Total Net Book Value at 31 March 2004

439

1,701

2,140


b)    The
valuation carried out by Lisney, Estate Agents, Auctioneers and Valuers, as at December 2003, valued the properties at €442 million.
Properties were valued, in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of open market value and existing use value except for
specialised properties which were valued on a depreciated replacement cost basis. As a result the carrying value of land and buildings was revalued upwards by €87 million. In
addition, there was a revaluation deficit below the net book value of certain land and buildings of €38 million, which was charged to the profit and loss account as an
exceptional impairment charge.

F-91

---



If
these land and buildings had not been revalued, they would have been included in the financial statements at the following amounts:

2004
€'m

2005
€'mCost

438

448Accumulated Depreciation

(90
)
(103
)Net Book Value

348

345


c)     The
depreciation charged in the profit and loss account is net of capital grants amortised during the year as follows:

2003
€'m

2004
€'m

2005
€'mDepreciation

387

362

317Impairment charge included in depreciation

15

9

Amortisation of capital grants (note 18)

(3
)
(3
)
(1
)399

368

316


The
impairment charge of €9 million, included in depreciation in the year ended 31 March 2004, relates to Global Crossing, International Cable and
Synchronous Digital Hierarchy ("SDH") equipment, which has been written off.

The
impairment charge of €15 million, included in depreciation in the year ended 31 March 2003, relates to a revaluation deficit in respect of certain land
and buildings.

d)    Analysis
of net book value of land and buildings is as follows:

2004
€'m

2005
€'mFreehold

289

297Leasehold:Over 50 years unexpired

113

101Under 50 years unexpired

37

34439

432


e)    Included
in tangible fixed assets is plant and equipment acquired under finance leases as follows:

2004
€'m

2005
€'mCost

63

63Accumulated depreciation

(37
)
(48
)Net book value

26

15Depreciation charge for the year

13

11


f)     Assets
in course of construction

Included
in tangible fixed assets are assets in the course of construction of €85 million (2004: €75 million).

F-92

---



11.   Investments in Associates

2004
€'m

2005
€'mAt beginning of year



Share of profits, interest and taxation of associated undertakings



1At end of year



1


12.   Stocks

2004
€'m

2005
€'mNetwork development and maintenance stocks

4

6Consumable and other stocks

6

510

11


The net replacement cost of stocks is not expected to be materially different from that shown above.

13.   Debtors

2004
€'m

2005
€'mAmounts falling due within one year:Trade debtors

219

210Amounts due from group companies

20

30Prepayments and accrued income

88

88327

328Amounts falling due after more than one year:Pension scheme

177

162


Two subsidiaries of the company are party to a financing transaction under which credit balances and debit balances of the entities may be offset.
This offset has been effected in the group balance sheet. The balances of the group so offset were €149 million at 31 March 2005 (2004:
€159 million) lease receivables and €149 million at 31 March 2005 (2004: €159 million) in respect of bank loans.

The
defined benefit pension scheme, operated byeircomLimited,was assessed, at the date
of the Valentia Telecommunications acquisition ofeircomLimited, by the group's independent actuaries on a basis consistent with generally accepted
accounting principles. As part of the adjustments to determine the fair value of the assets acquired, an amount of €208 million was included in the balance sheet at
1 November 2001, representing the funding surplus at the acquisition date. This surplus is being amortised in accordance with Statement of Standard Accounting Practice 24 ("Accounting for
Pension Costs").

F-93

---



14.   Creditors

|                                               |  | 2004
€'m |  | 2005
€'m
|---------------------------------------------- |  | -------- |  | --------
|Amounts falling due within one year:          |  |          |  |         
|Bank overdrafts (note 15)                      |  | 1        |  |        
|Loans and other debt (note 15)                 |  |         |  | 68      
|Trade creditors                                |  | 108      |  | 81      
|Corporation tax payable                        |  | 50       |  | 11      
|PAYE and PRSI                                  |  | 7        |  | 7       
|VAT                                            |  | 25       |  | 23      
|Accruals and deferred income                   |  | 435      |  | 427     
|Dividends payable                              |  | 107      |  | 105     
|                                              
|                                               |  | 733      |  | 722     
|                                              
|Amounts falling due after more than one year: |  |          |  |         
|Loans and other debt (note 15)                 |  | 2,263    |  | 2,201   
|Capital grants (note 18)                       |  | 10       |  | 9       
|                                              
|                                               |  | 2,273    |  | 2,210   
|                                              

The amounts due to subsidiary companies are unsecured, interest free and repayable within one year.

15.   Loans and Other Debt

|                                                  |  | Within
1 Year
€'m |  | Between
1 & 2 Years
€'m |  | Between
2 & 5 Years
€'m |  | After
5 Years
€'m |  | Total
€'m
|------------------------------------------------- |  | ----------------- |  | ----------------------- |  | ----------------------- |  | ----------------- |  | ---------
|Group                                             |  |                   |  |                         |  |                         |  |                   |  |          
|Loans                                             |  |                  |  |                        |  | 1,240                   |  |                  |  | 1,240    
|7.25% Senior Notes due 2013 (listed)              |  |                  |  |                        |  |                        |  | 532               |  | 532      
|8.25% Senior Subordinated Notes due 2013 (listed) |  |                  |  |                        |  |                        |  | 491               |  | 491      
|                                                 
|                                                  |  |                  |  |                        |  | 1,240                   |  | 1,023             |  | 2,263    
|Overdrafts                                        |  | 1                 |  |                        |  |                        |  |                  |  | 1        
|                                                 
|At 31 March 2004                                  |  | 1                 |  |                        |  | 1,240                   |  | 1,023             |  | 2,264    
|                                                 
|Loans                                             |  | 68                |  | 138                     |  | 1,036                   |  |                  |  | 1,242    
|7.25% Senior Notes due 2013 (listed)              |  |                  |  |                        |  |                        |  | 534               |  | 534      
|8.25% Senior Subordinated Notes due 2013 (listed) |  |                  |  |                        |  |                        |  | 493               |  | 493      
|                                                 
|                                                  |  | 68                |  | 138                     |  | 1,036                   |  | 1,027             |  | 2,269    
|Overdrafts                                        |  |                  |  |                        |  |                        |  |                  |  |         
|                                                 
|At 31 March 2005                                  |  | 68                |  | 138                     |  | 1,036                   |  | 1,027             |  | 2,269    
|                                                 

F-94

---



Included in the table are amounts as follows:

2004
€'m

2005
€'mWholly repayable within 1 year

1

Wholly repayable within 5 years



Repayable, by instalments, within 5 years

1,250

1,250Repayable, otherwise than by instalments, due after 5 years

1,060

1,060Debt issue costs (offset against loans due within 5 years)

(10
)
(8
)Debt issue costs (offset against Senior Notes due after more than 5 years)

(18
)
(16
)Debt issue costs (offset against Senior Subordinated Notes due after more than
5 years)

(19
)
(17
)2,264

2,269


Loans and other debt are split as follows:

2004
€'m

2005
€'mSecured (Senior Credit Facility)

1,250

1,250Unsecured

1,061

1,0602,311

2,310Debt issue costs

(47
)
(41
)Debt issue costs

2,264

2,269


The Senior Credit Facility is secured, amongst other things, by a pledge of the shares ineircomLimited and Irish Telecommunications Investments Limited ("ITI") and a fixed and floating charge over the assets (subject to some exceptions) of Valentia Telecommunications, eircomLimited and ITI.

16.   Financial Instruments

The group holds or issues financial instruments for the following main purposes:-



The
group finances its operations out of operating cash flows, bond issues, bank borrowings and finance leases.

Derivative
instruments are contractual agreements whose value reflects price movements in an underlying asset and liability. The group uses derivatives, where appropriate, to generate
the desired effective profile of currency and interest rate risk. Derivative activity is carefully controlled and appropriately used and is an effective means of managing risk.

The
main risks arising from the use of financial instruments are market rate risk, liquidity risk and credit risk. Responsibility for managing these risks rests with the Board of
Directors and, in respect of certain activities, the Treasury Committee, a management committee chaired by the Chief Financial Officer. It is, and has been throughout the period under review, the
group's policy not to trade in financial instruments.

F-95

---



Debtors,
creditors and provisions for liabilities and charges have been excluded from all the numerical disclosures below.

The
group conducts its business primarily in Ireland and, therefore, operating and investing cash flows are substantially denominated in euro. A limited level of foreign exchange risk
arises in relation to certain capital expenditures and foreign exchange settlements with international third party telecommunications carriers.



Market rate risk is defined as the exposure of the group's financial position to movements in interest and foreign exchange rates. The principal aim of managing
these risks is to limit the adverse impact on shareholder value of movements in interest rates and foreign exchange rates.

The
main derivatives used are interest rate swaps and currency swaps. It is group policy to hedge the majority of currency risk in currencies, which are not denominations of the euro.
The group seeks to manage the fixed/floating mix of its borrowings with the aim of controlling cost while mitigating its exposure to interest rate risk. The group achieves fixed rates on borrowings
either directly through the use of fixed rate debt or indirectly through the use of interest rate swaps. Under interest rate swaps, the group agrees with other parties to exchange, at specified
intervals, the difference between fixed-rate and floating-rate amounts calculated by reference to an agreed notional principal amount.



There were floating rate deposits outstanding of €245 million at 31 March 2005 (2004: €285 million). The
interest rate on these deposits is generally based on the appropriate Euribor rate.



|                     |  | Local Currency |  |     |  | Local Currency |  |      
|-------------------- |  | -------------- |  | --- |  | -------------- |  | -----
|
|EUR                  |  | 1,335          |  | 751 |  | 2,086          |  | 1,335
|Other currencies     |  | 225            |  |    |  | 225            |  | 225  
|                    
|Total all currencies |  | 1,560          |  | 751 |  | 2,311          |  | 1,560
|                    

The group has no interest-free financial liabilities.

At
31 March 2005, the group had currency swap contracts of €225 million (2004: €225 million) outstanding. Variable rates on loans and
swaps are based on Euribor. After adjusting for the effect of swaps, €1,560 million (2004:
€1,560 million) of bank and other debt bore interest at fixed rates, with a weighted average interest rate of 6.6% (2004: 6.6%).

The
weighted average life of the fixed rate debt and swaps is set out in the following table:-

F-96

---





|                          |  | 2004 |  | 2005
|------------------------- |  | ---- |  | ----
|Underlying Debt           |  | 9.4  |  | 8.4 
|Swaps:                    |  |      |  |     
|we receive fixed interest |  |     |  |    
|we pay fixed interest     |  | 3.0  |  | 2.0 



As at 31 March 2005, after taking into account the effects of currency swaps and forward foreign exchange contracts, the group has no material currency
exposure.



Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, other than a
forced or liquidation sale.

The
following tables provide comparisons of the carrying amounts and fair values of the group's fixed-rate financial assets and financial liabilities, including derivatives,
currency swaps and forward exchange contracts. The fair values of short-term deposits, floating-rate loans and overdrafts approximate to their carrying amounts.

On
an interest rate swap, the same notional principal amount is used for the paying and receiving sides. Consequently the carrying value of an interest rate swap is zero. The fair value
reflects the difference between the fixed rate and current market rates. The carrying value of currency swaps is affected by movements in the exchange rates of the currencies concerned, while the fair
value reflects both interest rate and exchange rate movements.

|                              |  | 31 March 2004 |   | 31 March 2005 |  
|----------------------------- |  | ------------- | - | ------------- | -
|
|Financial assets              |  |               |   |               |  
|Cash                          |  | 285           |   | 285           |  
|                              | 
|Liabilities                   |  |               |   |               |  
|Underlying debt               |  |               |   |               |  
|Fixed rate                    |  | 1,040         |   | 1,116         |  
|Floating rate                 |  | 1,251         |   | 1,251         |  
|                              | 
|Total                         |  | 2,291         |   | 2,367         |  
|                              | 
|Debt net of swaps             |  |               |   |               |  
|Fixed rate                    |  | 1,560         |   | 1,642         |  
|Floating rate                 |  | 751           |   | 751           |  
|                              | 
|Total                         |  | 2,311         |   | 2,393         |  
|                              | 
|Interest rate swaps liability |  |              |   |              |  
|                              | 
|Currency swaps liability      |  | (20           | ) | (26           | )
|                              | 



The objective of liquidity management is to ensure the availability of sufficient funds to meet the group's requirements and to repay maturing debt. This
objective is met by monitoring and controlling

F-97

---



potential
cash flows and maintaining an appropriate buffer of readily realisable assets and standby credit lines.

The
maturity profile of group debt is set out in Note 15 of the Financial Statements.

The
group has a €150 million (2004: €150 million) committed borrowing facility expiring in March 2009 which was undrawn at
31 March 2005. All conditions precedent had been met at 31 March 2005.



The group is exposed to credit risk relating to its cash and current financial assets. The group places its cash and current financial assets with highly rated
financial institutions. The group's policy is designed to limit exposure with any one institution and to invest its excess cash in low risk investment accounts. The group has not experienced any
losses on such accounts.

Credit
risks are mainly related to counterparty risks associated with prepayments, amounts owed by related companies, interest in debt securities, derivative contracts, equity
investments in related companies and other debtors.

The
group's trade debtors are generated by a large number of customers, both private individuals and companies in various industries, mainly in Ireland. Exposure to credit loss and
subscriber fraud is actively monitored on a daily basis, including the processing of current credit information on subscribers from third-party sources.

Transactions
involving derivative contracts are managed by ITI; a wholly owned subsidiary, within a framework of limits approved by the Treasury Committee, which restrict the group's
dealings to highly rated financial institutions.



Under the company's accounting policy, foreign currency borrowings and currency swap agreements are valued at year end exchange rates.

Interest
differentials arising on swap agreements are accrued and reflected in interest payable. Consequently, changes in fair value attributable to movements in interest rates are not
recognised.

The
table below shows the extent to which the group had unrecognised losses, in terms of fair value, at 31 March 2004 and 31 March 2005.

2004

2005€'m

€'mUnrecognised lossesLoss on contracts outstanding at start of year

(41
)
(6
)Of which:Included in financial year

41

1Not included in financial year



(5
)Unrecognised loss arising in financial year

(6
)
(20
)Loss on contracts at end of year

(6
)
(25
)Of which:Expected to be included in next financial year

(1
)
(3
)Expected to be included in later years

(5
)
(22
)


F-98

---



17.   Provisions for Liabilities and Charges

|                                      |  | Staff
Restructuring |   | Onerous
Contracts |   | Other |   | Deferred
Taxation |  | Total |  
|------------------------------------- |  | ------------------- | - | ----------------- | - | ----- | - | ----------------- |  | ----- | -
|
|As at 31 March 2003                   |  | 126                 |   | 10                |   | 75    |   | 82                |  | 293   |  
|Utilised in year                      |  | (45                 | ) | (10               | ) | (6    | ) |                  |  | (61   | )
|Profit and loss (credit)/charge (net) |  | (1                  | ) |                  |   | 11    |   |                  |  | 10    |  
|                                      | 
|As at 31 March 2004                   |  | 80                  |   |                  |   | 80    |   | 82                |  | 242   |  
|                                      | 
|Transfer                              |  | (1                  | ) | 3                 |   | 1     |   |                  |  | 3     |  
|Utilised in year                      |  | (7                  | ) |                  |   | (7    | ) |                  |  | (14   | )
|Profit and loss charge/(credit) (net) |  | 6                   |   | 1                 |   | (4    | ) | 4                 |  | 7     |  
|                                      | 
|As at 31 March 2005                   |  | 78                  |   | 4                 |   | 70    |   | 86                |  | 238   |  
|                                      | 



The group has a constructive obligation in respect of staff restructuring. The amount of the provision is based on the group's past experience of restructuring
and the discussions to date with employees and their representative unions. The provision is in respect of a net deficit on an annuity plan of €78 million (2004:
€72 million) offered as part of the restructuring programme. As at 31 March 2005, the provision is expected to be utilised over a period of eight years.

During
the year ended 31 March 2004, €45 million of the provision was utilised primarily to pay for staff exits under the fundamental Restructuring
Programme. There was a release of €1 million in relation to a provision for restructuring in the year ended 31 March 2004.



In the year ended 31 March 2005, the group has onerous contracts in relation to leases on vacant properties. The provision is based on contracted terms and
the liability is expected to be discharged during the year ended 31 March 2006.

At
31 March 2003, the group had onerous contracts in relation to international capacity commitments. The provision was based on contracted terms and the liability was paid in the
year ended 31 March 2004.



The group is self insured in respect of certain personal injury and damage claims. There is a provision for the estimated cost of incidents which have occurred up
to 31 March 2005, based on a case by case review with actuarial assistance. The payments will be made as the cases are settled. The group also has a provision for costs arising from certain
compliance matters. There was a release of €7 million (2004: €3 million) in relation to a provision for costs arising from certain compliance matters in
the year ended 31 March 2005.



In accordance with FRS 19, the group's policy is to provide for taxation on a full liability basis. Deferred taxation liabilities arise from capital allowances
and other timing differences.

F-99

---



The
deferred taxation provision consists of:

2004

2005€'m

€'mTiming difference on pension prepayment

22

20Capital allowances and other timing differences

60

6682

86


No deferred tax is provided on timing differences arising from the revaluation of fixed assets unless, by the balance sheet date, a binding
commitment to sell the asset has been entered into and it is unlikely that any gain will be rolled over. The total amount unprovided for is estimated at €57 million (2004:
€60 million). Such deferred tax would become payable only if the fixed assets were sold.

18.   Capital Grants

2004

2005€'m

€'mReceived/receivableAt start of year

22

23Received/receivable during year

1

At end of year

23

23AmortisationAt start of year

10

13Amortisation to profit and loss (note 10(c))

3

1At end of year

13

14Net book value at end of year

10

9


The capital grants received by the group relate to programmes to develop the Irish telecommunications infrastructure and were sponsored by the
European Union.

19.   Share Capital

|                                           |  | 2004
Authorised |  | 2004 Issued &
Fully Paid |  | 2005
Authorised |  | 2005 Issued &
Fully Paid
|------------------------------------------ |  | --------------- |  | ------------------------ |  | --------------- |  | ------------------------
|
|Ordinary Share Capital                     |  |                 |  |                          |  |                 |  |                         
|Ordinary Shares of €1 each                 |  |                 |  |                          |  |                 |  |                         
|Authorised630,001,000 (2004: 630,001,000) |  | 630             |  |                          |  | 630             |  |                         
|Issued359,940,106 (2004: 359,940,106)     |  |                 |  | 360                      |  |                 |  | 360                     
|                                          
|                                           |  | 630             |  | 360                      |  | 630             |  | 360                     
|                                          

There
were no alterations to the authorised and issued share capital of the company during the year ended 31 March 2005.

F-100

---



20.   Reserves

|                                           |  | Share
Premium
Account |   | Revaluation
Reserve |   | Capital
Contribution |  | Profit
And loss
Account |  
|------------------------------------------ |  | --------------------- | - | ------------------- | - | -------------------- |  | ----------------------- | -
|
|Group                                      |  |                       |   |                     |   |                      |  |                         |  
|As at 31 March 2003                        |  | 539                   |   | 7                   |   |                     |  | (149                    | )
|Loss for the financial year                |  |                      |   |                    |   |                     |  | (704                    | )
|Revaluation surplus                        |  |                      |   | 87                  |   |                     |  |                        |  
|Transfer on realisation of revalued assets |  |                      |   | (3                  | ) |                     |  | 3                       |  
|Bonus issue and cancellation of shares     |  | (539                  | ) |                    |   |                     |  | 539                     |  
|Capital contribution from parent company   |  |                      |   |                    |   | 220                  |  |                        |  
|                                           | 
|As at 31 March 2004                        |  |                      |   | 91                  |   | 220                  |  | (311                    | )
|Loss for the financial year                |  |                      |   |                    |   |                     |  | (121                    | )
|Transfer on realisation of revalued assets |  |                      |   | (4                  | ) |                     |  | 4                       |  
|                                           | 
|As at 31 March 2005                        |  |                      |   | 87                  |   | 220                  |  | (428                    | )
|                                           | 

21.   Post Balance Sheet Events



Since the year end the group has disposed of certain properties. The group expects to realise a profit (after tax) of circa €34 million on
these sales based on the excess of net sales proceeds receivable over the carrying value of these assets at year end.

22.   Amounts in Group Cash Flow Statement

Amounts included in the group cash flow statement are reconciled or analysed as follows:



|                                                                                      |                               | 31 March
2003 |      | 31 March
2004 |     | 31 March
2005 |   
|------------------------------------------------------------------------------------- | ----------------------------- | ------------- | ---- | ------------- | --- | ------------- | --
|
|Group operating profit                                                                |                               | 85            |      | 126           |     | 179           |   
|Depreciation, impairment and amortisation                                             |                               | 437           |      | 444           |     | 354           |   
|Amortisation of pension surplus                                                       |                               | 16            |      | 16            |     | 15            |   
|Cash flows relating to fundamental restructuring, business exits and other provisions |                               | (63           | )    | (59           | )   | (49           | ) 
|Non-cash restructuring programme costs                                                |                               |              |      |              |     | 25            |   
|Non-cash exceptional charges/(credits)                                                |                               | 10            |      | (6            | )   | (4            | ) 
|Cash flows relating to prior year exceptional charges                                 |                               | (7            | )    | (8            | )   | (1            | ) 
|Working Capital                                                                       |                               |               |      |               |     |               |   
|                                                                                      | Decrease/(increase) in stocks |               | 4    |               |    |               | (1
|                                                                                      | Decrease in creditors         |               | (127 | )             | (31 | )             | (2
|                                                                                      | Decrease in debtors           |               | 142  |               | 8   |               | 8 
|                                                                                      |                              
|Net cash inflow from operating activities                                             |                               | 497           |      | 490           |     | 524           |   
|                                                                                      |                              

F-101

---







|                                                      |  | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005 |  
|----------------------------------------------------- |  | ------------- | - | ------------- | - | ------------- | -
|
|Interest received                                     |  | 24            |   | 3             |   | 6             |  
|Interest paid                                         |  | (161          | ) | (146          | ) | (132          | )
|Exceptional interest on exit from interest rate swaps |  |              |   |              |   | (24           | )
|Debt issue costs paid                                 |  | (3            | ) | (75           | ) | (2            | )
|                                                      | 
|                                                      |  | (140          | ) | (218          | ) | (152          | )
|                                                      | 



|                                                                |  | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005 |  
|--------------------------------------------------------------- |  | ------------- | - | ------------- | - | ------------- | -
|
|Corporation tax refund received                                 |  | 17            |   |              |   | 3             |  
|Corporation tax paid                                            |  | (13           | ) | (14           | ) | (20           | )
|Taxation paid on exceptional gain on the exit from Golden Pages |  |              |   |              |   | (38           | )
|                                                                | 
|                                                                |  | 4             |   | (14           | ) | (55           | )
|                                                                | 



|                                          |  | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005 |  
|----------------------------------------- |  | ------------- | - | ------------- | - | ------------- | -
|
|Payments to acquire tangible fixed assets |  | (197          | ) | (209          | ) | (194          | )
|(Payment to)/repayment from ESOT          |  | (50           | ) | 50            |   |              |  
|Receipts from disposal of fixed assets    |  | 8             |   | 1             |   | 3             |  
|Capital grants received                   |  |              |   | 1             |   |              |  
|Advance to parent undertaking             |  |              |   | (20           | ) | (10           | )
|                                          | 
|                                          |  | (239          | ) | (177          | ) | (201          | )
|                                          | 



|                                             |  | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005
|-------------------------------------------- |  | ------------- | - | ------------- | - | -------------
|
|Purchase of subsidiary undertakings          |  | (9            | ) |              |   |             
|Disposal of subsidiary undertaking           |  | 3             |   |              |   |             
|Receipt in respect of assets held for resale |  | 191           |   |              |   |             
|Cash disposed with subsidiary undertakings   |  |              |   | (1            | ) |             
|                                            
|                                             |  | 185           |   | (1            | ) |             
|                                            

F-102

---





|                                          |  | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005
|----------------------------------------- |  | ------------- | - | ------------- | - | -------------
|
|Repayment of loan capital                 |  | (181          | ) | (2,230        | ) |             
|Issue of senior and subordinated notes    |  |              |   | 1,060         |   |             
|Additions to loan capital                 |  |              |   | 1,250         |   |             
|Capital contribution from parent company  |  |              |   | 220           |   |             
|Capital element of finance lease payments |  | (1            | ) |              |   |             
|                                         
|Net cash (outflow)/inflow from financing  |  | (182          | ) | 300           |   |             
|                                         



|                         |  | At
31 March
2003 |   | Cash
flows |   | Other |  | At
31 March
2004 |   | Cash
flows |   | Other |   | At
31 March
2005 |  
|------------------------ |  | ---------------- | - | ---------- | - | ----- |  | ---------------- | - | ---------- | - | ----- | - | ---------------- | -
|
|Cash at bank and in hand |  | 440              |   | (155       | ) |      |  | 285              |   | (40        | ) |      |   | 245              |  
|Overdrafts               |  | (1               | ) |           |   |      |  | (1               | ) | 1          |   |      |   |                 |  
|                         | 
|                         |  | 439              |   | (155       | ) |      |  | 284              |   | (39        | ) |      |   | 245              |  
|Debt due within one year |  | (105             | ) | 105        |   |      |  |                 |   |           |   | (68   | ) | (68              | )
|Debt due after one year  |  | (2,125           | ) | (185       | ) | 47    |  | (2,263           | ) |           |   | 62    |   | (2,201           | )
|                         | 
|                         |  | (1,791           | ) | (235       | ) | 47    |  | (1,979           | ) | (39        | ) | (6    | ) | (2,024           | )
|                         | 

23.   Principal Subsidiary and Associated Undertakings

|Subsidiary
Companies                         |  | Interest in
Ordinary Shares at
31 March 2005 |  | Business                                             |  | Registered Office
and Country of
Incorporation  
|-------------------------------------------- |  | -------------------------------------------- |  | ---------------------------------------------------- |  | ------------------------------------------------
|eircomFunding (an unlimited public company)  |  | 100%                                         |  | Financing Company                                    |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.
|eircomLimited                                |  | 100%                                         |  | Provision of telecommunications and related services |  | 114 St. Stephen's Green
West, Dublin 2, Ireland 
|Irish Telecommunications Investments Limited |  | 100%                                         |  | Telecommunications Financing and Treasury Management |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.
|eircom(U.S.) Limited                         |  | 100%                                         |  | Marketing of Telecom Services in U.S.A.              |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.
|Osprey Property Limited                      |  | 100%                                         |  | Property Development Company                         |  | Leitrim House,
Upper Stephen's Street,
Dublin 8.
|Eirtrade Services Limited                    |  | 100%                                         |  | Provision of Electronic Trading Services             |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.
|                                             |  |                                              |  |                                                      |  |                                                 

F-103

---



|eircomPhonewatch Limited                  |  | 100% |  | Installation, Monitoring and Maintenance of Residential Security Systems |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            
|----------------------------------------- |  | ---- |  | ------------------------------------------------------------------------ |  | ------------------------------------------------------------
|Indigo Group Limited                      |  | 100% |  | Provision of Internet Services                                           |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            
|eircomUK Limited                          |  | 100% |  | Provision of Telecommunications and Related Services                     |  | South Quay Plaza II, 183
Marsh Wall, London E14
9SH, UK.    
|Lan Communications Limited                |  | 100% |  | Systems Integrator                                                       |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            
|eircomInvestments BV                      |  | 100% |  | Investment Holding Company                                               |  | Strawinskylaan 3105 7HG
1077 ZX, Amsterdam,
The Netherlands.
|Eircable Limited                          |  | 100% |  | Investment Holding Company                                               |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            
|eircomHoldings Limited                    |  | 100% |  | Investment Holding Company                                               |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            
|Continuous Communications Systems Limited |  | 100% |  | Communications Contractors                                               |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            
|eircom(Infonet Ireland) Limited           |  | 100% |  | Provision of Global Data Services                                        |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            
|GoFree Limited                            |  | 100% |  | Property Investment Company                                              |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            
|eircomNet BV                              |  | 100% |  | Investment Holding Company                                               |  | Strawinskylaan 3105 7HG
1077 ZX, Amsterdam,
The Netherlands.
|eircomInternational Networks Limited      |  | 100% |  | Provision of Telecommunications and Related Services                     |  | 114 St. Stephen's Green
West, Dublin 2, Ireland.            

|Associated undertakings             |  | Interest in
Ordinary Shares at
31 March 2005 |  | Business                                          |  | Registered Office and
Country of Incorporation 
|----------------------------------- |  | -------------------------------------------- |  | ------------------------------------------------- |  | -----------------------------------------------
|eircomEnterprise Fund Limited       |  | 50%                                          |  | Seed Capital Company and Early Stage Fund Company |  | 114 St. Stephen's Green
West Dublin 2, Ireland.
|Beacon Integrated Solutions Limited |  | 49%                                          |  | Information Technology Consultancy                |  | Howley's Quay, Limerick, Ireland               
|                                    |  |                                              |  |                                                   |  |                                                

F-104

---



|Telecom Engineering Services Limited |  | 35% |  | Telecommunications Engineering Services |  | Unit 14, Cherry Orchard Industrial Estate, Dublin 10, Ireland                           
|------------------------------------ |  | --- |  | --------------------------------------- |  | ----------------------------------------------------------------------------------------
|Altion Limited                       |  | 33% |  | Telecommunications Software Solutions   |  | AIB Investment Building, Percy Place, Dublin 4, Ireland.                                
|Buy4Now Limited                      |  | 22% |  | E-commerce Software Developer           |  | 9 The Mall, Beacon Court, Bracken Road, Sandyford Industrial Estate, Dublin 18, Ireland.

Telecom Engineering Services Limited has a financial year ending on 31 July 2004.

24.   Employees

The average number of persons employed by the group during the year was as follows:

31 March
2003

31 March
2004

31 March
2005Fixed line network and other communicationsOperations/Technical

5,700

5,335

4,966Sales/Customer Support

2,871

2,439

2,128Administration

558

532

501Total

9,129

8,306

7,595


25.   Pensions

(a)   The
group's pension commitments are funded through separately administered Superannuation Schemes and are principally of a defined benefit nature. The total group
pension charge, including contributions to the group's defined contribution scheme, in respect of the year ended 31 March 2005 was €40 million (2004:
€41 million, 2003: €41 million). In respect of the principal scheme, the contributions represent a rate of 8.2% of pensionable emoluments, as advised by
the group's Actuaries. The results for the year ended 31 March 2005 include amortisation of €15 million (2004: €16 million, 2003:
€16 million) in respect of a pension surplus of €208 million, arising on the Valentia Telecommunications acquisition of eircomLimited.

The
last Actuarial Valuation of the principal scheme was carried out, using the attained age method, as at 31 March 2005 by Mercer Human Resource Consulting who are actuaries to
the Scheme but are neither officers nor employees of the group.

The
actuarial method used involved determining an appropriate future group contribution rate designed to fund the projected liabilities of the Scheme related to service subsequent to 1
January 1984 over the remaining working lifetime of the current members. The primary financial assumption underlying the actuarial valuation was that the Scheme's investments will earn a real
rate of investment return, over and above salary inflation and pension increases, between 2.5% and 2.75% per annum. At the date of the last actuarial valuation, the market value of the pension scheme
assets was €2,190 million and the actuarial valuation of the assets attributable to the pension fund was sufficient to meet more than 100% of the value of the scheme's accrued
liabilities making due allowance for future increases in salaries and pensions.

F-105

---



The actuarial report is available for inspection by the members of the scheme at 114 St. Stephen's Green West, Dublin 2. The actuarial report is not available for public inspection.

(b)   The
Irish Minister for Finance is responsible for meeting and discharging the liability of: (i) the pension costs of former staff of the Irish Department of Posts
and Telegraphs who retired or died before the vesting Day (1 January 1984); (ii) costs in respect of the pension entitlements, related to pre-vesting day reckonable service,
of staff who transferred toeircomfrom the Irish Civil Service. Such benefit payments are made from the eircomNumber 2 Pension Fund, which was
established in March 1999 and received a contribution of €1,016 million from the
Irish Minister for Finance in accordance with arrangements set out in theeircomSuperannuation (Amendment) Scheme, 1999. However, the Minister retains
liability for these payments.

(c)Financial Reporting Standard 17 "Retirement Benefits" disclosures

The
updated actuarial valuations for Financial Reporting Standard 17 disclosure purposes were carried out by a qualified independent actuary. The main financial assumptions used in the
valuations were:

|                                        |  | 31 March
2002 |   | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005 |  
|--------------------------------------- |  | ------------- | - | ------------- | - | ------------- | - | ------------- | -
|Rate of increase in salaries            |  | 4.00          | % | 3.50          | % | 3.50          | % | 3.50          | %
|Rate of increase in pensions in payment |  | 4.00          | % | 3.50          | % | 3.50          | % | 3.50          | %
|Discount rate                           |  | 6.10          | % | 5.50          | % | 5.00          | % | 4.75          | %
|Inflation assumption                    |  | 2.25          | % | 2.25          | % | 2.25          | % | 2.25          | %

The assets in the scheme were:

|         |  | Market value at
31 March 2002 |  | Market value at
31 March 2003 |  | Market value at
31 March 2004 |  | Market value at
31 March 2005
|-------- |  | ----------------------------- |  | ----------------------------- |  | ----------------------------- |  | -----------------------------
|
|Equities |  | 1,479                         |  | 1,027                         |  | 1,419                         |  | 1,542                        
|Bonds    |  | 349                           |  | 294                           |  | 248                           |  | 241                          
|Cash     |  | 98                            |  | 60                            |  | 67                            |  | 89                           
|Property |  | 240                           |  | 309                           |  | 334                           |  | 390                          
|        
|         |  | 2,166                         |  | 1,690                         |  | 2,068                         |  | 2,262                        
|        

The expected rate of return were:

|         |  | Long-term rate
of return
expected at
31 March 2002 |   | Long-term rate
of return
expected at
31 March 2003 |   | Long-term rate
of return
expected at
31 March 2004 |   | Long-term rate
of return
expected at
31 March 2005 |  
|-------- |  | -------------------------------------------------- | - | -------------------------------------------------- | - | -------------------------------------------------- | - | -------------------------------------------------- | -
|Equities |  | 8.00                                               | % | 7.75                                               | % | 7.50                                               | % | 7.25                                               | %
|Bonds    |  | 5.00                                               | % | 4.75                                               | % | 4.50                                               | % | 3.75                                               | %
|Cash     |  | 3.50                                               | % | 3.00                                               | % | 3.00                                               | % | 3.00                                               | %
|Property |  | 6.50                                               | % | 6.25                                               | % | 6.00                                               | % | 5.00                                               | %

F-106

---



The following amounts were measured in accordance with the requirements of Financial Reporting Standard 17:

|                                       |  | 31 March
2002 |   | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005 |  
|-------------------------------------- |  | ------------- | - | ------------- | - | ------------- | - | ------------- | -
|
|Total market value of assets           |  | 2,166         |   | 1,690         |   | 2,068         |   | 2,262         |  
|Present value of scheme liabilities    |  | (1,807        | ) | (2,015        | ) | (2,360        | ) | (2,923        | )
|                                       | 
|Surplus/(deficit) in the scheme        |  | 359           |   | (325          | ) | (292          | ) | (661          | )
|Related deferred tax (liability)/asset |  | (45           | ) | 41            |   | 36            |   | 83            |  
|                                       | 
|Net pension asset/(liability)          |  | 314           |   | (284          | ) | (256          | ) | (578          | )
|                                       | 

If the above amounts had been recognised in the financial statements, the group's net assets/(liabilities) and profit and loss reserves would be
as follows:-

|                                                                                    |  | 31 March
2002 |   | 31 March
2003 |   | 31 March
2004 |   | 31 March
2005 |  
|----------------------------------------------------------------------------------- |  | ------------- | - | ------------- | - | ------------- | - | ------------- | -
|
|Net assets excluding FRS 17 pension asset/(liability)                               |  | 812           |   | 757           |   | 360           |   | 239           |  
|Net FRS 17 Pension asset/(liability)                                                |  | 314           |   | (284          | ) | (256          | ) | (578          | )
|Liability already recognised in financial statements (net of deferred taxation)     |  | 32            |   | 51            |   | 64            |   | 68            |  
|Pension asset already recognised in financial statements (net of deferred taxation) |  | (182          | ) | (168          | ) | (155          | ) | (142          | )
|                                                                                    | 
|Net assets/(liabilities) including pension asset/(liability)                        |  | 976           |   | 356           |   | 13            |   | (413          | )
|                                                                                    | 
|Profit and loss reserves excluding pension asset/(liability)                        |  | (87           | ) | (149          | ) | (311          | ) | (428          | )
|Net FRS 17 Pension asset/(liability)                                                |  | 314           |   | (284          | ) | (256          | ) | (578          | )
|Liability already recognised in financial statements (net of deferred taxation)     |  | 32            |   | 51            |   | 64            |   | 68            |  
|Pension asset already recognised in financial statements (net of deferred taxation) |  | (182          | ) | (168          | ) | (155          | ) | (142          | )
|                                                                                    | 
|Profit and loss reserves including pension asset/(liability)                        |  | 77            |   | (550          | ) | (658          | ) | (1,080        | )
|                                                                                    | 

F-107

---



The following amounts would have been recognised in the performance statements for the years ended 31 March 2003, 31 March 2004 and
31 March 2005 under the requirements of FRS 17.

|                                                                                       |  | 31 March
2003 |    | 31 March
2004 |    | 31 March
2005 |   
|-------------------------------------------------------------------------------------- |  | ------------- | -- | ------------- | -- | ------------- | --
|
|Operating profit                                                                       |  |               |    |               |    |               |   
|Current service cost                                                                   |  | 36            |    | 40            |    | 46            |   
|Past service cost                                                                      |  | 8             |    |              |    | 9             |   
|                                                                                       | 
|                                                                                       |  | 44            |    | 40            |    | 55            |   
|                                                                                       | 
|Other finance income                                                                   |  |               |    |               |    |               |   
|Expected return on pension scheme assets                                               |  | 154           |    | 114           |    | 139           |   
|Interest on pension scheme liabilities                                                 |  | (112          | )  | (111          | )  | (118          | ) 
|                                                                                       | 
|                                                                                       |  | 42            |    | 3             |    | 21            |   
|                                                                                       | 
|Statement of total recognised gains and losses                                         |  |               |    |               |    |               |   
|Actual return less expected return on pension scheme assets                            |  | (623          | )  | 292           |    | 67            |   
|Changes in assumptions underlying the present value of the scheme liabilities          |  | (34           | )  | (211          | )  | (446          | ) 
|Experience (losses)/gains arising on the pension scheme liabilities                    |  | (47           | )  | (32           | )  | 6             |   
|                                                                                       | 
|Actuarial (loss)/gain recognised in the statement of total recognised gains and losses |  | (704          | )  | 49            |    | (373          | ) 
|                                                                                       | 
|Movement in surplus/(deficit) during the year                                          |  |               |    |               |    |               |   
|Surplus/(deficit) in scheme at start of year                                           |  | 359           |    | (325          | )  | (292          | ) 
|Current service cost                                                                   |  | (36           | )  | (40           | )  | (46           | ) 
|Contributions paid                                                                     |  | 22            |    | 21            |    | 38            |   
|Past service costs                                                                     |  | (8            | )  |              |    | (9            | ) 
|Other finance income                                                                   |  | 42            |    | 3             |    | 21            |   
|Actuarial (loss)/gain                                                                  |  | (704          | )  | 49            |    | (373          | ) 
|                                                                                       | 
|Deficit in scheme at end of year                                                       |  | (325          | )  | (292          | )  | (661          | ) 
|                                                                                       | 
|Experience gains and losses for the year                                               |  |               |    |               |    |               |   
|Difference between the expected returns and actual return on scheme assets             |  | (623          | )  | 292           |    | 67            |   
|Percentage of scheme assets                                                            |  | (37           | )% | 14            | %  | 3             | % 
|Experience (losses)/gains on scheme liabilities                                        |  | (47           | )  | (32           | )  | 6             |   
|Percentage of the present value of scheme liabilities                                  |  | (2            | )% | (1            | )% |              |   
|Total recognised in statement of total recognised gains and losses                     |  | (704          | )  | 49            |    | (373          | ) 
|Percentage of the present value of scheme liabilities                                  |  | (35           | )% | 2             | %  | (13           | )%

F-108

---



26.   Operating Lease Commitments

At 31 March 2005 the group had annual commitments in respect of lease agreements in respect of properties, vehicles, plant and equipment, for which the
payments extend over a number of years. The analysis of the group's annual commitments is as follows:-

|                                                                   |                          | 2004 |    | 2005
|------------------------------------------------------------------ | ------------------------ | ---- | -- | ----
|
|
|Annual commitments under non-cancellable operating lease expiring: |                          |      |    |     
|                                                                   | Within one year          |      |   |     
|                                                                   | Within two to five years |      |   |     
|                                                                   | After five years         |      | 22 |     
|                                                                  
|                                                                   |                          | 22   |    | 3   
|                                                                  

27.   Contingent Liabilities



On 17 October 2002, the Commission for Communication Regulation ("ComReg"), the Irish regulator for telecommunications, determined that the group was not
in compliance with its obligations under the voice telephony regulations by providing telephone services to specific customers at prices which were not in accordance with the specific terms and
conditions of the group's discount schemes and published prices. No penalties were levied on the Group as a result of this determination. By agreement with ComReg and at its direction, the Group put
internal controls in place that the Group believe will prevent this from re-occurring and an independent audit of the related internal controls has been conducted. The final audit findings
report including management comments and the group's statement of compliance were submitted to ComReg on 9 March 2005. If ComReg concludes that the Group is not complying with its obligations,
ComReg could begin an enforcement action. If the Group is found to be in violation of applicable laws and regulations, it may become subject to substantial criminal and civil penalties and fines.

Ocean
Communications Limited and ESAT Telecommunications Limited issued proceedings in the Irish High Court in December 2002 against the Group, seeking damages including punitive
damages resulting from the matters that were the subject of the ComReg decision. The Group submitted its defence on 26 January 2004. The plaintiffs submitted general particulars of their
damages claim on 3 February 2004 under the headings loss of existing customers, loss of prospective customers, economic loss and loss of future profits. In those particulars, the plaintiffs
have identified claims for loss of revenue on existing customers (€7.4 million), failure to meet the plaintiffs' alleged budget growth (€25 million) and
loss of revenue on the plaintiffs' pricing (€5 million). The Directors do not believe that these figures represent damages which would be properly recoverable from the Group
even if it had a liability to the plaintiffs, which is denied by the Group in the proceedings. The particulars also include further unquantified damages. The plenary summons and statement of claim of
Ocean Communications Ltd and ESAT Communications Ltd were amended, inter alia, in April 2005 to include a claim for alleged breach of certain constitutional rights.



Consequent on the Demerger of Eircell Limited 2001, the group has given certain warranties and indemnities to Eircell 2000 plc and Vodafone Group plc, some of
which are subject to various limitations. The group has also given indemnities to Vodafone Group plc, unlimited in time and

F-109

---



quantum,
in relation to the efficacy of the Demerger. Except for certain warranties relating to taxation and the indemnities in relation to the efficacy of the Demerger (in respect of which the
liability of the group is unlimited in quantum), the liability of the group for breach of the warranties is limited to €500 million. The group has no liability in respect of
claims under the warranties unless and until the amount of such claims, excluding claims which are for amounts less than €250,000 each, exceeds €25 million, in
which event Vodafone Group plc are entitled to recover the full value of the claims including claims previously notified.

eircomLimited has agreed certain other indemnities in relation to costs and liabilities. The Directors are not aware of any such
liabilities which would have a material effect on the group's financial position.



The Group has given certain warranties to Promedia GCV following the exit from Golden Pages. The liability period for non-tax warranties has expired.
The Group has also given certain taxation indemnities and undertakings, which are generally subject to a cap of €10 million.



The Group gave various tax and other warranties and indemnities to NTL Communications Corporation in connection with the disposal of its shareholding in Cablelink
Limited in July 1999. The liability period for non-tax warranties has expired. Notice of any breach in respect of tax warranties must be given by 9 July 2006 and the Group's
liability is capped at approximately €500 million.



Other than disclosed above, a number of other lawsuits or claims arise in the normal course of business. While any litigation has an element of uncertainty, the
directors believe that there were no other contingent liabilities which would have a material adverse effect on the Group's financial position.

In
the normal course of business, the Group has entered into contracts involving the exchange or purchase and sale of foreign currencies and various performance bonds. No material losses
are expected in respect of these transactions other than losses for which provision has been made in the financial statements.

28.   Guarantees



The Senior Credit Facility consists of a €1.4 billion credit facility which has the benefit of guarantees of all amounts payable by a
borrower under the terms of the Senior Credit Facility. The Senior Credit Facility and its related guarantee are secured, amongst other things, by a charge of the shares in eircomLimited and ITI and a
fixed and floating charge over the assets (subject to some exceptions) of Valentia Telecommunications, eircomLimited and ITI.

The
borrowers under the Senior Credit Facility are Valentia Telecommunications andeircomLimited. Valentia Telecommunications is the
borrower of the €1.250 billion term loan facility andeircomLimited is a borrower under the €150 million
revolving credit facility, which is currently undrawn.

The
obligations of Valentia Telecommunications,eircomLimited and ITI under the Senior Credit Facilities are guaranteed by Valentia
Telecommunications,eircomLimited and ITI.

F-110

---



Valentia
Telecommunications has granted a security interest over substantially all of its assets, including a fixed charge over all estates and freehold interests; benefits, rights,
title and interest in contracts or leases; equipment; securities; intellectual property; insurance proceeds; debts, revenue and claims and accounts and a floating charge over all of its other
undertakings and assets. In addition, the shares ofeircomLimited have been charged in favour of Deutsche Bank AG London as security agent for the
creditors under the senior credit facility.

eircomLimited and ITI have granted a security interest over substantially all of their assets, including a demise over their mortgaged
property, fixed charges over all registerable mortgaged property; estates and freehold interests; benefits, rights, title and interest in contracts or leases; equipment; shares and derivative assets;
securities; intellectual property; insurance proceeds; debts, revenue and claims; rights from the local authority under covenants, agreements or statute and accounts and a floating charge over all of
its other undertakings and assets.



There is a full and unconditional guarantee of all amounts of Senior Notes payable. This is a senior, unsecured obligation by eircom,
ranking equally in right of payment with all existing and future unsecured senior indebtedness ofeircomLimited.



Both Valentia Telecommunications andeircomLimited have guaranteed all amounts payable in respect of all Senior
Subordinated Notes. The Valentia Telecommunications guarantee is an unsecured, senior subordinated obligation which ranks junior in right of payment to all existing and future senior indebtedness of
Valentia Telecommunications, including the Senior Credit Facility and the Senior Notes, and ranks at least equally in right of payment with any existing or future unsecured subordinated indebtedness
of Valentia Telecommunications. TheeircomLimited guarantee of all amounts payable under the Senior Subordinated Notes is an unsecured senior
subordinated obligation which ranks junior in right of payment to all existing and future senior indebtedness ofeircomLimited,
including its obligation under the Senior Credit Facility, and ranks at least equally in right of payment with any existing or future unsecured subordinated indebtedness of eircomLimited. In
addition, eircomGroup plc has also guaranteed on a subordinated basis all amounts
payable in respect of all Senior Subordinated Notes. TheeircomGroup plc guarantee is a general, unsecured subordinated obligation which ranks junior
in right of payment to all existing and future senior indebtedness ofeircomGroup plc.

29.   Capital Commitments

Capital commitments of the group, approved by the Board, amounted to €Nil (2004: €200 million).
€33 million (2004: €29 million) was contracted for by the group.

30.   Related Party Transactions

The company has availed of the exemption contained in Financial Reporting Standard 8 "Related Party Disclosures" in respect of subsidiaries, 90 per cent or more
of whose voting rights are controlled within a group. Consequently the financial statements do not include disclosure of transactions with entities in the group.



There were no related party transactions during the year ended 31 March 2005.

F-111

---





During the year ended 31 March 2004, entities affiliated with Soros Private Equity Partners ("Soros"), to which at that time certain directors of the
company were affiliated, were paid €0.3 million of arrangement fees in respect of commitments to subscribe for shares under certain circumstances. This amount was charged to the
profit and loss account. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, entities affiliated with Providence Equity Partners Inc ("Providence"), to which at that time certain directors of the company were
affiliated, were paid €0.7 million of arrangement fees in respect of commitments to subscribe for shares under certain circumstances. This amount was charged to the profit and
loss account. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, Lionheart Ventures (Overseas) Limited, a company which Sir Anthony O'Reilly owns and controls, were paid €0.1 million
of arrangement fees in respect of commitments to subscribe for shares under certain circumstances. This amount was charged to the profit and loss account. There were no amounts outstanding at
31 March 2004.

During
the year ended 31 March 2004, A&L Goodbody, solicitors, a partnership that Paul Carroll, who was a director of Valentia Telecommunications up to 18 March 2004, is a
partner of, provided legal services to the Group. The total fees in respect of these services amounted to €2.7 million. During the year, costs of
€1.5 million, in relation to the Reorganisation and Refinancing, were included as debt issue costs. The remaining costs incurred of €1.2 million were
included in operating costs in the profit and loss account. At 31 March 2004, there was a balance due to A&L Goodbody solicitors of €0.3 million in respect of these
costs. The amounts are stated exclusive of VAT.

During
the year ended 31 March 2004, Lionheart Ventures (Overseas) Limited invoiced the Group for costs of €0.5 million in relation to the Reorganisation
and Refinancing of the Group. These costs are included as debt issue costs. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, Soros invoiced the Group for costs of €1.8 million in relation to the Reorganisation and Refinancing of the Group.
These costs are included as debt issue costs. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, Providence invoiced the Group for costs of €4.5 million in relation to the Reorganisation and Refinancing of the Group.
These costs are included as debt issue costs. There were no amounts outstanding at 31 March 2004.

During
the year ended 31 March 2004, the ESOT, which controlled over 20% of the voting rights ofeircomGroup plc, reclaimed
€3 million of professional fees that it incurred in relation to the Reorganisation and Refinancing of the Group. These costs are included as debt issue costs. At 31 March
2004, there was a balance due to ESOT of €1.1 million in respect of these costs.

During
the year ended 31 March 2004, €6.4 million of the payments to related parties in respect of the amounts included as debt issue costs were charged to
the profit and loss account as a result of the exceptional write off of certain debt issue costs and amortisation of debt issue costs included in the interest payable.



During the year ended 31 March 2003, A&L Goodbody solicitors, provided legal services to the group. The total fees in respect of these services amounted to
€5.1m. All of these costs were expensed in the year in the Profit and Loss Account.

F-112

---



During
the year ended 31 March 2003, ESOT was loaned €50 million by Valentia Telecommunications. This loan was unsecured, interest free and originally had a
fixed repayment date within one year but this was extended to October 2003. The ESOT agreed to waive their dividend entitlements in relation to 474 ESOT preference shares for the duration of
the ESOT loan from Valentia Telecommunications. This loan was repaid during the year ended 31 March 2004.

During
the year ended 31 March 2003, Lionheart Ventures (Overseas) Limited, was paid €0.2 million of arrangement fees in respect of commitments to subscribe
for shares under certain circumstances. This amount was charged to the profit and loss account. There were no amounts outstanding at 31 March 2003.

During
the year ended 31 March 2003, Soros were paid €0.7 million of arrangement fees in respect of commitments to subscribe for shares under certain
circumstances. This amount was charged to the profit and loss account. There were no amounts outstanding at 31 March 2003.

During
the year ended 31 March 2003, Providence were paid €1.7 million of arrangement fees in respect of commitments to subscribe for shares under certain
circumstances. This amount was charged to the profit and loss account. There were no amounts outstanding at 31 March 2003.

31.   Reconciliation to United States Generally Accepted Accounting Principles

The Group's consolidated financial statements are prepared in accordance with accounting principles generally accepted in Ireland ("Irish GAAP"), which differ in
certain respects from United States generally accepted accounting principles ("U.S. GAAP"). These differences are described below together, where appropriate, with an explanation of the method used to
determine the adjustments to net/(loss) profit attributable to ordinary shareholders for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005, and
shareholder's equity as at 31 March 2004 and 31 March 2005.

F-113

---



The following statements summarise the material adjustments, gross of their tax effect, which reconcile the net/(loss) profit attributable to ordinary shareholders amount and the equity
shareholders' funds amount under Irish GAAP to the amounts which would have been reported had U.S. GAAP been applied.

|                                                                                              |                                                                         | Notes |    | Financial
Year Ended
31 March 2003 |      | Financial
Year Ended
31 March 2004 |      | Financial
Year Ended
31 March 2005 |    
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----- | -- | ---------------------------------- | ---- | ---------------------------------- | ---- | ---------------------------------- | ---
|
|Reconciliation of net (loss)/profit:                                                          |                                                                         |       |    |                                    |      |                                    |      |                                    |    
|Net (loss)/profit attributable to Group Shareholders (equity and non-equity) under Irish GAAP |                                                                         | (q    | )  | (40                                | )    | (95                                | )    | 32                                 |    
|U.S. GAAP adjustments:                                                                        |                                                                         |       |    |                                    |      |                                    |      |                                    |    
|                                                                                              | Goodwill                                                                |       | (a | )                                  | 38   |                                    | 38   |                                    | 38 
|                                                                                              | Intangible Assets                                                       |       | (a | )                                  | (18  | )                                  | (11  | )                                  | (11
|                                                                                              | Revenue                                                                 |       | (b | )                                  | (9   | )                                  | (4   | )                                  | (5 
|                                                                                              | Revaluations                                                            |       | (c | )                                  |     |                                    | 3    |                                    | 4  
|                                                                                              | Provisions for restructuring and transformation costs                   |       | (d | )                                  | (94  | )                                  | (60  | )                                  | (8 
|                                                                                              | Provision for exit from certain international and multimedia activities |       | (e | )                                  | 1    |                                    |     |                                    |   
|                                                                                              | Debt issue costs                                                        |       | (f | )                                  | (7   | )                                  | (42  | )                                  | (1 
|                                                                                              | Pension costs                                                           |       | (g | )                                  | 35   |                                    | (22  | )                                  | 4  
|                                                                                              | Derivative financial instruments                                        |       | (h | )                                  | (47  | )                                  | 35   |                                    | (19
|                                                                                              | ESOT Trust                                                              |       | (i | )                                  | (128 | )                                  | (92  | )                                  |   
|                                                                                              | Capitalised interest costs                                              |       | (j | )                                  | 5    |                                    | 3    |                                    | 3  
|                                                                                              | Indefeasible rights to use (IRU)                                        |       | (k | )                                  | 1    |                                    | 1    |                                    | 1  
|                                                                                              | Impairment of long-lived assets                                         |       | (l | )                                  | 15   |                                    | 38   |                                    |   
|                                                                                              | Asset held for sale                                                     |       | (m | )                                  | (5   | )                                  |     |                                    |   
|                                                                                              | Share options                                                           |       | (n | )                                  |     |                                    | (7   | )                                  | (2 
|                                                                                              | Deferred taxes                                                          |       | (o | )                                  | 10   |                                    | 5    |                                    | 7  
|                                                                                              | Deferred taxes on U.S. GAAP adjustments                                 |       | (o | )                                  | 26   |                                    | 11   |                                    | 4  
|                                                                                              |                                                                        
|Net (loss)/profit under U.S. GAAP                                                             |                                                                         |       |    | (217                               | )    | (199                               | )    | 47                                 |    
|                                                                                              | Dividends on preference shares                                          |       | (p | )                                  | (22  | )                                  | (9   | )                                  |   
|                                                                                              |                                                                        
|Net (loss)/profit under U.S. GAAP attributable to ordinary shareholders                       |                                                                         |       |    | (239                               | )    | (208                               | )    | 47                                 |    
|                                                                                              |                                                                        
|U.S. GAAP net profit consists of (loss)/profit from:                                          |                                                                         |       |    |                                    |      |                                    |      |                                    |    
|                                                                                              | Continuing operations                                                   |       |    |                                    | (212 | )                                  | (208 | )                                  | 47 
|                                                                                              | Discontinued operations                                                 |       |    |                                    | (5   | )                                  |     |                                    |   
|                                                                                              |                                                                        
|Net (loss)/profit                                                                             |                                                                         |       |    | (217                               | )    | (208                               | )    | 47                                 |    
|                                                                                              |                                                                        
|Operating (loss)/profit from continuing operations                                            |                                                                         |       |    | (72                                | )    | 11                                 |      | 199                                |    
|                                                                                              |                                                                        

F-114

---



|                                        |                                                      | Notes |    | As at
31 March
2004 |      | As at
31 March
2005 |     
|--------------------------------------- | ---------------------------------------------------- | ----- | -- | ------------------- | ---- | ------------------- | ----
|
|Reconciliation of shareholders' equity: |                                                      |       |    |                     |      |                     |     
|Shareholders' funds under Irish GAAP    |                                                      |       |    | 360                 |      | 239                 |     
|U.S. GAAP adjustments:                  |                                                      |       |    |                     |      |                     |     
|                                        | Goodwill                                             |       | (a | )                   | (177 | )                   | (139
|                                        | Intangible assets                                    |       | (a | )                   | 161  |                     | 150 
|                                        | Revenue                                              |       | (b | )                   | (20  | )                   | (25 
|                                        | Revaluations                                         |       | (c | )                   | (91  | )                   | (87 
|                                        | Provision for restructuring and transformation costs |       | (d | )                   | 8    |                     |    
|                                        | Debt issue costs                                     |       | (f | )                   | 2    |                     | 1   
|                                        | Pension costs                                        |       | (g | )                   | (23  | )                   | (19 
|                                        | Derivative financial instruments                     |       | (h | )                   | (6   | )                   | (25 
|                                        | Capitalised interest costs                           |       | (j | )                   | 13   |                     | 16  
|                                        | Indefeasible rights to use (IRU)                     |       | (k | )                   | (24  | )                   | (23 
|                                        | Impairment of long-lived assets                      |       | (l | )                   | 53   |                     | 53  
|                                        | Deferred taxes                                       |       | (o | )                   | (70  | )                   | (63 
|                                        | Deferred taxes on U.S. GAAP adjustments              |       | (o | )                   | (13  | )                   | (9  
|                                        |                                                     
|Shareholders' equity under U.S. GAAP    |                                                      |       |    | 173                 |      | 69                  |     
|                                        |                                                     



On 2 November 2001,eircomLimited was acquired by Valentia Telecommunications. Under Irish GAAP, the
consideration paid for a business is assigned first to the separable tangible assets acquired and liabilities assumed on the basis of their fair values at the acquisition date. Any excess of
consideration over the fair value of the net tangible assets acquired was allocated to goodwill and amortised over 20 years.

Under
U.S. GAAP, SFAS No. 141 "Business Combinations" applies, which addresses the accounting and reporting for all business
combinations initiated after 30 June 2001. SFAS No. 141 requires that the cost of an investment is assigned to assets acquired and liabilities assumed on the basis of their fair values
at the date of acquisition. In addition, SFAS No. 141 requires that an intangible asset must be separately identified and recognised apart from goodwill, and disclosed accordingly. An
intangible asset should be recognised apart from goodwill if it arises from contractual or other legal rights, or if it is capable of being separated or divided from the acquired entity and sold,
transferred, licensed or exchanged. For U.S. GAAP purposes, the fair values have been assigned to certain intangible assets as shown in the table below.

Effective
1 April 2002, under U.S. GAAP, the Group adopted SFAS No. 142, which established new standards related to how acquired goodwill and other intangible assets are to
be recorded upon their acquisition as well as how they are to be accounted for after they have been initially recognised in the financial statements. As a result of the adoption of this standard, the
Group will not amortise goodwill, rather, they will test it for impairment on an annual basis based on a fair value approach. Additionally under SFAS No. 142, since the acquisition of the Group
by Valentia Telecommunications was after 30 June 2001, goodwill has not been amortised for periods after 2 November 2001 (the acquisition date). Upon adoption of this standard, the Group
completed a transitional impairment test for its goodwill and intangible assets and determined that there were no impairments to be recorded.

F-115

---



The
Group also completed its annual impairment test for its goodwill and indefinite-lived intangible assets as at 31 March 2005 and determined that there was no impairment to be recorded.

The
following table represents the allocation of the purchase price to net assets acquired in accordance with U.S. GAAP:

|                                                         |                                                     |  |       |  |     | €'m  
|-------------------------------------------------------- | --------------------------------------------------- |  | ----- |  | --- | -----
|Consideration                                            |                                                     |  |       |  |     | 3,030
|Fair value of net assets acquired under Irish GAAP       |                                                     |  |       |  |     | 2,269
|                                                        
|Goodwill arising under Irish GAAP                        |                                                     |  |       |  |     | 761  
|Less: additional fair value adjustments under U.S. GAAP: |                                                     |  |       |  |     |      
|                                                         | Regulatory asset                                    |  | (i)   |  | 13  |      
|                                                         | Customer base                                       |  | (i)   |  | 105 |      
|                                                         | Trade names/trademark                               |  | (i)   |  | 82  |      
|                                                         | ESOT trust                                          |  | (ii)  |  | 107 |      
|                                                         | Pensions                                            |  | (iii) |  | (46 | )    
|                                                         | Restructuring and redundancy costs not recognised   |  | (iv)  |  | 182 |      
|                                                         | Indefeasible rights to use                          |  | (v)   |  | (27 | )    
|                                                         | Deferred taxes on Irish GAAP fair value adjustments |  | (vi)  |  | (89 | )    
|                                                         | Deferred taxes on U.S. GAAP adjustments             |  | (vi)  |  | (58 | )    
|                                                        
|Goodwill arising under U.S. GAAP                         |                                                     |  |       |  |     | 492  
|                                                        

---



Under Irish GAAP, the Group recognises the revenue related to connection fees at the time the service is provided. Under U.S. GAAP, the connection fees are
recognised over the average customer life of three to six years. Expenses, where exceeding revenue, are only deferred to the extent of revenue.

"Staff Accounting Bulletin No. 104" ("SAB 104") provides guidance on revenue recognition under U.S. GAAP. Amongst other items, SAB
104 addresses the timing of revenue recognition relating to

F-116

---



non-refundable,
up-front fees. The Group performs a detailed analysis of their connection fees and associated expenses accordingly.



In accordance with Irish GAAP, the Group's consolidated financial statements are prepared in accordance with the historical cost convention, except that property
is periodically restated on the basis of appraised values. Subsequent depreciation is computed on the revalued amounts. Under U.S. GAAP depreciation charges would have been
€3 million and €4 million lower, for the financial years ended 31 March 2004 and 31 March 2005 respectively, since the assets would have had
a lower depreciable base.

Under
U.S. GAAP, such revaluations are not permitted and depreciation is computed on the historical cost. Adjustment of the amounts reported under Irish GAAP for property to the amounts
reportable under U.S. GAAP would result in a reduction of the book value of tangible fixed assets by €91 million and €87 million as at 31 March
2004 and 31 March 2005 respectively.



Under Irish GAAP, the Group had recorded provisions for fundamental restructuring and certain voluntary redundancy schemes in respect of staff restructuring and
other aspects of its business transformation, which are in the course of implementation, when a legal or constructive obligation exists, and the amount can be reasonably estimated.

Under
U.S. GAAP, costs related to voluntary early retirement and severance schemes are accounted for in accordance with SFAS No. 88. Generally the timing of expense recognition
differs between Irish GAAP and U.S. GAAP because, under Irish GAAP, a constructive obligation is deemed to exist when the Group agrees to accept and discharge responsibility under the terms of
voluntary early retirement and severance schemes with the employees and their unions. U.S. GAAP requires that the individual employees have accepted the offer to retire or to participate in severance
programs before the expense is recognised.

F-117

---



The
following table reconciles the movement in the staff restructuring provisions as presented under Irish GAAP to the amounts presented under U.S. GAAP (see note 17):

|                                                                                      |  | Staff
Restructuring
Provision Under
Irish GAAP |   | Adjustment |   | Staff
Restructuring
Provision Under
U.S. GAAP |  
|------------------------------------------------------------------------------------- |  | ---------------------------------------------- | - | ---------- | - | --------------------------------------------- | -
|
|As at 31 March 2002                                                                   |  | 153                                            |   | (153       | ) |                                              |  
|                                                                                      | 
|Utilised                                                                              |  | (83                                            | ) |           |   | (83                                           | )
|Charged to the consolidated profit and loss account                                   |  | 11                                             |   | 94         |   | 105                                           |  
|Transfer from accruals                                                                |  | 36                                             |   |           |   | 36                                            |  
|Transfer from provision for exit from certain international and multimedia activities |  | 9                                              |   | (9         | ) |                                              |  
|                                                                                      | 
|As at 31 March 2003                                                                   |  | 126                                            |   | (68        | ) | 58                                            |  
|                                                                                      | 
|Utilised                                                                              |  | (45                                            | ) |           |   | (45                                           | )
|(Credited)/charged to the consolidated profit and loss account                        |  | (1                                             | ) | 60         |   | 59                                            |  
|                                                                                      | 
|As at 31 March 2004                                                                   |  | 80                                             |   | (8         | ) | 72                                            |  
|                                                                                      | 
|Utilised                                                                              |  | (7                                             | ) |           |   | (7                                            | )
|Transfer to accruals                                                                  |  | (1                                             | ) |           |   | (1                                            | )
|Charged to the consolidated profit and loss account                                   |  | 6                                              |   | 8          |   | 14                                            |  
|                                                                                      | 
|As at 31 March 2005                                                                   |  | 78                                             |   |           |   | 78                                            |  
|                                                                                      | 



Under Irish GAAP, the Group had recorded provisions for the exit from certain international and multimedia activities as part of its business transformation,
which are in the course of implementation when a legal or constructive obligation exists, and the amount can be reasonably estimated.

Under
U.S. GAAP, these transformation costs, which mainly relate to involuntary contract termination and voluntary staff exit costs, did not qualify as exit costs based on guidance
provided by the Emerging Issues Task Force Consensus 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including certain costs incurred in a restructuring)" ("EITF 94-3"). Certain costs related to warranties accrued under Irish GAAP, as a result of
discontinuing certain activities, did qualify for accrual under EITF 94-3.

The
following table reconciles the movement in the provision for exit from certain international and multimedia activities as presented under Irish GAAP to the amounts presented under
U.S. GAAP:

|                                                                 |  | Provisions for Exit from Certain International and Multi-Media Activities under Irish GAAP |   | Adjustment |   | Provisions for Exit from Certain International and Multi-Media Activities under U.S GAAP |  
|---------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ | - | ---------- | - | ---------------------------------------------------------------------------------------- | -
|
|As at 31 March 2002                                              |  | 11                                                                                         |   | (8         | ) | 3                                                                                        |  
|Utilised                                                         |  | (2                                                                                         | ) |           |   | (2                                                                                       | )
|Credited to the consolidated profit and loss account             |  |                                                                                           |   | (1         | ) | (1                                                                                       | )
|Transfer to provision for restructuring and transformation costs |  | (9                                                                                         | ) | 9          |   |                                                                                         |  
|                                                                 | 
|As at 31 March 2003 and 2004 and 2005                            |  |                                                                                           |   |           |   |                                                                                         |  
|                                                                 | 

F-118

---





Under Irish GAAP, debt issuance costs associated with Debt are required to be amortised up to the earliest date on which the repayment option can be exercised
unless there is no genuine possibility that the option will be exercised. Under U.S. GAAP, debt issuance costs are amortised to income based on the contractual life of the loan using the effective
interest method.

The
Group completed a Reorganisation and Refinancing programme in July and August 2003, which resulted in the previous debt being repaid in August 2003. Under U.S. GAAP,
the remaining unamortised portion of the debt issue costs of €44 million, included in the balance sheet at 31 March 2003, has been charged to the statement of profit and
loss during the financial year ended March 2004. In addition, under Irish GAAP a charge of €2 million was recorded in relation to the intended early repayment of a
portion of the debt. This charge is not permitted under U.S. GAAP.

The
adjustment of €1 million for the year ending 31 March 2005 relates to differences in the timing of amortisation arising under Irish GAAP and U.S. GAAP.



Under Irish GAAP, pension costs are determined in accordance with Statement of Standard Accounting Practice No. 24, "Accounting for
Pension Costs", and costs are expensed over employees' working lives. Under U.S. GAAP, pension costs are determined in accordance with the requirements of SFAS No. 87,
"Employers Accounting for Pensions", ("SFAS No. 87") and SFAS No. 88,"Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits", ("SFAS No. 88"). In accordance with the requirements of U.S. GAAP, the Group performs annual
pension valuations. Differences between the amounts under Irish GAAP and U.S. GAAP arise from the requirement to use different actuarial methods and assumptions and the method of amortising surpluses
or deficits.



In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). This Statement became effective for the Group on 1 April 2001 and establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all freestanding and many embedded derivatives on the
balance sheet at their fair value, regardless of any hedging relationship designation. Derivative instruments must be classified as hedging transactions (either fair-value hedges, cash
flow hedges or net investment hedges in a foreign operation) or non-hedging transactions, and the accounting treatment of derivative instruments and hedged items depends on this
classification. Changes in the fair value of derivative instruments that do not qualify for, or are not designated in, hedging relationships are recognised immediately in current period earnings when
they occur.



On 1 April 1999, theeircomEmployee Share Ownership Trust ("ESOT") was established for the benefit of
eligible employees. The ESOT was funded by a combination of third party loans, loans from the Group and contributions of shares by the Group.

The
net assets of the ESOT Trust were divided into approximately 329 million units. The units were allocated to employees, subject to a minimum period of twelve months of
qualifying employment with the Group, who had entered into contracts of participation with the ESOT. Employees that ceased to be employed by the Group retained their right to the units allocated
before the termination of their service. Each eligible employee was allocated the same number of units (pro rated if the service period is less than 5 years at 1 November 2003). The
units of the ESOT have been allocated to eligible employees through eleven notional allocations over a five year period ending 1 November 2003.

F-119

---



During the financial year ended 31 March 2004, the Group's capital structure underwent several changes and the various classes of shares held by the ESOT were all converted into
Ordinary Shares (see note 31(p)). The ESOT received various classes of shares ineircomGroup plc in exchange for the new Ordinary Shares held in
Valentia Telecommunications. The ESOT also redeemed certain shares and subscribed for new classes of shares ineircomGroup plc (see note 21 to
theeircomGroup plc consolidated financial statements).

At
31 March 2003, 31 March 2004 and 31 March 2005, the Trust held the following allocated and unallocated shares in the Group based on the proportion of allocated
and unallocated units of the Trust:

|                                                   |  | Valentia
Telecommunications
Number of shares at
31 March 2003 |  | eircomGroup plc
Number of shares at
31 March 2004 |  | eircomGroup plc
Number of shares at
31 March 2005
|-------------------------------------------------- |  | ------------------------------------------------------------- |  | ------------------------------------------------- |  | -------------------------------------------------
|Ordinary Shares allocated                          |  |                                                              |  | 216,213,709                                       |  | 157,031,531                                      
|Convertible Preference Shares allocated            |  |                                                              |  | 173,000,000                                       |  | 158,583,333                                      
|Trancheable Redeemable Preference Shares allocated |  |                                                              |  | 66,000,000                                        |  | 671,083                                          
|Redeemable Preference Shares allocated             |  |                                                              |  | 4,169,893                                         |  | 531,870                                          
|Non-voting Deferred Shares                         |  |                                                              |  | 598                                               |  | 6,474,437,398                                    
|Class A shares allocated                           |  | 19,928,792                                                    |  |                                                  |  |                                                 
|Class A shares unallocated                         |  | 4,406,208                                                     |  |                                                  |  |                                                 
|Class B shares allocated                           |  | 6,502,347                                                     |  |                                                  |  |                                                 
|Class B shares unallocated                         |  | 1,437,653                                                     |  |                                                  |  |                                                 
|ESOT Preference Shares allocated                   |  | 1,957                                                         |  |                                                  |  |                                                 
|ESOT Preference Shares unallocated                 |  | 433                                                           |  |                                                  |  |                                                 

At 31 March 2004 and 31 March 2005, the Trust held the following allocated shares in Vodafone Group plc:

Number of shares at
31 March 2004

Number of shares at
31 March 2005Vodafone Group plc shares allocated

67,943,924

67,941,845


Under Irish GAAP, the lump sum payment in respect of establishing the ESOT Trust of €127 million, paid to the ESOT by the
Group, was expensed in the consolidated profit and loss account of the Group in the financial year ended 31 March 1999. No further expense arises under Irish GAAP.

Under
U.S. GAAP, the Group applies the provisions of AICPA Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership
Plans" ("SOP 93-6"). Accordingly, at 31 March 2003, the unallocated third party debt of the ESOT, and related accrued interest, were recorded in the Group's
consolidated balance sheet. At 31 March 2004 and 31 March 2005, since all units of the trust had been allocated, there was no third party debt recorded in the Group's consolidated
balance sheet.

Both
the unallocated and allocated ESOT Preference Shares as of 31 March 2003, were recorded outside of permanent equity since they are redeemable for cash by the participants. At
31 March 2004 and 31 March 2005, there were no preference shares recorded in the financial statements of Valentia Telecommunications.

Under
U.S. GAAP, the Group recognised administrative charges incurred by the ESOT, interest expense on the unallocated ESOT debt, and trust expense equal to the average fair value of the
Trust units allocated during the period that the employees earn the allocation. As all units were allocated at 31 March 2004, no charge arises during the financial year ended 31 March
2005.

F-120

---



Trust
units allocated to employees totalled 60.0 million and 60.7 million in the financial year ended 31 March 2003 and the financial year ended 31 March
2004, respectively. Trust expense totalled €99 million and €92 million in the financial year ended 31 March 2003 and the financial year ended
31 March 2004, respectively. Since all units of the Trust have been allocated as of 31 March 2004, there are no compensation charges related to the allocation of shares by the ESOT in
the financial year ended 31 March 2005.



Under Irish GAAP, the Group does not capitalise interest. Under U.S. GAAP, in accordance with the provisions of SFAS No. 34,
"Capitalisation of Interest Cost",the estimated amount of interest incurred
while constructing major capital projects is required to be capitalised and depreciated over the lives of the related assets, resulting in an increase in the Group's non-current assets
under U.S. GAAP. The amount of interest capitalised is determined by reference to the weighted average interest rates on outstanding borrowings.

The
U.S. GAAP adjustments resulted in cumulative gross recognised interest of €19 million and €25 million and accumulated amortisation of
€6 million and €9 million as at 31 March 2004 and 31 March 2005, respectively. Interest recognised amounted to
€7 million, €6 million and €7 million and amortisation amounted to €2 million,
€3 million and €4 million for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005, respectively.



During the financial year ended 31 March 2002, the Company entered into indefeasible rights to use ("IRU") contracts to sell capacity on its network as
well as IRU contracts to purchase capacity from a third party. Under Irish GAAP, the income associated with the service portion of the sales contract is being recognised over a seven-year
period, and the remaining IRU income was recognised when the contract was entered into. Under U.S. GAAP, the sales contracts were accounted for as service contracts with the entire income being
deferred and recognised on a straight-line basis over a 17 to 25 year period. Under Irish GAAP, the purchase contracts have been accounted for as a capital asset depreciated over a
seven-year period. Under U.S. GAAP the purchase contracts are accounted for as service contracts and accordingly, the pre-paid balance has been recorded as a deferred debtor
and is being amortised on a straight line basis as rent expense over a seven year period.



Under Irish GAAP, the Group recognised impairments for certain assets based on results of revaluations and other factors including a review of discounted future
cash flows where appropriate. Under SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"), an asset is considered to be impaired when its carrying amount exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.
The undiscounted cash flows include only the future cash flows that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset.
Under Irish GAAP, the Group also recognised impairment losses arising from revaluations of land and buildings where the revalued amount of a fixed asset is below the carrying value of the fixed asset.
To the extent that the revalued amount of the fixed assets are below the historical cost, the impairment charge is recognised in the profit and loss account under Irish GAAP. For certain
long-lived assets impaired by the Group under Irish GAAP, the sum of the undiscounted cash flows directly associated with the assets exceeded their carrying value. Thus, the criteria for
impairment under SFAS No. 144 were not met, and a portion of the impairment expense recognised under Irish GAAP was added back to net income for U.S. GAAP purposes.

F-121

---



During
the financial year ended 31 March 2004, the Group noted changes in circumstances and business climate affecting Global Crossing and Gemini International Cables that were
indicative of a potential impairment. Specifically, the Group noted significant over capacity in the international telecommunications market in which the Group operates. As a result, the Group
undertook an assessment of the recoverability of the carrying value of these assets. In this assessment, the Group examined separate undiscounted expected future cash flows resulting from these assets
over their remaining useful lives, which indicated an aggregate net negative cash flow for the period. These forecasts represented management's best estimates of future results of the forecast period.
Based on the projected negative cash flows for these assets over their remaining useful lives, the Group recorded an impairment charge during the financial year ended 31 March 2004 of
€9 million under both Irish GAAP and U.S. GAAP, to reduce the carrying value of the assets to their recoverable value of zero.

During
the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 the Group recognised impairment charges in respect of land & buildings of
€15 million, €38 million and €nil, respectively, where the revalued amount was below the historical cost of the relevant fixed assets.
Under US GAAP, the sum of the undiscounted cash flows directly associated with the assets exceeded their carrying value. Thus, the criteria for impairment under SFAS No. 144 were not met, and
the impairment expense recognised under Irish GAAP was added back to net income for U.S. GAAP purposes.



From 2 November 2001, when eircom Limited was acquired by Valentia Telecommunications, under Irish GAAP, the results of Golden Pages Limited were not
consolidated into the Group since it was required to be reclassified as an asset held for sale under Irish GAAP, up to its date of exit in May 2002. Under U.S. GAAP, in accordance with APB
No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", ("APB No. 30"), Golden Pages Limited did not meet the criteria of an asset held for sale at 2 November 2001. For purposes of
U.S. GAAP, the results of operations of Golden Pages Limited have been included in the financial statements as a discontinued operation up until its exit in May 2002.

The
net assets of Golden Pages Limited at the exit date consisted of the following:

As at
2 May 2002€'mTangible assets

10Intangible assets

139Stocks

9Debtors

4Cash

12Creditors

(9
)Minority interest

(10
)Net assets

155




Under Irish GAAP, the Group has not recognised compensation expense for share expense in the financial statements of Valentia Telecommunications during the
financial year ended 31 March 2004. Under U.S. GAAP, in accordance with the guidance in FIN 44, "Accounting for Certain Transactions involving Stock Compensation, an
Interpretation of APB Opinion No. 25"("FIN 44") the accounting for

F-122

---



eircomGroup plc's share-based compensation has been "pushed down" to the financial statements of Valentia Telecommunications.

Under
Irish GAAP,eircomGroup plc has recognised compensation expense on share option grants where the exercise price is below the market
price of the underlying share on the date of grant. This expense is recognised over the vesting period of the option. Additionally,eircomGroup plc has
recognised compensation expense for share awards under the Key Executive Share Award Plan in full at the date of grant for the full fair value of the share award.

Under
U.S. GAAP, compensation expense on share option grants is recognised as the difference between the exercise price of the share options granted and the quoted market price of the
shares at the date of grant or measurement date and accrued over the vesting period of the options.

Under
U.S. GAAP, where options are granted over junior stock, compensation expense is not recognised until the transferability restrictions on the underlying junior stock lapse. At the
Admission date (24 March 2004), the transferability restrictions on the junior stock lapsed and compensation expense was recognised for outstanding junior stock awards and for option awards
over junior stock for the difference between the Admission price and the exercise price of the option (see note 32 (g)).

Under
U.S. GAAP, compensation expense for awards under the Key Executive Share Award Plan for the fair value of the share award on the date of grant is recognised over the
two-year vesting periods (see note 32 (g)).



Under Irish GAAP, deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences
between the Group's taxable profits and its results as stated in the financial statements. Deferred tax assets are recognised to the extent they are regarded as recoverable. They are regarded as
recoverable to the extent that on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits for which the future reversal of the
underlying timing differences can be deducted. Under U.S. GAAP, SFAS 109 "Accounting for Income Taxes" ("SFAS 109") requires that deferred
taxation liabilities and assets are recorded in full for all temporary differences between book income and tax income and a valuation allowance is established to reduce deferred tax assets to the
amounts which are more likely than not to be recognised in future tax returns. For the purposes of the reconciliation, the principles of SFAS No. 109 have been applied. Under Irish GAAP,
deferred taxes are not provided with respect to fair value adjustments made to record the Group's basis in the assets acquired. Under U.S. GAAP, deferred taxes related to fair value adjustments must
be provided.



In July 2003, the entire issued share capital of Valentia Telecommunications was converted into ordinary shares of €1.00 in the following
manner:



F-123

---





As
a result, there were no preferred shares in Valentia Telecommunicaions as at 31 March 2004 and at 31 March 2005. In addition, since the holders of Valentia
Telecommunications' preference shares waived their rights to dividends, there were no dividends accrued as of 31 March 2004 and 31 March 2005. The dividends waived were ultimately paid
byeircomGroup plc during the financial year ended 31 March 2004. Under U.S. GAAP, dividends accrued up to the date that the entire share
capital of Valentia Telecommunications was converted into ordinary shares have been "pushed down" to the financial statements of Valentia Telecommunications.

The
following table presents the Redemption Value of the classes of mandatorily Redeemable Preference Shares at 31 March 2003:

As at
31 March 2003€'mESOT Preference Shares

274Non-voting Third Party Preference Shares

8Non-voting Adviser Preference Shares

6Less: cumulative unpaid preference dividends

(34
)Less: Accrued interest on cumulative unpaid preference dividends

(2
)252


There are no classes of mandatorily redeemable preference shares held by Valentia Telecommunications as at 31 March 2004 and 31
March 2005.



Under Irish GAAP exceptional items are items which are derived from events or transactions which individually, or if of a similar type, in aggregate, need to be
disclosed by virtue of their size or incidence. Additionally, some of these exceptional charges under Irish GAAP are included after operating profit if certain criteria are met. Under U.S. GAAP, only
items which are considered unusual in nature and infrequent in occurrence (not reasonably expected to recur in the foreseeable future) qualify for presentation as "extraordinary" items. Under U.S.
GAAP, extraordinary items are presented below income before extraordinary items in the income statement. Under U.S. GAAP, restructuring charges, fixed asset impairments, gains and losses on disposals,
and other charges, disclosed as exceptional expenses under Irish GAAP, do not meet the criteria for presentation as extraordinary items under U.S. GAAP. Additionally, under U.S. GAAP these exceptional
items would be separated between continuing and discontinued operations.

Under
Irish GAAP, the Group elects to present "gross profit" in its consolidated profit and loss account, which is calculated as turnover minus cost of sales. Under Irish GAAP, the Group
elects to include only costs relating to payments to other carriers, commissions and the cost of customers' premises equipment in cost of sales.

Under
U.S. GAAP, the presentation of cost of sales and gross profit on the basis used under Irish GAAP is not appropriate, as not all direct costs incurred to generate turnover are
included in cost of sales, such as a portion of depreciation, amortisation, provisions for doubtful accounts and net staff costs.

F-124

---



A
summary of the Group's income statements, as calculated under Irish GAAP and classified in accordance with U.S. GAAP, follows:

|                                    |                                           | Financial
Year Ended
31 March 2003 |      | Financial
Year Ended
31 March 2004 |      | Financial
Year Ended
31 March 2005 |     
|----------------------------------- | ----------------------------------------- | ---------------------------------- | ---- | ---------------------------------- | ---- | ---------------------------------- | ----
|
|Sales                               |                                           | 1,682                              |      | 1,628                              |      | 1,602                              |     
|Cost of sales                       |                                           | (1,354                             | )    | (1,240                             | )    | (1,188                             | )   
|                                    |                                          
|Gross profit                        |                                           | 328                                |      | 388                                |      | 414                                |     
|Operating expenses                  |                                           |                                    |      |                                    |      |                                    |     
|                                    | Selling, general and administration costs |                                    | (243 | )                                  | (262 | )                                  | (235
|                                    |                                          
|Net operating income                |                                           | 85                                 |      | 126                                |      | 179                                |     
|Other income/(expenses)             |                                           |                                    |      |                                    |      |                                    |     
|                                    | Interest income                           |                                    | 25   |                                    | 5    |                                    | 7   
|                                    | Interest expense                          |                                    | (159 | )                                  | (213 | )                                  | (135
|                                    | Income from Associates' operations        |                                    |     |                                    |     |                                    | 1   
|                                    | Gain on disposal of fixed assets          |                                    | 2    |                                    |     |                                    |    
|                                    | Gain on exit from business divisions      |                                    | 1    |                                    | 1    |                                    |    
|                                    |                                          
|Other expenses (net)                |                                           | (131                               | )    | (207                               | )    | (127                               | )   
|(Losses)/income before income taxes |                                           | (46                                | )    | (81                                | )    | 52                                 |     
|Income taxes                        |                                           | 6                                  |      | (14                                | )    | (20                                | )   
|                                    |                                          
|Net (loss)/income                   |                                           | (40                                | )    | (95                                | )    | 32                                 |     
|                                    |                                          



The Group entered into certain lease transactions whereby assets were leased or sold and leased back from the purchaser. In conjunction with each lease
transaction the Group entered into arrangements with third party financial institutions whereby the Group maintains deposits and other financial assets in return for their undertaking to pay the
Group's lease payment obligations to the lessor, including the repurchase of the assets. Under Irish GAAP and U.S. GAAP, these leases are accounted for as finance leases (capital leases as defined
under SFAS No. 13, "Accounting for Leases"). Under Irish GAAP, as the Group's lease obligations are fully defeased from the inception of the
leases, the deposits and related lease obligations are not recognised as separate assets and liabilities of the Group. Accordingly, the Group records no asset for the deposits and shows no liability
for the lease obligations in its
consolidated balance sheet. Under U.S. GAAP, the outstanding lease obligations to the lessor would not be regarded as defeased by the deposit held by the third party financial institution, since no
legal right of offset exists. As a result, total assets and liabilities as at 31 March 2004 and 31 March 2005, are higher under U.S. GAAP by €146 million and
€127 million, respectively.

32.   Additional Disclosure Requirements Under U.S. GAAP



For purposes of the U.S. GAAP reconciliation, the Group adopted the provisions of SFAS No. 87, amended by SFAS No. 132 "Employer's Disclosures about
Pensions and Other Postretirement Benefits, an

F-125

---



Amendment of FASB Statements No. 87, 88 and 106". The following table provides the components of net periodic pension costs under U.S. GAAP:

|                                                                  |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|----------------------------------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Service costs                                                     |  | 35,911                             |   | 41,462                             |   | 45,562                             |  
|Interest costs                                                    |  | 112,061                            |   | 110,588                            |   | 117,917                            |  
|Expected return on plan assets                                    |  | (154,124                           | ) | (113,960                           | ) | (137,637                           | )
|Amortisation of experience                                        |  |                                   |   | 20,982                             |   | 13,990                             |  
|Special termination benefits                                      |  | 7,954                              |   |                                   |   | 8,946                              |  
|                                                                  | 
|Net periodic benefit cost recognised in accordance with U.S. GAAP |  | 1,802                              |   | 59,072                             |   | 48,778                             |  
|                                                                  | 

The accumulated benefit obligation was €1,594 million and €2,007 million as at 31 March 2004
and 31 March 2005 respectively.

The
charge for special termination benefits is the result of the Group's early retirement schemes, which provide eligible employees with the opportunity to retire early, resulting in
additional pension costs.

The
following table provides details about the weighted-average assumptions used to calculate the pension costs during the years ending:

|                                          |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|----------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|Discount rate                             |  | 6.1                                | % | 5.5                                | % | 5.0                                | %
|Expected return on plan assets            |  | 7.1                                | % | 6.8                                | % | 6.7                                | %
|Rate of compensation and pension increase |  | 4.0                                | % | 3.5                                | % | 3.5                                | %

The following table provides details about the weighted-average assumptions used to calculate the pension obligation as of:

31 March
2004

31 March
2005Discount rate

5.00
%
4.75
%Rate of compensation and pension increase

3.50
%
3.50
%


To develop the expected long-term rate of return on assets assumption, the company considered the historical returns and the future
expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.7% long-term rate of return on
assets assumption for the year ended 31 March 2005.

The
dates used to determine pension movements under U.S. GAAP were 31 March 2003, 31 March 2004 and 31 March 2005.

F-126

---



The
following table presents changes in benefit obligation, changes in plan assets and a reconciliation to amounts recorded in accordance with U.S. GAAP:

|                                                |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|----------------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Changes in benefit obligation:                  |  |                                    |   |                                    |   |                                    |  
|Benefit obligation at the beginning of the year |  | 1,807,314                          |   | 2,014,305                          |   | 2,360,373                          |  
|Service cost                                    |  | 35,911                             |   | 41,462                             |   | 45,562                             |  
|Interest cost                                   |  | 112,061                            |   | 110,588                            |   | 117,917                            |  
|Plan participants' contributions                |  | 17,948                             |   | 17,099                             |   | 16,776                             |  
|Actuarial losses                                |  | 81,347                             |   | 242,718                            |   | 439,949                            |  
|Benefits paid                                   |  | (62,254                            | ) | (65,799                            | ) | (66,411                            | )
|Other contributions                             |  | 14,024                             |   |                                   |   |                                   |  
|Special termination benefits                    |  | 7,954                              |   |                                   |   | 8,946                              |  
|                                                | 
|Benefit obligations at the end of the year      |  | 2,014,305                          |   | 2,360,373                          |   | 2,923,112                          |  
|                                                | 

|                                                       |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------------------------------ |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Changes in plan assets:                                |  |                                    |   |                                    |   |                                    |  
|Fair value of plan assets at the beginning of the year |  | 2,166,462                          |   | 1,689,775                          |   | 2,068,485                          |  
|Actual return on plan assets                           |  | (468,282                           | ) | 405,977                            |   | 205,847                            |  
|Group's contribution                                   |  | 21,877                             |   | 21,433                             |   | 37,727                             |  
|Plan participants' contribution                        |  | 17,948                             |   | 17,099                             |   | 16,776                             |  
|Benefits paid                                          |  | (62,254                            | ) | (65,799                            | ) | (66,411                            | )
|Other contributions                                    |  | 14,204                             |   |                                   |   |                                   |  
|                                                       | 
|Fair value of plan assets at the end of the year       |  | 1,689,775                          |   | 2,068,485                          |   | 2,262,424                          |  
|                                                       | 

|                                     |  | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |   | 
|------------------------------------ |  | ---------------------------------- | - | ---------------------------------- | - | 
|
|Funded status:                       |  |                                    |   |                                    |   | 
|Funded status                        |  | (291,888                           | ) | (660,688                           | ) | 
|Unrecognised actuarial losses        |  | 445,882                            |   | 803,631                            |   | 
|                                     |  |                                   
|Prepaid benefit cost under U.S. GAAP |  | 153,994                            |   | 142,943                            |   | 
|                                     |  |                                   

F-127

---



The pension plan weighted-average asset allocations by asset category are as follows:

Financial
Year Ended
31 March
2004

Financial
Year Ended
31 March
2005Asset CategoryEquity securities

68
%
68
%Debt securities

12
%
11
%Real estate

16
%
17
%Other

4
%
4
%Total

100
%
100
%


The Trustees of the pension plan approve the target asset allocation as well as deviation limits. The objective of the investment activities is to
maximise investment return within an acceptable level of risk, taking into consideration the liabilities of the main pension scheme.

The
assumption for the expected return in scheme assets is a weighted average based on an assumed expected return for each asset class and the proportions held of each asset class at the
beginning of the year. The expected returns on bonds are based on the gross redemption yields at the start of the year. Expected returns on other asset classes reflect consensus economic forecasts of
future returns.

The
expected rates of return are included in note 25(c).



Contributions.The Group expects to contribute €26 million to its pension plan in the year ended
31 March 2006.



The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Pension
Benefits€'000For the years ended 31 March2006

68,5002007

72,0002008

76,0002009

81,0002010

84,500Years 2011-15

496,500




The Group sponsors a defined contribution pension plan primarily covering executive employees and new entrants. For the financial years ended 31 March
2003, 31 March 2004 and 31 March 2005, contributions made by the Group totalled €3 million, €4 million and
€4 million respectively.

F-128

---







U.S. GAAP deferred tax assets and liabilities are as follows:

As at
31 March
2004

As at
31 March
2005€'m

€'mNon-current deferred tax liability:Restructuring provisions

1

Prepaid pension obligation

19

18Capital allowances in excess of depreciation

50

56Fixed assets uplift

70

62Intangible assets

20

19Income to be taxed in future periods

21

20Other

1

2Deferred tax liability

182

177Current deferred tax assetinterest

(2
)
(2
)Non-current deferred tax assets:Provisions for expenses

(9
)
(8
)Deferred revenue

(3
)
(3
)Derivative Financial Instruments

(2
)
(3
)Other

(1
)
(3
)Non-current deferred tax assets

(15
)
(17
)Net deferred tax liability

165

158




The consolidated balance sheet of the Group prepared under Irish GAAP presents substantially the same information as that presented under U.S. GAAP. However,
presentation, classification and the U.S. GAAP reconciling items have a significant effect on the U.S. GAAP consolidated balance sheet.

The
following summarised balance sheet has been adjusted to reflect the U.S. GAAP reconciling items and is presented and classified in accordance with U.S. GAAP:

As at
31 March
2004

As at
31 March
2005€'m

€'mAssets:Current assets

622

584Non-current assets

3,200

3,040Total assets

3,822

3,624Liabilities and shareholders' equity:Current liabilities

733

722Non-current liabilities

2,916

2,833Total liabilities

3,649

3,555Shareholders' equity

173

69Total liabilities and shareholders' equity

3,822

3,624


F-129

---





The consolidated statement of cash flows prepared under Irish GAAP presents substantially the same information as that required under U.S. GAAP by SFAS
No. 95, "Statement of Cash Flows" ("SFAS No. 95"). This standard differs, however, with regard to the classification of items within the
cash flow statements, including the classification of bank overdrafts, which are included as cash equivalents in the cashflow statement prepared for Irish GAAP purposes.

Under
Irish GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment,
acquisitions and disposals, equity dividends paid and management of liquid resources and financing. U.S. GAAP, however, would require only three categories of cash flow activity to be reported:
operating, investing and financing. Cash flows from taxation and returns on investments and servicing of finance shown under Irish GAAP are included as operating activities under U.S. GAAP. The
payment of dividends to the Company's shareholders, which is presented separately under Irish GAAP, is included as a financing activity under U.S. GAAP. Dividends paid to minority shareholders in
Group companies are classified as returns on investment and servicing of finance in the Irish GAAP cash flow statement and cash flows from financing activities under U.S. GAAP.

The
following condensed cash flow statement represents cash flows based on Irish GAAP measurement presented and classified in accordance with the U.S. GAAP requirements laid out in SFAS
No. 95:

|                                                 |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------------------------ |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Cash inflow from operating activities            |  | 364                                |   | 333                                |   | 319                                |  
|Cash outflow from investing activities           |  | (54                                | ) | (178                               | ) | (201                               | )
|Cash outflow from financing activities           |  | (186                               | ) | (310                               | ) | (158                               | )
|                                                 | 
|Increase/(decrease) in cash and cash equivalents |  | 124                                |   | (155                               | ) | (40                                | )
|Cash and cash equivalents at beginning of period |  | 316                                |   | 440                                |   | 285                                |  
|                                                 | 
|Cash and cash equivalents at end of period       |  | 440                                |   | 285                                |   | 245                                |  
|                                                 | 



The Group's total continuing turnover is comprised of revenue from the following products and services as indicated in the table below:

|                                |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Access (rental and connections) |  | 423                                |   | 489                                |   | 557                                |  
|Voice traffic                   |  | 651                                |   | 596                                |   | 538                                |  
|Data traffic                    |  | 104                                |   | 112                                |   | 97                                 |  
|Data communications             |  | 204                                |   | 195                                |   | 180                                |  
|Interconnect                    |  | 210                                |   | 159                                |   | 165                                |  
|Other                           |  | 187                                |   | 159                                |   | 154                                |  
|Discounts                       |  | (97                                | ) | (82                                | ) | (89                                | )
|                                | 
|Total                           |  | 1,682                              |   | 1,628                              |   | 1,602                              |  
|                                | 

F-130

---



Of the Group's total turnover of €1,682 million, €1,628 million and
€1,602 million for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 respectively, approximately €41 million
(2%), €37 million (2%) and €49 million (3%) respectively, was generated from foreign customers located outside of Ireland.

The
Group does not hold significant long-lived assets outside of Ireland.



Commitments for minimum rentals for all capital leases, including defeased leases of €127 million (see Note 31(r)) which would be
included on the consolidated balance sheet prepared in accordance with U.S. GAAP, as at 31 March 2005 are as follows:

Capital leases€'000For the years ended 31 March2006

16,8922007

29,2442008

36,2372009

40,3582010 and thereafter

31,816Total minimum lease payments

154,547Less: amount representing interest

(27,055
)127,492


The weighted average interest rate of capital leases under U.S. GAAP as at 31 March 2004 was approximately 4.5% and at 31 March 2005
was approximately 5.7%.



In January 2002, Valentia Telecommunications, the parent ofeircomLimited and 100% owned subsidiary of eircomGroup plc, entered into separate agreements with six executives of the Group whereby Valentia Telecommunications had agreed to grant options
exercisable over yet to be issued Valentia Telecommunications E Ordinary shares ("E Ordinary shares"). In January 2003, Valentia Telecommunications agreed to give these six
recipients the alternative to exercise their options over yet to be authorised Valentia Telecommunications C Shares ("C Shares") in lieu of E Ordinary shares.

The
E Ordinary shares and the C Shares carried no voting rights or rights to receive dividends, and were restricted as to their transferability. In accordance with the
guidance provided by FIN 38, "Determining the Measurement Date for Stock Option, Purchase, and Award Plans Involving Junior
Stock"("FIN 38"), the E Ordinary shares were considered junior stock. The options vested in full and were exercisable twelve months after the date of grant at the
fair market value of the E Ordinary shares as of the date the obligation to grant became effective, January 2002. Fair market value as of this date was determined by an independent
valuation. If unexercised, these options would have expired on the seventh anniversary of their grant date.

On
21 July 2003, Valentia Telecommunications entered into a share exchange agreement witheircomGroup plc, at which time no
C Shares or E Ordinary shares had been issued by Valentia Telecommunications. Subsequent to that agreement, C Shares and E Ordinary shares issued were C Shares and
E Ordinary shares ineircomGroup plc.

F-131

---



During
the financial year ended 31 March 2004, all existing options under the C Scheme were exercised and in March 2004, the C Shares ultimately converted to
Ordinary Shares upon Admission to the London and Irish Stock Exchanges. No further options will be granted under this plan.

The
following table summarises the transactions of the Group's share option activity for the financial years ended 31 March 2004 and 31 March 2005.

Number of
Shares

Weighted-average
Exercise price€Unexercised options committed to issuance 31 March 2003

3,558,800

5.82Options granted

49,710

5.82Options exercised

(3,608,510
)
5.82Unexercised options committed to issuance 31 March 2004 and 31 March 2005



5.82




During September 2003, the shareholders of the Group approved a plan to grant options to acquire 862,598 E Ordinary shares at an exercise price of
€5.82 per share to selected senior employees. Upon Admission in March 2004, the plan was amended following the conversion of the E Ordinary Shares into Ordinary Shares
such that the exercise price was €5.82 for every five Ordinary Shares, or €1.164 per Ordinary Share. The total number of Ordinary Shares that may be acquired by the
option holders under the E Scheme did not exceed 4,312,970. Upon Admission, the options granted under the E Scheme became immediately exercisable for a period of 30 days. The
Board had discretion to permit options granted under the E Scheme to be exercised during the period of 12 months following Admission, up to March 2005. All outstanding options
under the E Scheme not exercised during this 12-month period lapsed or in certain circumstances may be allowed to be exercised after this date. No further options will be granted
under this plan.

The
following table summarises the transactions of the Group's share option activity for the financial years ended 31 March 2004 and 31 March 2005.

Number of
Shares

Weighted-average
Exercise price€Unexercised options committed to issuance 31 March 2003



Options granted

4,312,970

1.16Options exercised

(2,065,265
)
1.16Unexercised options committed to issuance 31 March 2004

2,247,705

1.16Options lapsed

(16,540
)
1.16Options exercised

(2,177,700
)
1.16Unexercised options committed to issuance 31 March 2005

53,465

1.16




The Share Option Plan allows eligible employees (including Executive Directors and Senior Management) to be granted options over existing or unissued ordinary
shares. The first grant of 8,402,442 options was made under the Share Option Plan to selected senior employees including the Executive Directors, on 22 June 2004 at a price of
€1.50.

The
exercise of any options granted under the Share Option Plan is conditional on achievement of performance targets over a three year period. For options granted during the financial
year ended

F-132

---



31 March
2005, the Remuneration Committee determined that the exercise of these options would be subject to the following performance target: (i) that eircom Group plc's normalised
adjusted earnings per share, based on UK GAAP, for the financial year ended 31 March 2007 must exceed 12.05 cents; and (ii) payment of a dividend by eircom Group plc of not less
than 11 cents per share in each of the financial years ended 31 March 2005, 31 March 2006 and 31 March 2007 which reflects the assumed dividend yield as described in the
Listing Particulars published in connection with Listing. Normalised adjusted earnings per share will be calculated by an independent third party. These options become exercisable, once the
performance criteria are achieved, on 22 June 2007 and remain exercisable until 22 June 2014.

Number of
Shares

Weighted-average
Exercise price€Unexercised options committed to issuance 31 March 2004



Options granted

8,402,442

1.50Options lapsed

(52,989
)
1.50Unexercised options committed to issuance 31 March 2005

8,349,453

1.50


The following table summarises all of the transactions of the entire Group's share option activity for the financial years ended 31 March
2004 and 31 March 2005.

Number of
Shares

Weighted-average
Exercise price€Unexercised options committed to issuance 31 March 2003

3,558,800

5.82Options granted

4,362,680

1.22Options exercised

(5,673,775
)
4.13Unexercised options committed to issuance 31 March 2004

2,247,705

1.16Options granted

8,402,442

1.50Options lapsed

(69,529
)
1.42Options exercised

(2,177,700
)
1.16Unexercised options committed to issuance 31 March 2005

8,402,918

1.50


The exercise price of all options was greater than the market value of the shares at the date of grant.

The
fair value of options granted for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 reported below has been estimated at the date of grant
using Black-Scholes option pricing model with the following assumptions:

2003

2004

2005Expected life from vesting date (in years)

N/A

2.75

10.00Risk-free interest rate

N/A

3.2
%
4.5
%Volatility

N/A

36
%
19
%Dividend yield

N/A



7.33
%


The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. The Group's options granted prior to Admission, had characteristics significantly
different from those of traded options, and changes in the subjective input assumptions could materially affect the fair value estimate. Based upon the above assumptions the weighted average fair
value of the stock options granted under the E Scheme over

F-133

---



Ordinary
Shares was €0.06 per option during the financial year ended 31 March 2004. The weighted average fair value of the stock options granted under the Share Option Plan over
Ordinary Shares was €0.10 per option during the year ended 31 March 2005.



Certain executive directors and senior executives were granted awards over 1,472,198 Ordinary Shares in March 2004 at a fair value of
€1.55 per share. The awards vest 50% annually over two years on the anniversary of the date of Admission, which was 24 March 2004, and will be exercisable at no cost to the
holder. The portion to vest in March 2005 did not vest and it is anticipated that these will vest during the year ended 31 March 2006. No further awards will be granted under this plan.



On Admission, the Group granted 500,000 Ordinary Shares to two of its non-executive directors. The awards were immediately vested. The holders of
these shares have agreed not to dispose of more than 50% of their holdings in the Ordinary Shares until 31 December 2005.

Under
U.S. GAAP, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), as amended by
SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure" ("SFAS No. 148"), the Group has accounted
for its share based compensation in accordance with APB No. 25, "Accounting for Stock Issued to Employees". Additionally, as the E Ordinary Shares and C Shares were considered
junior stock, the Group applied the guidance in FIN 38 to the awards under the C Scheme and E Scheme. In accordance with U.S. GAAP, the Group recorded a compensation charge of
€6.6 million related to the C Scheme and the E Scheme during the financial year ended 31 March 2004, since the transferability restrictions and the
repurchase provisions lapsed upon Admission.

Under
U.S. GAAP, there was no compensation charge recorded under the Share Award Plan during the financial year ended 31 March 2004 since the shares were granted on
24 March 2004 and vest over two years. During the financial year 31 March 2005, the compensation charge relating to 50% of the shares under the Share Award Plan was
€1.1 million.

Under
U.S. GAAP, the compensation charge related to the 500,000 Ordinary Share awards was €775,000 during the financial year ended 31 March 2004.

Total
equity compensation charges under U.S. GAAP were €7.4 million for the financial year ended 31 March 2004 and €2.4 million for
the financial year ended 31 March 2005.

F-134

---



Had
the options and awards been accounted for in accordance with the provisions of SFAS No. 123, pro forma net income and basic and diluted net earnings per share would have been
as follows for the financial years ended 31 March 2004 and 31 March 2005:

Financial year ended31 March 2004

31 March 2005€'m

€'mNet (loss)/profit under U.S. GAAP attributable to ordinary shareholders, as reported

(208
)
47Add: Total equity related employee compensation expense determined under intrinsic value based method for all awards, net of related tax effects

7

2Deduct: Total equity related employee compensation expense determined under fair value based method for all awards, net of related tax effects

(4
)
(1
)Pro forma net loss

(205
)
48




Under Irish GAAP, on 1 January 1984 tangible assets valued, in accordance with the Postal and Telecommunications Services Act, 1983, at
€798.7 million were transferred to the Group. Since the Group did not maintain sufficiently detailed records to determine the historical cost for all assets, the valuation for
certain assets was based on the estimated replacement cost, adjusted for depreciation and inflation ("depreciated replacement cost"). The Company has adopted consistent treatment for purposes of U.S.
GAAP and thus no UK/U.S. GAAP difference has been recorded.



The Group established an annuity scheme whereby employees participating in a voluntary termination scheme could accept payment in one lump sum or in an annuity to
be paid out over a period of ten years. Under Irish GAAP, the Group calculates the net of the present value of the fixed payment stream due to employees and the fair value of the assets set aside to
fund the payment stream on the balance sheet date. Under U.S. GAAP, the liability for the annuity due to the employee is treated separately from the assets set aside to fund the liability. The assets
have been classified as trading securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", with all
unrealised gains or losses recorded through current earnings as a restructuring charge.

The
annuity scheme liability and the fair value of the assets set aside to fund the liability were €155 million and €83 million at
31 March 2004, and €150 million and €72 million at 31 March 2005, respectively.

F-135

---





As at
31 March 2004

As at
31 March 2005€'m

€'mTrade Debtors

285

285Provision for Doubtful accounts

(66
)
(75
)219

210


33.   Recently Issued Accounting Standards Applicable to U.S. GAAP



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R"Share-Based
Payment"("SFAS 123R") which revises SFAS 123 and eliminates the option to apply the intrinsic value measurement provisions of APB 25. SFAS 123R
requires that the cost of all share-based payment transactions be recognised in the financial statements. SFAS 123R also establishes fair value as the measurement method in accounting for
share-based payments to employees. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. For public
entities that do not file as small business issuers, the standard is effective for the first interim or annual reporting period that begins after June 15, 2005. The Group adopted
SFAS 123R on 1 April 2005 using the modified prospective transition method. Under the modified prospective method, and in accordance with Staff Accounting Bulletin 107
("SAB 107"), the Group is not required to restate prior year amounts. The Group estimates the application of the expensing provisions of SFAS 123R will result in a pre-tax
expense of approximately €2 million in the financial year ending 31 March 2006 excluding additional grants and awards.

In
March 2004, FASB's Emerging Issues Task Force ("EITF") reached consensus on EITF 03-01,"The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"("EITF 03-01"). The EITF prescribed a
three-step model for determining whether an investment is other-than-temporarily impaired and requires disclosure for unrealised losses on investments. In
September 2004, the FASB issued FASB Staff Position ("FSP") EITF 03-1-1 "Effective Date of Paragraphs 10-20 of EITF Issue
No. 03-1" ("FSP EITF 03-1-1"). FSP EITF 03-1-1 delays the effective date for the measurement and recognition guidance
contained in paragraphs 10-20 of EITF 03-01. The disclosure requirements of EITF 03-01 remain effective for fiscal years ending after
June 15, 2004. No effective date for the measurement and recognition guidance has been established in FSP EITF 01-1-1. During the period of delay, FSP
EITF 01-1-1 states that companies should continue to apply current guidance to determine if an impairment is other-than-temporary. The adoption
of EITF 03-01, excluding paragraphs 10-20, did not impact the Group's consolidated position, results of operations or cash flows. The Group will assess the impact
of paragraphs 10-20 of EITF 03-01 once the guidance has been finalised.

In
December 2003, the Securities and Exchange Commission issued "Staff Accounting Bulletin 104" ("SAB 104"). SAB 104 addresses certain aspects of the
accounting by a vendor for arrangements that involve more than one deliverable, or unit of accounting, and how arrangement consideration should be measured and allocated to the separate units of
accounting in the arrangement. Applying SAB 104 in the financial statements for the year ended 31 March 2005 has had no material impact on these financial statements.

F-136

---





eircomLimited        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders ofeircomLimited:

We
have audited the accompanying consolidated balance sheets ofeircomLimited and its subsidiaries as of 31 March 2004 and
31 March 2005 and the related consolidated profit and loss accounts, consolidated cash flow statements and reconciliation of movements in consolidated shareholders' funds for each of the three
years in the period ended 31 March 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of eircomLimited and its subsidiaries at 31 March 2004 and
31 March 2005, and the results of their operations and their cash flows for each
of the three years in the period ended 31 March 2005, in conformity with accounting principles generally accepted in Ireland.

Accounting
principles generally accepted in Ireland 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 31 to the consolidated financial statements.

PricewaterhouseCoopers
Dublin, Ireland
28 June 2005

F-137

---



eircomLimited

Consolidated Profit and Loss Account

For the Year Ended 31 March 2005

|                                                                                |  | Notes |  | 2003   |   | 2004  |   | 2005  |  
|------------------------------------------------------------------------------- |  | ----- |  | ------ | - | ----- | - | ----- | -
|
|Turnover                                                                        |  | 2     |  | 1,682  |   | 1,628 |   | 1,602 |  
|Cost of sales                                                                   |  |       |  | 499    |   | 410   |   | 378   |  
|                                                                                | 
|Gross profit                                                                    |  |       |  | 1,183  |   | 1,218 |   | 1,224 |  
|Operating costs before exceptional operating (charges)/credits and depreciation |  | 3     |  | (633   | ) | (616  | ) | (687  | )
|Exceptional operating (charges)/credits                                         |  | 3, 4  |  | (49    | ) | (13   | ) | 6     |  
|Depreciation (net)                                                              |  | 3, 10 |  | (321   | ) | (302  | ) | (258  | )
|                                                                                | 
|Total operating costs                                                           |  | 3     |  | (1,003 | ) | (931  | ) | (939  | )
|                                                                                | 
|Group operating profit                                                          |  |       |  | 180    |   | 287   |   | 285   |  
|Group's share of operating profits of associated undertakings                   |  |       |  |       |   |      |   | 1     |  
|                                                                                | 
|Total operating profit                                                          |  |       |  | 180    |   | 287   |   | 286   |  
|Exceptional gain on the disposal of fixed assets                                |  |       |  | 2      |   |      |   |      |  
|Exceptional gain/(loss) on exit from subsidiaries                               |  | 5 (a) |  | 175    |   | (1    | ) |      |  
|Exceptional credit arising on Demerger of mobile business                       |  | 5 (b) |  |       |   |      |   | 4     |  
|                                                                                | 
|Profit on ordinary activities before interest and taxation                      |  |       |  | 357    |   | 286   |   | 290   |  
|Interest receivable/(payable) and similar charges (net)                         |  | 6     |  | 10     |   | (2    | ) | 2     |  
|                                                                                | 
|Profit on ordinary activities before taxation                                   |  |       |  | 367    |   | 284   |   | 292   |  
|Tax charge on profit on ordinary activities                                     |  | 7     |  | (47    | ) | (39   | ) | (36   | )
|                                                                                | 
|Profit on ordinary activities after taxation                                    |  |       |  | 320    |   | 245   |   | 256   |  
|Dividends paid and payable                                                      |  | 8     |  | (300   | ) | (618  | ) | (218  | )
|                                                                                | 
|Profit retained/(loss absorbed) for the financial year                          |  | 20    |  | 20     |   | (373  | ) | 38    |  
|                                                                                | 

All of the group's activities are continuing.

The
accompanying notes form an integral part of these consolidated financial statements.

F-138

---



eircomLimited

Consolidated Balance Sheet

As at 31 March 2005

|                                                        |                                              | Notes |    | 2004
€'m |       | 2005
€'m |      
|------------------------------------------------------- | -------------------------------------------- | ----- | -- | -------- | ----- | -------- | -----
|Fixed assets                                            |                                              |       |    |          |       |          |      
|                                                        | Intangible assets                            |       | 9  |          |      |          | 2    
|                                                        | Tangible assets                              |       | 10 |          | 1,583 |          | 1,529
|                                                        | Investments in associates                    |       | 11 |          |      |          | 1    
|                                                        |                                             
|                                                        |                                              |       |    | 1,583    |       | 1,532    |      
|                                                        |                                             
|Current assets                                          |                                              |       |    |          |       |          |      
|                                                        | Stocks                                       |       | 12 |          | 10    |          | 11   
|                                                        | Debtors: amounts falling due within one year |       | 13 |          | 476   |          | 468  
|                                                        | Cash at bank and in hand                     |       |    |          | 97    |          | 39   
|                                                        |                                             
|                                                        |                                              |       |    | 583      |       | 518      |      
|                                                        |                                             
|Creditors: Amounts falling due within one year          |                                              | 14    |    | 910      |       | 760      |      
|                                                        |                                             
|Net current liabilities                                 |                                              |       |    | (327     | )     | (242     | )    
|                                                        |                                             
|Total assets less current liabilities                   |                                              |       |    | 1,256    |       | 1,290    |      
|                                                        |                                             
|Creditors: Amounts falling due after more than one year |                                              | 14    |    | 10       |       | 9        |      
|Provision for liabilities and charges                   |                                              | 17    |    | 222      |       | 219      |      
|                                                        |                                             
|                                                        |                                              |       |    | 232      |       | 228      |      
|                                                        |                                             
|Net assets                                              |                                              |       |    | 1,024    |       | 1,062    |      
|                                                        |                                             
|Capital and reserves                                    |                                              |       |    |          |       |          |      
|                                                        | Called up share capital                      |       | 19 |          | 552   |          | 552  
|                                                        | Capital conversion reserve fund              |       | 20 |          | 9     |          | 9    
|                                                        | Share premium account                        |       | 20 |          | 144   |          | 144  
|                                                        | Revaluation reserve                          |       | 20 |          | 297   |          | 286  
|                                                        | Profit and loss account                      |       | 20 |          | 22    |          | 71   
|                                                        |                                             
|Total equity shareholders' funds                        |                                              |       |    | 1,024    |       | 1,062    |      
|                                                        |                                             

The accompanying notes form an integral part of these consolidated financial statements.

F-139

---



eircomLimited

Consolidated Cash Flow Statements

For the Year Ended 31 March 2005

|                                                                          |  | Notes |   | 2003 |   | 2004 |   | 2005 |  
|------------------------------------------------------------------------- |  | ----- | - | ---- | - | ---- | - | ---- | -
|
|Net cash inflow from operating activities                                 |  | 22(a  | ) | 505  |   | 495  |   | 525  |  
|Returns on investments and servicing of finance                           |  | 22(b  | ) | 7    |   | (4   | ) | 2    |  
|Taxation                                                                  |  | 22(c  | ) | 4    |   | (46  | ) | (71  | )
|Capital expenditure and financial investment (net)                        |  | 22(d  | ) | (438 | ) | 26   |   | (191 | )
|Acquisitions and disposals                                                |  | 22(e  | ) | 182  |   | (1   | ) |     |  
|Dividends paid to equity shareholders                                     |  |       |   | (300 | ) | (458 | ) | (322 | )
|                                                                          | 
|Cash (outflow)/inflow before management of liquid resources and financing |  |       |   | (40  | ) | 12   |   | (57  | )
|Financing                                                                 |  | 22(f  | ) | (88  | ) | (105 | ) |     |  
|                                                                          | 
|Decrease in cash                                                          |  |       |   | (128 | ) | (93  | ) | (57  | )
|                                                                          | 

Reconciliation of Net Cash Flow to (Decrease)/Increase in Net Cash

|                                       |  | Notes |   | 2003 |   | 2004 |   | 2005 |  
|-------------------------------------- |  | ----- | - | ---- | - | ---- | - | ---- | -
|
|Decrease in cash in the financial year |  |       |   | (128 | ) | (93  | ) | (57  | )
|Cash outflow from decrease in loans    |  |       |   | 88   |   | 105  |   |     |  
|                                       | 
|(Decrease)/increase in net cash        |  | 22(g  | ) | (40  | ) | 12   |   | (57  | )
|                                       | 

The accompanying notes form an integral part of these consolidated financial statements.

F-140

---



eircomLimited

Consolidated Statement of Total Recognised Gains and Losses

For the Year Ended 31 March 2005

|                                                |  | 2003 |  | 2004 |  | 2005
|----------------------------------------------- |  | ---- |  | ---- |  | ----
|
|Profit on ordinary activities after taxation    |  | 320  |  | 245  |  | 256 
|Unrealised surplus on revaluation of properties |  | 7    |  | 54   |  |    
|                                               
|Total recognised gains for the year             |  | 327  |  | 299  |  | 256 
|                                               

Note of Consolidated Historical Cost Profits and Losses

The reported profit on ordinary activities before tax is €292 million (2004: €284 million, 2003:
€367 million).

If
adjustments were made to reflect assets carried at valuation on a historical cost basis, this profit would be increased by €11 million (2004:
€12 million, 2003: €9 million), to produce a historical cost profit on ordinary activities before taxation of €303 million (2004:
€296 million, 2003: €376 million). The historical cost profit retained after taxation and dividends would be €49 million (2004:
loss absorbed of €361 million, 2003: profit retained of €29 million).

The
accompanying notes form an integral part of these consolidated financial statements.

F-141

---



eircomLimited

Reconciliation of Movements in Consolidated Shareholders' Funds

|                                                       |  | 2003  |   | 2004  |   | 2005  |  
|------------------------------------------------------ |  | ----- | - | ----- | - | ----- | -
|
|Profit on ordinary activities after taxation           |  | 320   |   | 245   |   | 256   |  
|Dividends and appropriations                           |  | (300  | ) | (618  | ) | (218  | )
|                                                       | 
|Profit retained/(loss absorbed) for the financial year |  | 20    |   | (373  | ) | 38    |  
|Revaluation surplus                                    |  | 7     |   | 54    |   |      |  
|                                                       | 
|Net increase/(reduction) in total shareholders' funds  |  | 27    |   | (319  | ) | 38    |  
|Total shareholders' funds at beginning of year         |  | 1,316 |   | 1,343 |   | 1,024 |  
|                                                       | 
|Total equity shareholders' funds at end of year        |  | 1,343 |   | 1,024 |   | 1,062 |  
|                                                       | 

The accompanying notes form an integral part of these consolidated financial statements.

F-142

---



eircomLimited

Notes to the Consolidated Financial Statements

1.     Accounting Policies and Estimation Techniques



The financial statements are prepared under the historical cost convention, as modified by the revaluation of certain tangible fixed assets, in accordance with
the Companies Acts, 1963 to 2003, and the European Communities (Companies: Group Accounts) Regulations 1992, and applicable accounting standards. The group financial statements consolidate the
financial statements of the company and its subsidiary undertakings. The subsidiary undertakings' financial years are all coterminous with those of the company. A summary of the more important group
accounting policies is set out below.

The
preparation of the financial statements requires the directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported amounts included in the profit and loss account for the year.

Actual
results could differ from those estimates. Estimates are used principally when accounting for interconnect revenue, provisions required in respect of doubtful debts, payments to
telecommunications operators, depreciation, impairment charges, amortisation of goodwill, pension schemes, provisions for liabilities and charges, including amounts required to settle self insured
liabilities, and taxation payable.

As
permitted by the Companies (Amendment) Act, 1986, the directors have adapted the prescribed format of the profit and loss account in a manner appropriate to the nature of the group's
business.

The
consolidated financial statements of the group are presented in euro denoted by the symbol "€".

Certain
amounts in prior years have been reclassified to conform with the current years presentation.



The consolidated financial statements of the group comprise a consolidation of the financial statements of the company, eircomLimited,
and its subsidiary undertakings.

Acquisitions
of companies are accounted for under acquisition accounting rules. Investments in associated undertakings are accounted for using the equity method of accounting. All
inter-company transactions are eliminated as part of the consolidation process. The results of subsidiaries sold or acquired are included in the consolidated profit and loss account up to, or from,
the date control passes.



The goodwill arising from the purchase of subsidiary undertakings is capitalised and amortised on a straight line basis over its expected useful life. Goodwill
represents the excess of the consideration paid for the acquisition of shares in subsidiaries and associated undertakings over the fair value of their separable net assets acquired. The useful lives
of goodwill, related to acquired businesses have been determined by reference to the years over which the values of the underlying businesses are expected to exceed the values of their identifiable
net assets, and are presumed not to exceed twenty years.

F-143

---



Prior
to 3 April 1998, goodwill arising from acquisitions of subsidiaries and associated undertakings was eliminated against reserves and amounts to
€3.379 million (2004: €3.379 million). This goodwill will be charged to the consolidated profit and loss account, should the group dispose of the
businesses to which it relates.



Intangible assets purchased are capitalised at cost and amortised over the useful life of the related asset. They consist of purchased monitoring contracts in our
residential security systems operation.



Turnover comprises the fair value of consideration received in respect of all services provided and equipment sold to third parties, exclusive of value added tax
and after discounts. Turnover is recognised in the period earned by rendering of services or delivery of products. Turnover includes sales by group undertakings but excludes all intercompany sales.

Turnover
from calls is recognised at the time the call is made over the group's networks. Turnover from rentals is recognised evenly over the period to which the charges relate. Turnover
from installation and connection activities is recognised in the same period as the related costs. Turnover from equipment
sold to third parties is recognised at the point of sale. Turnover arising from the provision of other services, including maintenance contracts, is recognised over the term of the contract.

Bundled
products (line rentals and calls) are accounted for in the same manner as the unbundled products comprising the bundle. The discount to standard call rates is normally applied to
the traffic element of the bundle.

Billings
for telephone services are made on a monthly or bi-monthly basis. Unbilled revenues from the billing cycle date to the end of each month are recognised as revenue
during the month the service is provided.

The
group acts as principal in the vast majority of transactions with its customers. Where the group sells services to customers as a network provider as opposed to service provider, the
circumstances of these transactions are reviewed, and the group believes that it carries all of the risks of the relationship and sale to the end customer, and settlement with the service originator
are separate and unrelated. Therefore, the group considers itself the principal in these transactions and accounts for the settlement and revenue recognition as two distinct transactions.

The
group is required to interconnect their networks with other telecommunications operators. In some instances, as is normal practice in the telecommunications industry, reliance is
placed on other operators to measure the traffic flows interconnecting with the group's networks. In addition, the prices at which services are charged are often regulated and can be subject to
retrospective adjustment. Estimates are used in these cases to determine the amount of income receivable from, or payments required to be made to, these other operators and to establish appropriate
provisions.



Costs of sales are mainly settlement fees that the group pays to other authorised operators for traffic that is routed on their networks. Costs of sales also
include the cost of equipment sold and commissions paid to third party agents. These commissions relate to sales ofeircomproducts by third parties.
Costs are recognised in the same period as the related turnover. This period is based on the term the customer is committed to a contractual service contract. Where customers have no contractual
commitment, agents commission and other costs directly attributable to the sale to the customers are recognised as incurred.

F-144

---





Expenditure on research is written off as incurred.



Transactions denominated in foreign currencies are translated into euro at the rate of exchange ruling at the transaction date. Assets and liabilities denominated
in foreign currencies are translated at the rates ruling at the balance sheet date, or rates of exchange contracted for under various currency management instruments, with the resulting gain or loss
being dealt with through the profit and loss account.

The
financial statements of foreign subsidiaries are translated at year end rates for the balance sheet and the weighted average rates for the year for the profit and loss account.
Translation gains and losses arising are reported as a movement on reserves. All other differences are taken to the profit and loss account.



Corporation tax is calculated on the profits for the year as adjusted for group relief. Tax losses utilised for group relief are transferred between group
members. Charges for group relief are determined on a case by case basis.

Deferred
tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation
to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the group's taxable profits and its results
as stated in the financial statements. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax
rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.



Tangible fixed assets are stated at historical cost or valuation, less accumulated depreciation. Cost in the case of network plant comprises expenditure up to and
including the last distribution point before customers' premises and includes contractors' charges, materials and labour and related overheads directly attributable to the cost of construction. Land
and buildings, excepting those held on a short leasehold basis, are stated at a valuation, the basis of which is depreciated replacement cost or open market value, as appropriate. Depreciated
replacement cost is the gross replacement cost of fixed assets less depreciation based on that cost and on the age of the assets.



Depreciation is provided on tangible fixed assets (excluding land), on a straight line basis, so as to write off their historical cost/valuation less residual
amounts over their estimated economic lives. A full year's depreciation is charged to the profit and loss account, on tangible fixed assets (excluding land),

F-145

---



in
the year the asset becomes available for use. The estimated economic lives assigned to tangible assets are as follows:

Estimated Economic Life (Years)
2005Asset ClassBuildings

40Network ServicesTransmission EquipmentDuct

20Overhead cable/poles

10-15Underground cable

14ExchangesExchange line terminations

8Core hardware/operating software

4Others

3-7


The group's policy is to review the remaining economic lives of tangible fixed assets on an ongoing basis and to adjust the depreciation charge to
reflect the remaining estimated lives of tangible fixed assets.

Fully
depreciated assets are retained in the cost/valuation of tangible fixed assets and related accumulated depreciation until they are removed from service. In the case of disposals,
assets and related depreciation are removed from the financial statements and the net amount, less proceeds from disposal, is charged or credited to the consolidated profit and loss account.



Assets in the course of construction represent the cost of purchasing, constructing and installing tangible fixed assets ahead of their own productive use. No
depreciation is charged on assets in the course of construction.



The group undertakes a review for impairment of tangible or intangible fixed assets if events or changes in circumstances indicate that the carrying amount of the
fixed asset may not be recoverable. To the extent that the carrying amount exceeds the recoverable amount, that is the higher of net realisable value and value in use, the fixed asset is written down
to its recoverable amount. The value in use of fixed assets is determined from estimated discounted future net cash flows.



Non-repayable grants are accounted for as deferred income, which is amortised to the profit and loss account at the same rate as the related assets
are depreciated.



The capital cost of fixed assets acquired under finance leases is included in tangible assets and written off over the estimated useful life of the asset. The
outstanding capital element of the lease obligations is included in loans and other debt, while the interest is charged to the profit and loss account over the primary lease term.

Operating
lease rentals are charged to the profit and loss account on a straight line basis over the term of the lease as incurred.

F-146

---





Stocks comprise consumable items, which may be used in the construction or maintenance of plant and goods held for resale. Stocks are stated at the lower of cost
and net realisable value. Cost includes invoice price, import duties and transportation costs. Where necessary, provisions are made for damaged, deteriorated, obsolete and unusable items.



Debtors are stated in the balance sheet at estimated net realisable value. Net realisable value is the invoiced amount less provisions for bad and doubtful debts.
Provisions are made specifically against debtors where there is evidence of a dispute or an inability to pay. An additional provision is made based on an analysis of balances by age of debtor, payment
history, previous losses experienced and general economic conditions.



The pension entitlements of employees, arising from their service with the group, are secured by contributions from the group and the employees to separately
administered superannuation schemes.

The
group operates funded defined benefit pension schemes, which are independent of the group's finances, for the majority of its employees. Actuarial valuations of the main scheme are
carried out, as determined by the trustees, at intervals of not more than three years. The rates of contribution payable and the pension cost are determined on the advice of the actuaries, having
regard to the results of these valuations.

The
cost of providing pensions is charged against profits over employees' working lives with the group using the projected unit method. Variations from this regular cost are allocated on
a straight-line basis over the average remaining service lives of current employees.

Additional
contributions are made to superannuation schemes in respect of employees who take early retirement. These contributions are based on the advice of a professionally qualified
actuary.

The
group also operates defined contribution pension schemes and the profit and loss account is charged with the contributions payable by the group.

The
disclosures required under the transitional arrangements of Financial Reporting Standard 17 "Retirement Benefits" for the year ended 31 March 2005 are shown in
Note 25(c).



A provision is defined as a liability of uncertain timing or amount. Provisions are recognised when the group has a legal or constructive obligation as a result
of past events and a reliable estimate of that obligation can be made. Provisions are measured, where material, on a discounted basis.



In accordance with the requirements of FRS 12 "Provisions, Contingent Liabilities and Contingent Assets", provision is made against the net cash outflow expected
to arise from contracts where the unavoidable costs under the contract exceed the economic benefit expected to be received under the contract.

F-147

---



2.     Turnover and Segmental Analysis of Class of Business

The group provides communications services principally in Ireland. The group is managed on a unitary basis and has no segments. The group's share of turnover from
associates is included in the table below.

|               |            | 2003  |       | 2004  |       | 2005 
|-------------- | ---------- | ----- | ----- | ----- | ----- | -----
|
|Turnover       |            |       |       |       |       |      
|               | Group      |       | 1,682 |       | 1,628 |      
|               | Associates |       | 13    |       | 15    |      
|              
|Total turnover |            | 1,695 |       | 1,643 |       | 1,622
|              

3.     Operating Costs

|                                                                                |  | 2003  |   | 2004 |   | 2005 |  
|------------------------------------------------------------------------------- |  | ----- | - | ---- | - | ---- | -
|
|Staff costs                                                                     |  |       |   |      |   |      |  
|Wages & salaries & other staff costs                                            |  | 372   |   | 376  |   | 374  |  
|Social welfare costs                                                            |  | 15    |   | 14   |   | 14   |  
|Pension costs                                                                   |  | 25    |   | 25   |   | 25   |  
|                                                                                | 
|                                                                                |  | 412   |   | 415  |   | 413  |  
|Staff costs capitalised                                                         |  | (44   | ) | (54  | ) | (58  | )
|                                                                                | 
|Staff costs before restructuring programme costs                                |  | 368   |   | 361  |   | 355  |  
|Restructuring programme costs (including related pension costs)                 |  |      |   |     |   | 72   |  
|                                                                                | 
|Net staff costs included in operating costs                                     |  | 368   |   | 361  |   | 427  |  
|Other operating costs (a)                                                       |  | 265   |   | 255  |   | 260  |  
|                                                                                | 
|                                                                                |  | 633   |   | 616  |   | 687  |  
|Exceptional operating charges/(credits), including certain staff costs (note 4) |  | 49    |   | 13   |   | (6   | )
|Depreciation (net) (note 10)                                                    |  | 321   |   | 302  |   | 258  |  
|                                                                                | 
|Total operating costs                                                           |  | 1,003 |   | 931  |   | 939  |  
|                                                                                | 



|                                                               |  | 2003   |   | 2004   |   | 2005   |  
|-------------------------------------------------------------- |  | ------ | - | ------ | - | ------ | -
|
|Research costs                                                 |  | 154    |   | 50     |   | 1,048  |  
|                                                               | 
|Hire of plant and machinery                                    |  | 2,891  |   | 3,053  |   | 3,367  |  
|                                                               | 
|Other operating lease rentals                                  |  | 22,748 |   | 22,449 |   | 20,096 |  
|                                                               | 
|Net exchange gain on foreign currency borrowings less deposits |  | (6,238 | ) | (1,134 | ) | (261   | )
|                                                               | 

F-148

---





During the year the group obtained the following services from the group's auditor as detailed below:

|                                                              |  | 2003  |  | 2004  |  | 2005 
|------------------------------------------------------------- |  | ----- |  | ----- |  | -----
|
|Audit services                                                |  |       |  |       |  |      
|Statutory audit                                               |  | 540   |  | 540   |  | 532  
|Other audit related services (including non-statutory audits) |  | 361   |  | 317   |  | 730  
|Audit related regulatory reporting                            |  | 1,421 |  | 2,085 |  | 2,255
|                                                             
|                                                              |  | 2,322 |  | 2,942 |  | 3,517
|Further assurance services                                    |  | 1,420 |  | 808   |  | 290  
|Tax advisory services                                         |  | 965   |  | 144   |  | 60   
|                                                             
|                                                              |  | 4,707 |  | 3,894 |  | 3,867
|                                                             



|                           |  | 2003  |  | 2004   |  | 2005 
|-------------------------- |  | ----- |  | ------ |  | -----
|
|Emoluments                 |  |       |  |        |  |      
|for services as Directors |  | 535   |  | 1,338  |  | 763  
|for other services        |  | 1,306 |  | 5,707  |  | 3,392
|pension contributions     |  | 328   |  | 3,726  |  | 525  
|                          
|                           |  | 2,169 |  | 10,771 |  | 4,680
|                          

4.     Exceptional Operating Charges/(Credits)

|                                        |  | 2003 |  | 2004 |  | 2005 |  
|--------------------------------------- |  | ---- |  | ---- |  | ---- | -
|
|Exceptional operating charges/(credits) |  | 49   |  | 13   |  | (6   | )
|                                        | 

In
the year ended 31 March 2005, the exceptional credit of €6 million is in relation to a provision release partially offset by accrued costs incurred from
certain compliance matters. The net tax effect of the exceptional credit was to increase the Group tax charge by €1 million.

In
the year ended 31 March 2004, exceptional costs include bonus amounts payable to executives of €19 million, relating to contractual entitlements
triggered by the refinancing of the group. These costs were partially offset by a €3 million credit relating to compliance matters, €2 million credit
relating to refinancing and €1 million credit relating to restructuring. The net tax effect of the exceptional charge was to reduce the Group tax charge by
€2 million.

In
the year ended 31 March 2003, the group incurred a number of non-recurring costs principally in relation to (i) costs incurred in connection with potential
refinancing and (ii) charges in relation to a deficit on an annuity scheme provided as part of the restructuring programme. The net tax effect of the exceptional charge was to reduce the group
tax charge by €7 million.

The
cash outflows resulting from exceptional charges for the year ended 31 March 2005 were €Nil (2004: €36 million, 2003:
€19 million). This includes certain cashflows in respect of exceptional charges included in the Profit & Loss Account in earlier years.

F-149

---



5.     Exceptional:



In the year ended 31 March 2003,eircomagreed to transfer control of its 63% shareholding in Golden Pages
Limited and its 100% shareholding ineircomNI Limited. The following table sets out the effect of these transactions on the results of the group.

2003€'mNet assets:Tangible Assets

10Stocks

10Debtors

6Cash

12Creditors

(10
)Minority interest

(10
)Net assets at date of the exit

18Amount realised (after expenses)

193Profit on exit from subsidiaries

175Amount realised comprised of:

€'mCash received

195Expenses incurred

(2
)193An analysis of the net cash inflows is as follows:

€'mCash received

195Cash disposed of

(12
)Related exit costs paid

(1
)182


The
related tax charge on this gain is included in the taxation charge in the year ended 31 March 2003.



|                                                              |  | 2003
€'m |  | 2004
€'m |  | 2005
€'m |  
|------------------------------------------------------------- |  | -------- |  | -------- |  | -------- | -
|Exceptional credit arising on the Demerger of mobile business |  |         |  |         |  | (4       | )
|                                                              | 

In
the year ended 31 March 2005, an exceptional credit arose in respect of a €4 million adjustment in relation to the costs provided for the demerger of the
Eircell mobile business and subsequent acquisition by Vodafone plc. The net tax effect of the exceptional credit was to increase the Group tax charge by €1 million.

F-150

---



6.     Interest (Receivable)/Payable and Similar Charges (net)

|                                                                                       |  | 2003 |   | 2004 |   | 2005 |  
|-------------------------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Interest and associated finance costs payable in respect of bank loans and other debt: |  |      |   |      |   |      |  
|Repayable within 5 years                                                               |  | 15   |   | 6    |   | 2    |  
|Repayable wholly or partly in more than 5 years                                        |  |     |   |     |   |     |  
|                                                                                       | 
|Total interest payable and similar charges                                             |  | 15   |   | 6    |   | 2    |  
|Less: interest receivable                                                              |  | (25  | ) | (4   | ) | (4   | )
|                                                                                       | 
|Net interest (receivable)/payable                                                      |  | (10  | ) | 2    |   | (2   | )
|Exchange differences arising on foreign currency borrowings                            |  |      |   |      |   |      |  
|Unrealised gains                                                                       |  | (1   | ) |     |   |     |  
|Hedging contract losses                                                                |  | 1    |   |     |   |     |  
|                                                                                       | 
|Net Interest (receivable)/payable and similar charges                                  |  | (10  | ) | 2    |   | (2   | )
|                                                                                       | 

In
the year ended 31 March 2003, net interest receivable includes €11 million of interest received in respect of taxation settlements.

7.     Tax Charge on Profit on Ordinary Activities



|                                                                      |  | 2003 |   | 2004 |   | 2005 |  
|--------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Current tax:                                                          |  |      |   |      |   |      |  
|Irish corporation tax on profit for the year                          |  | 29   |   | 36   |   | 35   |  
|Adjustments in respect of previous periods                            |  | (36  | ) | (2   | ) | (4   | )
|Payment for corporation tax losses                                    |  | 9    |   |     |   |     |  
|Taxation on exceptional gain on the exit from subsidiaries            |  | 38   |   |     |   |     |  
|                                                                      | 
|Total current tax charge (note 7(b))                                  |  | 40   |   | 34   |   | 31   |  
|Deferred tax:Origination and reversal of timing differences (note 17) |  | 7    |   | 5    |   | 5    |  
|                                                                      | 
|Taxation charge on profit on ordinary activities                      |  | 47   |   | 39   |   | 36   |  
|                                                                      | 

F-151

---





The tax assessed for the year is different than the tax charge that would arise on applying the standard rate of corporation tax, 12.5% in the Republic of
Ireland. The differences are explained below:

|                                                                                                               |  | 2003 |   | 2004 |   | 2005 |  
|-------------------------------------------------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Profit on ordinary activities before taxation                                                                  |  | 367  |   | 284  |   | 292  |  
|                                                                                                               | 
|Profit on ordinary activities multiplied by standard rate of corporation tax 12.5% (2004: 12.5%, 2003:15.125%) |  | 56   |   | 36   |   | 37   |  
|Effects of:                                                                                                   |  |      |   |      |   |      |  
|Adjustment in respect of previous periods                                                                      |  | (36  | ) | (2   | ) | (4   | )
|Utilisation of tax losses                                                                                      |  | (1   | ) | (1   | ) |     |  
|Capital Allowances in excess of Depreciation                                                                   |  | (7   | ) | (4   | ) | (6   | )
|Timing differences                                                                                             |  |     |   | 1    |   | 1    |  
|Tax losses unutilised                                                                                          |  |     |   | 1    |   |     |  
|Payments for tax losses                                                                                        |  | 9    |   |     |   |     |  
|Income not taxable                                                                                             |  | (2   | ) |     |   |     |  
|Gains taxed in prior periods                                                                                   |  | (2   | ) | (2   | ) |     |  
|Expenses not deductible for tax purposes                                                                       |  | 11   |   | 5    |   | 3    |  
|Income liable at higher rates                                                                                  |  | 12   |   |     |   |     |  
|                                                                                                               | 
|Current tax charge for year (note 7(a))                                                                        |  | 40   |   | 34   |   | 31   |  
|                                                                                                               | 



The proposed adoption of IFRS for the year ending 31 March 2006 onwards may materially affect the future tax charge.

8.     Dividends Paid and Payable

|                                                                   |  | 2003 |  | 2004 |  | 2005
|------------------------------------------------------------------ |  | ---- |  | ---- |  | ----
|
|Ordinary dividends:                                                |  |      |  |      |  |     
|Interim dividend of Nil per share (2004: 23.145c, 2003: 13.588c)   |  | 300  |  | 511  |  |    
|Proposed final dividend of Nil per share (2004: 4.846c, 2003: Nil) |  |     |  | 107  |  |    
|Declared final dividend of 9.874c per share (2004: Nil, 2003: Nil) |  |     |  |     |  | 218 
|                                                                  
|                                                                   |  | 300  |  | 618  |  | 218 
|                                                                  

F-152

---



9.     Intangible Assets

|                                      |  | 2005
|------------------------------------- |  | ----
|
|Cost                                  |  |     
|At 31 March 2004                      |  |    
|Additions                             |  | 2   
|                                     
|At 31 March 2005                      |  | 2   
|                                     
|Amortisation                          |  |     
|At 31 March 2004                      |  |    
|Charge for year                       |  |    
|                                     
|At 31 March 2005                      |  |    
|                                     
|Total Net Book Value at 31 March 2005 |  | 2   
|                                     
|Total Net Book Value at 31 March 2004 |  |    
|                                     

F-153

---



10.   Tangible Fixed Assets

a)

|                                      |  | Land &
Buildings |   | Network Plant &
Equipment |   | Total |  
|------------------------------------- |  | ---------------- | - | ------------------------- | - | ----- | -
|
|Cost or Valuation                     |  |                  |   |                           |   |       |  
|Cost                                  |  | 6                |   | 4,065                     |   | 4,071 |  
|Valuation                             |  | 408              |   | 749                       |   | 1,157 |  
|                                      | 
|At 31 March 2003                      |  | 414              |   | 4,814                     |   | 5,228 |  
|                                      | 
|Additions                             |  | 1                |   | 206                       |   | 207   |  
|Disposals/retirements                 |  |                 |   | (55                       | ) | (55   | )
|Exit from subsidiaries                |  | (2               | ) | (1                        | ) | (3    | )
|Revaluation surplus                   |  | 37               |   |                          |   | 37    |  
|                                      | 
|At 31 March 2004                      |  | 450              |   | 4,964                     |   | 5,414 |  
|                                      | 
|Cost                                  |  | 3                |   | 4,215                     |   | 4,218 |  
|Valuation                             |  | 447              |   | 749                       |   | 1,196 |  
|Additions                             |  | 13               |   | 196                       |   | 209   |  
|Exchange adjustments                  |  |                 |   | (2                        | ) | (2    | )
|Disposals/retirements                 |  | (3               | ) | (9                        | ) | (12   | )
|                                      | 
|At 31 March 2005                      |  | 460              |   | 5,149                     |   | 5,609 |  
|                                      | 
|Cost                                  |  | 15               |   | 4,400                     |   | 4,415 |  
|Valuation                             |  | 445              |   | 749                       |   | 1,194 |  
|Accumulated Depreciation              |  |                  |   |                           |   |       |  
|At 31 March 2003                      |  | 7                |   | 3,592                     |   | 3,599 |  
|Charge for year (note 10(b))          |  | 17               |   | 274                       |   | 291   |  
|Impairment charge                     |  | 5                |   | 9                         |   | 14    |  
|Disposals/retirements                 |  |                 |   | (54                       | ) | (54   | )
|Exit from subsidiaries                |  | (1               | ) | (1                        | ) | (2    | )
|Revaluation surplus                   |  | (17              | ) |                          |   | (17   | )
|                                      | 
|At 31 March 2004                      |  | 11               |   | 3,820                     |   | 3,831 |  
|                                      | 
|Charge for year (note 10(b))          |  | 17               |   | 242                       |   | 259   |  
|Exchange adjustments                  |  |                 |   | (1                        | ) | (1    | )
|Disposals/retirements                 |  |                 |   | (9                        | ) | (9    | )
|                                      | 
|At 31 March 2005                      |  | 28               |   | 4,052                     |   | 4,080 |  
|                                      | 
|Total Net Book Value at 31 March 2005 |  | 432              |   | 1,097                     |   | 1,529 |  
|                                      | 
|Total Net Book Value at 31 March 2004 |  | 439              |   | 1,144                     |   | 1,583 |  
|                                      | 

F-154

---



b)    The depreciation charged in the profit and loss account is net of capital grants amortised during the year as follows:

|                                           |  | 2003 |   | 2004 |   | 2005 |  
|------------------------------------------ |  | ---- | - | ---- | - | ---- | -
|
|Depreciation                               |  | 309  |   | 291  |   | 259  |  
|Impairment charge included in depreciation |  | 15   |   | 14   |   |     |  
|Amortisation of capital grants (note 18)   |  | (3   | ) | (3   | ) | (1   | )
|                                           | 
|                                           |  | 321  |   | 302  |   | 258  |  
|                                           | 

The
impairment charge included in depreciation in the year ended 31 March 2004 relates to Global Crossing, International Cable and Synchronous Digital Hierarchy ("SDH") equipment,
which has been written off.

c)     The
valuation carried out by Lisney, Estate Agents, Auctioneers and Valuers, as at December 2003 valued the properties at €442 million.
Properties were valued, in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of open market value and existing use value except for
specialised properties which were valued on a depreciated replacement cost basis. As a result the carrying value of land and buildings was revalued upwards by €54 million. In
addition, there was a revaluation deficit below the net book value of certain land and buildings of €5 million, which has been charged to the profit and loss account.

If
these land and buildings had not been revalued, they would have been included in the financial statements at the following amounts:

|                         |  | 2004 |   | 2005 |  
|------------------------ |  | ---- | - | ---- | -
|
|Cost                     |  | 277  |   | 288  |  
|Accumulated Depreciation |  | (137 | ) | (142 | )
|                         | 
|Net Book Value           |  | 140  |   | 146  |  
|                         | 

d)    Included
in tangible fixed assets is plant and equipment acquired under finance leases as follows:

|                                 |  | 2004 |   | 2005 |  
|-------------------------------- |  | ---- | - | ---- | -
|
|Cost                             |  | 135  |   | 135  |  
|Accumulated depreciation         |  | (108 | ) | (120 | )
|                                 | 
|Net book value                   |  | 27   |   | 15   |  
|                                 | 
|Depreciation charge for the year |  | 13   |   | 12   |  
|                                 | 

e)    Assets
in course of construction

Included
in tangible fixed assets are assets in the course of construction of €85 million (2004: €75 million).

F-155

---



11.   Investments in Associates

2004
€'m

2005
€'mAt beginning of year



Share of profits, interest and taxation of associated undertakings



1At end of year



1


12.   Stocks

2004
€'m

2005
€'mNetwork development and maintenance stocks

4

6Consumable and other stocks

6

510

11


The net replacement cost of stocks is not expected to be materially different from that shown above.

13.   Debtors

2004
€'m

2005
€'mAmounts falling due within one year:Trade debtors

218

210Prepayments and accrued income

88

88Amount owed by parent company

170

170476

468


Two subsidiaries of the company are party to a financing transaction under which credit balances and debit balances of the entities may be offset.
This offset has been effected in the group balance sheet. The balances of the group so offset were €149 million (2004: €159 million) lease receivables and
€149 million (2004: €159 million) bank loans.

The
amount owed by the parent company is unsecured, interest free and repayable within one year.

14.   Creditors:

2004
€'m

2005
€'ma) amounts falling due within one year:Bank loans and overdrafts (note 15)

1

Trade creditors

108

81Amounts owed to parent company

154

154Accruals and deferred income

390

414PAYE/PRSI

7

7VAT

25

23Corporation tax payable

65

25Dividend Payable

160

56910

760


F-156

---



2004
€'m

2005
€'mb) amounts falling due after more than one year:Capital grants (note 18)

10

910

9


15.   Loans and Other Debt

|                 |  | Within
1 Year |  | Between
1 & 2 Years |  | Between
2 & 5 Years |  | After
5 Years |  | Total
|---------------- |  | ------------- |  | ------------------- |  | ------------------- |  | ------------- |  | -----
|
|Overdrafts       |  | 1             |  |                    |  |                    |  |              |  | 1    
|                
|At 31 March 2004 |  | 1             |  |                    |  |                    |  |              |  | 1    
|                
|Overdrafts       |  |              |  |                    |  |                    |  |              |  |     
|                
|At 31 March 2005 |  |              |  |                    |  |                    |  |              |  |     
|                

Included in the above amounts are:

2004

2005€'m

€'mWholly repayable within 1 year

1

Repayable, by instalments, within 5 years



Repayable, otherwise than by instalments, due after 5 years



1




16.   Financial Instruments

The group holds or issues financial instruments for the following main purposes:-



The
group finances its operations out of operating cash flows, bank borrowings and finance leases.

Derivative
instruments are contractual agreements whose value reflects price movements in an underlying asset and liability. The group uses derivatives, where appropriate, to generate
the desired effective profile of currency and interest rate risk. Derivative activity is carefully controlled and appropriately used and is an effective means of managing risk.

The
main risks arising from the use of financial instruments are market rate risk, liquidity risk and credit risk. Responsibility for managing these risks rests with the Board of
Directors and, in respect of certain activities, the Treasury Committee, a management committee chaired by the group's Chief Financial Officer. It is, and has been throughout the period under review,
the group's policy not to trade in financial instruments.

Debtors,
creditors and provisions for liabilities and charges have been excluded from all the numerical disclosures below.

F-157

---



The
group conducts its business primarily in Ireland and, therefore, operating and investing cash flows are substantially denominated in euro. A limited level of foreign exchange risk
arises in relation to certain capital expenditures and foreign exchange settlements with international third party telecommunications carriers.



Market rate risk is defined as the exposure of the group's financial position to movements in interest and foreign exchange rates. The principal aim of managing
these risks is to limit the adverse impact on shareholder value of movements in interest rates and foreign exchange rates.

The
main derivatives used are forward foreign exchange contracts. It is group policy to hedge the majority of currency risk in currencies, which are not denominations of the euro.



There were floating rate deposits outstanding of €39 million at 31 March 2005 (2004: €97 million). The
interest rate on these deposits is generally based on the appropriate Euribor rate.



|                     |  | Local Currency |  |   |  | Local Currency |  |  
|-------------------- |  | -------------- |  | - |  | -------------- |  | -
|
|
|EUR                  |  |               |  | 1 |  | 1              |  | 
|Other currencies     |  |               |  |  |  |               |  | 
|                    
|Total all currencies |  |               |  | 1 |  | 1              |  | 
|                    



As at 31 March 2005, after taking into account the effects of forward foreign exchange contracts, the group has no material currency exposure.



Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, other than a
forced or liquidation sale.

F-158

---



The
following tables provide comparisons of the carrying amounts and fair values of the group's fixed-rate financial assets and financial liabilities, including derivatives.
The fair values of short-term deposits, floating-rate loans and overdrafts approximate to their carrying amounts.

|                              |  | 31 March 2004 |  | 31 March 2005
|----------------------------- |  | ------------- |  | -------------
|
|
|Financial assets              |  |               |  |              
|Cash                          |  | 97            |  | 97           
|                             
|Liabilities                   |  |               |  |              
|Underlying debt               |  |               |  |              
|Fixed rate                    |  |              |  |             
|Floating rate                 |  | 1             |  | 1            
|                             
|Total                         |  | 1             |  | 1            
|                             
|Debt net of swaps             |  |               |  |              
|Fixed rate                    |  |              |  |             
|Floating rate                 |  | 1             |  | 1            
|                             
|Total                         |  | 1             |  | 1            
|                             
|Interest rate swaps liability |  |              |  |             
|                             
|Currency swaps liability      |  |              |  |             
|                             
|Forward contracts             |  |              |  |             
|                             



The objective of liquidity management is to ensure the availability of sufficient funds to meet the group's requirements and to repay maturing debt. This
objective is met by monitoring and controlling potential cash flows and maintaining an appropriate buffer of readily realisable assets and standby credit lines.

The
maturity profile of group debt is set out in Note 15 of the Financial Statements.

The
group has access to a €150 million (2004: €150 million) committed borrowing facility as part of the Valentia Telecommunications Group,
expiring in March 2009, which was undrawn at 31 March 2005. All conditions precedent had been met at 31 March 2005.



The group is exposed to credit risk relating to its cash and current financial assets. The group places its cash and current financial assets with highly rated
financial institutions. The group's policy is designed to limit exposure with any one institution and to invest its excess cash in low risk investment accounts. The group has not experienced any
losses on such accounts.

Credit
risks are mainly related to counterparty risks associated with prepayments, amounts owed by related companies, interest in debt securities, derivative contracts, equity
investments in related companies and other debtors.

Equity
investments and amounts owed by related companies are limited to the authorities issued by the Board of Directors of the Group.

The
group's trade debtors are generated by a large number of customers, both private individuals and companies in various industries, mainly in Ireland. Exposure to credit loss and
subscriber fraud is

F-159

---



actively
monitored on a daily basis, including the processing of current credit information on subscribers from third-party sources.

Transactions
involving derivative contracts are managed by Irish Telecommunications Investments Limited ("ITI"), a wholly owned subsidiary, within a framework of limits approved by the
Treasury Committee, which restrict the group's dealings to highly rated financial institutions.



Under the company's accounting policy, foreign currency borrowings and currency swap agreements are valued at year end exchange rates.

The
group had no unrecognised losses at 31 March 2004 and 31 March 2005.

17.   Provision for Liabilities and Charges

|                                      |  | Staff Restructuring |   | Onerous Contracts |   | Other |   | Deferred Taxation |  | Total |  
|------------------------------------- |  | ------------------- | - | ----------------- | - | ----- | - | ----------------- |  | ----- | -
|
|At beginning of year                  |  | 127                 |   | 10                |   | 75    |   | 57                |  | 269   |  
|Transfer to accruals                  |  | (1                  | ) |                  |   |      |   |                  |  | (1    | )
|Utilised in year                      |  | (45                 | ) | (10               | ) | (6    | ) |                  |  | (61   | )
|Profit and loss (credit)/charge (net) |  | (1                  | ) |                  |   | 11    |   | 5                 |  | 15    |  
|                                      | 
|As at 31 March 2004                   |  | 80                  |   |                  |   | 80    |   | 62                |  | 222   |  
|                                      | 
|Transfer                              |  | (1                  | ) | 3                 |   | 1     |   |                  |  | 3     |  
|Utilised in year                      |  | (7                  | ) |                  |   | (7    | ) |                  |  | (14   | )
|Profit and loss charge/(credit) (net) |  | 6                   |   | 1                 |   | (4    | ) | 5                 |  | 8     |  
|                                      | 
|As at 31 March 2005                   |  | 78                  |   | 4                 |   | 70    |   | 67                |  | 219   |  
|                                      | 



The group has a constructive obligation in respect of staff restructuring. The amount of the provision is based on the group's past experience of restructuring
and the discussions to date with employees and their representative unions. The provision is in respect of a net deficit on an annuity plan of €78 million (2004:
€72 million) offered as part of the restructuring programme. As at 31 March 2005, the provision is expected to be utilised over a period of eight years.

During
the year ended 31 March 2004, €45 million of the provision was utilised primarily to pay for staff exits under the fundamental restructuring
programme. There was a release of €1 million in relation to a provision for restructuring in the year ended 31 March 2004.



In the year ended 31 March 2005,eircomhas onerous contracts in relation to leases on vacant properties.
The provision is based on contracted terms and the liability is expected to be discharged during the year ended 31 March 2006.

At
31 March 2003, eircomhad onerous contracts in relation to international capacity commitments. The provision was based on
contracted terms and the liability was paid during the year ended 31 March 2004.



The group is self insured in respect of certain personal injury and damage claims. There is a provision for the estimated costs of incidents which have occurred
up to 31 March 2005, based on a

F-160

---



case
by case review with actuarial assistance. The payments will be made as the cases are settled. The group also has a provision for costs arising from certain compliance matters. There was a release
of €7 million (2004: €3 million) in relation to a provision for costs arising from certain compliance matters in the year ended 31 March 2005.



In accordance with FRS 19, the group's policy is to provide for taxation on a full liability basis. Deferred taxation liabilities arise mainly from capital
allowances in excess of depreciation.

The
deferred taxation provision consists of:

|                                                |  | 2004 |  | 2005
|----------------------------------------------- |  | ---- |  | ----
|
|Capital allowances and other timing differences |  | 62   |  | 67  
|                                               

No deferred tax is provided on timing differences arising from the revaluation of fixed assets unless, by the balance sheet date, a binding
commitment to sell the asset has been entered into and it is unlikely that any gain will be rolled over. The total amount unprovided for is estimated at €57 million (2004:
€60 million). Such deferred tax would become payable only if the fixed assets were sold.

18.   Capital Grants

|                                                     |  | 2004 |  | 2005 |  
|---------------------------------------------------- |  | ---- |  | ---- | -
|
|Received                                             |  |      |  |      |  
|At beginning of year                                 |  | 96   |  | 97   |  
|Reclassification                                     |  |     |  | (9   | )
|Received during year                                 |  | 1    |  |     |  
|                                                     | 
|At end of year                                       |  | 97   |  | 88   |  
|                                                     | 
|Amortisation                                         |  |      |  |      |  
|At beginning of year                                 |  | 84   |  | 87   |  
|Reclassification                                     |  |     |  | (9   | )
|Amortisation to profit and loss account (note 10(b)) |  | 3    |  | 1    |  
|                                                     | 
|At end of year                                       |  | 87   |  | 79   |  
|                                                     | 
|Net book value at end of year                        |  | 10   |  | 9    |  
|                                                     | 

The capital grants received by the group relate to programmes to develop the Irish telecommunications infrastructure and were sponsored by the
European Union.

19.   Called Up Share Capital

2004

2005€'m

€'mAuthorised Ordinary Shares of €0.25 each (3 billion shares)

750

750Allotted, Called up and Fully Paid Shares of €0.25 each 2,207,826,690 shares

552

552


F-161

---



20.   Reserves

|                                            |  | Capital
Conversion
Reserve Fund |  | Share
Premium |  | Revaluation
Reserve |   | Profit
and loss
Account |  
|------------------------------------------- |  | ------------------------------- |  | ------------- |  | ------------------- | - | ----------------------- | -
|
|As at 31 March 2003                         |  | 9                               |  | 144           |  | 255                 |   | 383                     |  
|Loss for the financial year                 |  |                                |  |              |  |                    |   | (373                    | )
|Revaluation surplus                         |  |                                |  |              |  | 54                  |   |                        |  
|Transfers on realisation of revalued assets |  |                                |  |              |  | (12                 | ) | 12                      |  
|                                            | 
|As at 31 March 2004                         |  | 9                               |  | 144           |  | 297                 |   | 22                      |  
|                                            | 
|Profit for the financial year               |  |                                |  |              |  |                    |   | 38                      |  
|Transfers on realisation of revalued assets |  |                                |  |              |  | (11                 | ) | 11                      |  
|                                            | 
|As at 31 March 2005                         |  | 9                               |  | 144           |  | 286                 |   | 71                      |  
|                                            | 

21.   Post Balance Sheet Events



Since the year end the group has disposed of certain properties. The group expects to realise a profit (after tax) of circa €34 million on
these sales based on the excess of net sales proceeds receivable over the carrying value of these assets at year end.

F-162

---



22.   Amounts in Group Cash Flow Statement

Amounts included in the group cash flow statement are reconciled or analysed as follows:



|                                                                                      |                                  | 2003 |      | 2004 |     | 2005 |   
|------------------------------------------------------------------------------------- | -------------------------------- | ---- | ---- | ---- | --- | ---- | --
|
|Operating profit                                                                      |                                  | 180  |      | 287  |     | 285  |   
|Depreciation and amortisation                                                         |                                  | 321  |      | 302  |     | 258  |   
|Cash flows relating to fundamental restructuring, business exits and other provisions |                                  | (64  | )    | (59  | )   | (49  | ) 
|Non-cash exceptional charges/(credits)                                                |                                  | 46   |      | (6   | )   | (7   | ) 
|Non-cash restructuring programme costs                                                |                                  |     |      |     |     | 25   |   
|Cash flows relating to prior year exceptional charges                                 |                                  | (7   | )    | (7   | )   |     |   
|Working Capital                                                                       |                                  |      |      |      |     |      |   
|                                                                                      | Decrease/(increase) in stocks    |      | 1    |      |    |      | (1
|                                                                                      | (Decrease)/increase in creditors |      | (127 | )    | (31 | )    | 5 
|                                                                                      | Decrease in debtors              |      | 155  |      | 9   |      | 9 
|                                                                                      |                                 
|Net cash inflow from operating activities                                             |                                  | 505  |      | 495  |     | 525  |   
|                                                                                      |                                 



|                  |  | 2003 |   | 2004 |   | 2005 |  
|----------------- |  | ---- | - | ---- | - | ---- | -
|
|Interest received |  | 24   |   | 2    |   | 3    |  
|Interest paid     |  | (17  | ) | (6   | ) | (1   | )
|                  | 
|                  |  | 7    |   | (4   | ) | 2    |  
|                  | 



|                                                           |  | 2003 |   | 2004 |   | 2005 |  
|---------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Corporation tax refund received                            |  | 17   |   |     |   | 3    |  
|Corporation tax paid                                       |  | (13  | ) | (14  | ) | (20  | )
|Taxation on exceptional gain on the exit from Golden Pages |  |     |   |     |   | (38  | )
|Payment to group companies for corporation tax losses      |  |     |   | (32  | ) | (16  | )
|                                                           | 
|                                                           |  | 4    |   | (46  | ) | (71  | )
|                                                           | 



|                                              |  | 2003 |   | 2004 |   | 2005 |  
|--------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Payments to acquire tangible fixed assets     |  | (197 | ) | (209 | ) | (194 | )
|Receipts from disposal of fixed assets        |  | 8    |   | 1    |   | 3    |  
|Capital grants received                       |  |     |   | 1    |   |     |  
|(Advances to) /repayments from parent company |  | (249 | ) | 233  |   |     |  
|                                              | 
|                                              |  | (438 | ) | 26   |   | (191 | )
|                                              | 

F-163

---





|                                                |  | 2003 |   | 2004 |   | 2005
|----------------------------------------------- |  | ---- | - | ---- | - | ----
|
|Proceeds from exit from subsidiary undertakings |  | 194  |   |     |   |    
|Cash of subsidiary undertakings disposed        |  | (12  | ) | (1   | ) |    
|                                               
|                                                |  | 182  |   | (1   | ) |    
|                                               



|                                          |  | 2003 |   | 2004 |   | 2005
|----------------------------------------- |  | ---- | - | ---- | - | ----
|
|Repayment of loan capital                 |  | (87  | ) | (105 | ) |    
|Capital element of finance lease payments |  | (1   | ) |     |   |    
|                                         
|Net cash outflow from financing           |  | (88  | ) | (105 | ) |    
|                                         



|                         |  | At 31 March
2003 |   | Cashflows |   | At 31 March
2005 |   | Cashflows |   | At 31 March
2004
|------------------------ |  | ---------------- | - | --------- | - | ---------------- | - | --------- | - | ----------------
|
|Cash at bank and in hand |  | 190              |   | (93       | ) | 97               |   | (58       | ) | 39              
|Overdrafts               |  | (1               | ) |          |   | (1               | ) | 1         |   |                
|                        
|                         |  | 189              |   | (93       | ) | 96               |   | (57       | ) | 39              
|Debt due within one year |  | (105             | ) | 105       |   |                 |   |          |   |                
|                        
|                         |  | 84               |   | 12        |   | 96               |   | (57       | ) | 39              
|                        

23.   Principal Subsidiary and Associated Undertakings

|Subsidiary Companies                         |  | Interest in
Ordinary Shares
at 31 March 2005 |  | Business                                                                 |  | Registered Office
and Country of
Incorporation  
|-------------------------------------------- |  | -------------------------------------------- |  | ------------------------------------------------------------------------ |  | ------------------------------------------------
|Irish Telecommunications Investments Limited |  | 100%                                         |  | Telecommunications Financing and Treasury Management                     |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|eircom(U.S.) Limited                         |  | 100%                                         |  | Marketing of Telecom Services in U.S.A.                                  |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|Osprey Property Limited                      |  | 100%                                         |  | Property Development Company                                             |  | Leitrim House, Upper Stephen's Street, Dublin 8.
|Eirtrade Services Limited                    |  | 100%                                         |  | Provision of Electronic Trading Services                                 |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|eircomPhonewatch Limited                     |  | 100%                                         |  | Installation, Monitoring and Maintenance of Residential Security Systems |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|Indigo Group Limited                         |  | 100%                                         |  | Provision of Internet Services                                           |  | 114 St. Stephen's Green West, Dublin 2, Ireland.
|                                             |  |                                              |  |                                                                          |  |                                                 

F-164

---



|eircomUK Limited                     |  | 100% |  | Provision of Telecommunications and Related Services |  | South Quay Plaza 11, 183 Marsh Wall, London E14 9SH, UK.
|------------------------------------ |  | ---- |  | ---------------------------------------------------- |  | --------------------------------------------------------
|Lan Communications Limited           |  | 100% |  | Systems Integrator                                   |  | 114 St. Stephens Green West, Dublin 2, Ireland.         
|eircomInvestments BV                 |  | 100% |  | Investment Holding Company                           |  | Strawinskylaan 3105 1077 ZX, Amsterdam, The Netherlands.
|Eircable Limited                     |  | 100% |  | Investment Holding Company                           |  | 114 St. Stephens Green West, Dublin 2, Ireland.         
|eircomHoldings Limited               |  | 100% |  | Investment Holding Company                           |  | 114 St. Stephens Green West, Dublin 2, Ireland.         
|Continuous Communications            |  | 100% |  | Communications Contractors Systems Limited           |  | 114 St. Stephens Green West, Dublin 2, Ireland.         
|eircom(Infonet Ireland) Limited      |  | 100% |  | Provision of Global Data Services                    |  | 114 St. Stephens Green West, Dublin 2, Ireland.         
|GoFree Limited                       |  | 100% |  | Property Investment Company                          |  | 114 St. Stephens Green West, Dublin 2, Ireland.         
|eircomNet BV                         |  | 100% |  | Investment Holding Company                           |  | Strawinskylaan 3105 1077 ZX, Amsterdam, The Netherlands.
|eircomInternational Networks Limited |  | 100% |  | Provision of Telecommunications and Related Services |  | 114 St. Stephens Green West, Dublin 2, Ireland.         

|Associated undertakings              |  | Interest in
Ordinary Shares at
31 March 2005 |  | Business                                          |  | Registered Office and
Country of Incorporation                           
|------------------------------------ |  | -------------------------------------------- |  | ------------------------------------------------- |  | -------------------------------------------------------------------------
|eircomEnterprise Fund Limited        |  | 50%                                          |  | Seed Capital Company and Early Stage Fund Company |  | 114 St. Stephens Green West Dublin 2, Ireland.                           
|Beacon Integrated Solutions Limited  |  | 49%                                          |  | Information Technology Consultancy                |  | Howley's Quay, Limerick, Ireland.                                        
|Telecom Engineering Services Limited |  | 35%                                          |  | Telecommunications Engineering Services           |  | Unit 14, Cherry Orchard Industrial Estate, Dublin 10, Ireland.           
|Altion Limited                       |  | 33%                                          |  | Telecommunications Software Solutions             |  | AIB Investment Building, Percy Place, Dublin 4, Ireland.                 
|Buy4Now Limited                      |  | 22%                                          |  | E-commerce Software Developer                     |  | 9 The Mall, Beacon Road, Sandyford Industrial Estate, Dublin 18, Ireland.

Telecom Engineering Services Limited has a financial year ending on 31 July 2004.

F-165

---



24.   Employees

The average number of persons employed by the group during the year was as follows:

|                                            |  | 2003  |  | 2004  |  | 2005 
|------------------------------------------- |  | ----- |  | ----- |  | -----
|Fixed line network and other communications |  |       |  |       |  |      
|Operations/Technical                        |  | 5,700 |  | 5,335 |  | 4,966
|Sales/Customer Support                      |  | 2,871 |  | 2,439 |  | 2,128
|Administration                              |  | 558   |  | 532   |  | 501  
|                                           
|Total                                       |  | 9,129 |  | 8,306 |  | 7,595
|                                           

25.   Pensions

(a)   The
group's pension commitments are funded through separately administered Superannuation Schemes and are principally of a defined benefit nature. The total group
pension charge, including contributions to the group's defined contribution scheme, in respect of the year ended 31 March 2005 was €25 million (2004:
€25 million, 2003: €25 million). In respect of the principal scheme, the contributions represent a rate of 8.2% of pensionable emoluments, as advised by
the group's Actuaries.

The
last Actuarial Valuation of the principal scheme was carried out, using the attained age method, as at 31 March 2005 by Mercer Human Resource Consulting who are actuaries to
the Scheme but are neither officers nor employees of the group.

The
actuarial method used involved determining an appropriate future group contribution rate designed to fund the projected liabilities of the Scheme related to service subsequent to 1
January 1984 over the remaining working lifetime of the current members. The primary financial assumption underlying the actuarial valuation was that the Scheme's investments will earn a real
rate of investment return, over and above salary inflation and pension increases, between 2.5% and 2.75% per annum. At the date of the last actuarial valuation, the market value of the pension scheme
assets was €2,190 million and the actuarial valuation of the assets attributable to the pension fund was sufficient to meet more than 100% of the value of the scheme's accrued
liabilities making due allowance for future increases in salaries and pensions.

The
actuarial report is available for inspection by the members of the scheme at 114 St. Stephen's Green West, Dublin 2. The actuarial report is not available for public inspection.

(b)   The
Irish Minister for Finance is responsible for meeting and discharging the liability of: (i) the pension costs of former staff of the Irish Department of Posts
and Telegraphs who retired or died before the vesting Day (1 January 1984); (ii) costs in respect of the pension entitlements, related to pre-vesting day reckonable service,
of staff who transferred toeircomfrom the Irish Civil Service. Such benefit payments are made from the eircomNumber 2 Pension Fund, which was
established in March 1999 and received a contribution of €1,016m from the Irish Minister
for Finance in accordance with arrangements set out in theeircomSuperannuation (Amendment) Scheme 1999. However, the Minister retains liability for
these payments.

F-166

---



(c)   Financial
Reporting Standard 17 'Retirement Benefits' disclosures

An
updated actuarial valuation for Financial Reporting Standard 17 disclosure purposes were carried out by a qualified independent actuary. The main financial assumptions used in the
valuation were:

|                                        |  | 2002 |   | 2003 |   | 2004 |   | 2005 |  
|--------------------------------------- |  | ---- | - | ---- | - | ---- | - | ---- | -
|Rate of increase in salaries            |  | 4.00 | % | 3.50 | % | 3.50 | % | 3.50 | %
|Rate of increase in pensions in payment |  | 4.00 | % | 3.50 | % | 3.50 | % | 3.50 | %
|Discount rate                           |  | 6.10 | % | 5.50 | % | 5.00 | % | 4.75 | %
|Inflation assumption                    |  | 2.25 | % | 2.25 | % | 2.25 | % | 2.25 | %

The
assets in the scheme were:

|         |  | Market value
at 31 March
2002 |  | Market value
at 31 March
2003 |  | Market value
at 31 March
2004 |  | Market value
at 31 March
2005
|-------- |  | ----------------------------- |  | ----------------------------- |  | ----------------------------- |  | -----------------------------
|
|Equities |  | 1,479                         |  | 1,027                         |  | 1,419                         |  | 1,542                        
|Bonds    |  | 349                           |  | 294                           |  | 248                           |  | 241                          
|Cash     |  | 98                            |  | 60                            |  | 67                            |  | 89                           
|Property |  | 240                           |  | 309                           |  | 334                           |  | 390                          
|        
|         |  | 2,166                         |  | 1,690                         |  | 2,068                         |  | 2,262                        
|        

The
expected rate of return were:

|         |  | Long-term
rate of
return
expected at
31 March
2002 |   | Long-term
rate of
return
expected at
31 March
2003 |   | Long-term
rate of
return
expected at
31 March
2004 |   | Long-term
rate of
return
expected at
31 March
2005 |  
|-------- |  | -------------------------------------------------- | - | -------------------------------------------------- | - | -------------------------------------------------- | - | -------------------------------------------------- | -
|Equities |  | 8.00                                               | % | 7.75                                               | % | 7.50                                               | % | 7.25                                               | %
|Bonds    |  | 5.00                                               | % | 4.75                                               | % | 4.50                                               | % | 3.75                                               | %
|Cash     |  | 3.50                                               | % | 3.00                                               | % | 3.00                                               | % | 3.00                                               | %
|Property |  | 6.50                                               | % | 6.25                                               | % | 6.00                                               | % | 5.00                                               | %

The
following amounts were measured in accordance with the requirements of Financial Reporting Standard 17:

|                                       |  | 2002   |   | 2003   |   | 2004   |   | 2005   |  
|-------------------------------------- |  | ------ | - | ------ | - | ------ | - | ------ | -
|
|Total market value of assets           |  | 2,166  |   | 1,690  |   | 2,068  |   | 2,262  |  
|Present value of scheme liabilities    |  | (1,807 | ) | (2,015 | ) | (2,360 | ) | (2,923 | )
|                                       | 
|Surplus/(deficit) in the scheme        |  | 359    |   | (325   | ) | (292   | ) | (661   | )
|Related deferred tax (liability)/asset |  | (45    | ) | 41     |   | 36     |   | 83     |  
|                                       | 
|Net pension asset/(liability)          |  | 314    |   | (284   | ) | (256   | ) | (578   | )
|                                       | 

F-167

---



If
the above amounts had been recognised in the financial statements, the group's net assets and profit and loss reserves at 31 March 2005 would be as follows:-

|                                                                                |  | 2002  |  | 2003  |   | 2004  |   | 2005  |  
|------------------------------------------------------------------------------- |  | ----- |  | ----- | - | ----- | - | ----- | -
|
|Net assets excluding pension asset/(liability)                                  |  | 1,326 |  | 1,343 |   | 1,024 |   | 1,062 |  
|Net FRS 17 pension asset/(liability)                                            |  | 314   |  | (284  | ) | (256  | ) | (578  | )
|Liability already recognised in financial statements (net of deferred taxation) |  |      |  | 51    |   | 64    |   | 68    |  
|                                                                                | 
|Net assets including pension asset/(liability)                                  |  | 1,640 |  | 1,110 |   | 832   |   | 552   |  
|                                                                                | 
|Profit and loss reserves excluding pension asset/(liability)                    |  | 354   |  | 383   |   | 22    |   | 71    |  
|Net FRS 17 pension asset/(liability)                                            |  | 314   |  | (284  | ) | (256  | ) | (578  | )
|Liability already recognised in financial statements (net of deferred taxation) |  |      |  | 51    |   | 64    |   | 68    |  
|                                                                                | 
|Profit and loss reserves including pension asset/(liability)                    |  | 668   |  | 150   |   | (170  | ) | (439  | )
|                                                                                | 

F-168

---



The
following amounts would have been recognised in the performance statements for the year ended 31 March 2003, 31 March 2004 and 31 March 2005 under the
requirements of FRS 17.

|                                                                                       |  | 2003 |    | 2004 |    | 2005 |   
|-------------------------------------------------------------------------------------- |  | ---- | -- | ---- | -- | ---- | --
|
|Operating profit                                                                       |  |      |    |      |    |      |   
|Current service cost                                                                   |  | 36   |    | 40   |    | 46   |   
|Past service cost                                                                      |  | 8    |    |     |    | 9    |   
|                                                                                       | 
|                                                                                       |  | 44   |    | 40   |    | 55   |   
|                                                                                       | 
|Other finance income                                                                   |  |      |    |      |    |      |   
|Expected return on pension scheme assets                                               |  | 154  |    | 114  |    | 139  |   
|Interest on pension scheme liabilities                                                 |  | (112 | )  | (111 | )  | (118 | ) 
|                                                                                       | 
|                                                                                       |  | 42   |    | 3    |    | 21   |   
|                                                                                       | 
|Statement of total recognised gains and losses                                         |  |      |    |      |    |      |   
|Actual return less expected return on pension scheme assets                            |  | (623 | )  | 292  |    | 67   |   
|Changes in assumptions underlying the present value of the scheme liabilities          |  | (34  | )  | (211 | )  | (446 | ) 
|Experience (losses) and gains arising on the pension scheme liabilities                |  | (47  | )  | (32  | )  | 6    |   
|                                                                                       | 
|Actuarial (loss)/gain recognised in the statement of total recognised gains and losses |  | (704 | )  | 49   |    | (373 | ) 
|                                                                                       | 
|Movement in surplus/(deficit) during the year                                          |  |      |    |      |    |      |   
|Surplus/(deficit) in scheme at start of year                                           |  | 359  |    | (325 | )  | (292 | ) 
|Current service cost                                                                   |  | (36  | )  | (40  | )  | (46  | ) 
|Contributions paid                                                                     |  | 22   |    | 21   |    | 38   |   
|Past service costs                                                                     |  | (8   | )  |     |    | (9   | ) 
|Other finance income                                                                   |  | 42   |    | 3    |    | 21   |   
|Actuarial (loss)/gain                                                                  |  | (704 | )  | 49   |    | (373 | ) 
|                                                                                       | 
|Deficit in scheme at end of year                                                       |  | (325 | )  | (292 | )  | (661 | ) 
|                                                                                       | 
|Experience gains and losses for the year                                               |  |      |    |      |    |      |   
|Difference between the expected returns and actual return on scheme assets             |  | (623 | )  | 292  |    | 67   |   
|Percentage of scheme assets                                                            |  | (37  | )% | 14%  |    | 3%   |   
|Experience gains and losses on scheme liabilities                                      |  | (47  | )  | (32  | )  | 6    |   
|Percentage of the present value of scheme liabilities                                  |  | (2   | )% | (1   | )% |     |   
|Total recognised in statement of total recognised gains and losses                     |  | (704 | )  | 49   |    | (373 | ) 
|Percentage of the present value of scheme liabilities                                  |  | (35  | )% | 2%   |    | (13  | )%

F-169

---



26.   Operating Lease Commitments

At 31 March 2005 the group had annual commitments in respect of lease agreements in respect of properties, vehicles, plant and equipment, for which the
payments extend over a number of years. The analysis of the group's annual commitments is as follows:

|                                                                   |                          | 2004 |    | 2005
|------------------------------------------------------------------ | ------------------------ | ---- | -- | ----
|
|
|Annual commitments under non-cancellable operating lease expiring: |                          |      |    |     
|                                                                   | Within one year          |      |   |     
|                                                                   | Within two to five years |      |   |     
|                                                                   | After five years         |      | 22 |     
|                                                                  
|                                                                   |                          | 22   |    | 3   
|                                                                  

27.   Contingent Liabilities



On 17 October 2002, the Commission for Communications Regulation ("ComReg"), the Irish regulator for telecommunications, determined that the group was not
in compliance with its obligations under the voice telephony regulations by providing telephone services to specific customers at prices which were not in accordance with the specific terms and
conditions of the group's discount schemes and published prices. No penalties were levied on the group as a result of this determination. By agreement with ComReg and at its direction, the group put
internal controls in place that the group believe will prevent this from re-occurring and an independent audit of the related internal controls has been conducted. The final audit findings
report including management comments andeircomLimited's Statement of Compliance were submitted to ComReg on 9 March 2005. If ComReg concludes
that the Group is not complying with its obligations, ComReg could begin an enforcement action. If the Group is found to be in violation of applicable laws and regulations, it may become subject to
substantial criminal and civil penalties and fines.

Ocean
Communications Limited and ESAT Telecommunications Limited issued proceedings in the Irish High Court in December 2002 against the group, seeking damages including punitive
damages resulting from the matters that were the subject of the ComReg decision. The group submitted its defence on 26
January 2004. The plaintiffs submitted general particulars of their damages claim on 3 February 2004 under the headings loss of existing customers, loss of prospective customers,
economic loss and loss of future profits. In those particulars the plaintiffs have identified claims for loss of revenue on existing customers (€7.4 million), failure to meet
the plaintiffs' alleged budget growth (€25 million) and loss of revenue on the plaintiffs' pricing (€5 million). The Directors do not believe that these
figures represent damages which would be properly recoverable from the group even if it had a liability to the plaintiffs, which is denied by the group in the proceedings. The particulars also include
further unquantified damages. The plenary summons and statement of claim of Ocean Communications Ltd and ESAT Communications Ltd were amended, inter alia, in April 2005 to include
a claim for alleged breach of certain constitutional rights.



Consequent on the Demerger of Eircell Limited 2001, the group has given certain warranties and indemnities to Eircell 2000 plc and Vodafone Group plc, some of
which are subject to various

F-170

---



limitations.
The group has also given indemnities to Vodafone Group plc, unlimited in time and quantum, in relation to the efficacy of the Demerger. Except for certain warranties relating to taxation
and the indemnities in relation to the efficacy of the Demerger (in respect of which the liability of the group is unlimited in quantum), the liability of the group for breach of the warranties is
limited to €500 million. The group has no liability in respect of claims under the warranties unless and until the amount of such claims, excluding claims which are for amounts
less than €250,000 each, exceeds €25 million, in which event Vodafone Group plc are entitled to recover the full value of the claims including claims previously
notified.

eircomhas agreed certain other indemnities in relation to costs and liabilities. The Directors are not aware of any such liabilities
which would have a material effect on the group's financial position.



The group has given certain warranties to Promedia GCV following the exit from Golden Pages. The liability period for non-tax warranties has expired.
The group has also given certain taxation indemnities and undertakings, which are generally subject to a cap of €10 million.



The group gave various tax and other warranties and indemnities to NTL Communications Corporation in connection with the disposal of its shareholding in Cablelink
Limited in July 1999. The liability period for non-tax warranties has expired. Notice of any breach in respect of tax warranties must be given by 9 July 2006 and the group's
liability is capped at approximately €500 million.



Other than disclosed above, a number of other lawsuits or claims arise in the normal course of business. While any litigation has an element of uncertainty, the
Directors believe that there were no other contingent liabilities which would have a material adverse effect on the group's financial position.

In
the normal course of business, the group has entered into contracts involving the exchange or purchase and sale of foreign currencies and various performance bonds. No material losses
are expected in respect of these transactions other than losses for which provision has been made in the financial statements.

28.   Guarantee



The Senior Credit Facility of Valentia Telecommunications, the company's immediate parent company, consists of a €1.4 billion credit
facility which has the benefit of guarantees of all amounts payable by a borrower under the terms of the Senior Credit Facility. The Senior Credit Facility and its related guarantee are secured,
amongst other things, by a charge of the shares ineircomand ITI and a fixed and floating charge over the assets (subject to some exceptions) of
Valentia Telecommunications,eircomand ITI.

The
borrowers under the Senior Credit Facility are Valentia Telecommunications andeircomLimited. Valentia Telecommunications is the
borrower of the €1.250 billion term loan facility andeircomis a borrower under the €150 million
revolving credit facility, which is currently undrawn.

The
obligations of Valentia Telecommunications,eircomand ITI under the Senior Credit Facilities are guaranteed by Valentia
Telecommunications,eircomand ITI.

F-171

---



Valentia Telecommunications has granted a security interest over substantially all of its assets, including a fixed charge over all estates and freehold interests; benefits, rights,
title and interest in contracts or leases; equipment; securities; intellectual property; insurance proceeds; debts, revenue and claims and accounts and a floating charge over all of its other
undertakings and assets. In addition, the shares ofeircomhave been charged in favour of Deutsche Bank AG London as security agent for the creditors
under the senior credit facility.

eircomand ITI have granted a security interest over substantially all of their assets, including a demise over their mortgaged property,
fixed charges over all registerable mortgaged property; estates and freehold interests; benefits, rights, title and interest in contracts or leases; equipment; shares and derivative assets;
securities; intellectual property; insurance proceeds; debts, revenue and claims; rights from the local authority under covenants, agreements or statute and accounts and a floating charge over all of
its other undertakings and assets.



There is a full and unconditional guarantee of all amounts of Senior Notes payable. This is a senior, unsecured obligation by eircom,
ranking equally in right of payment with all existing and future unsecured senior indebtedness of eircom.



Both Valentia Telecommunications andeircomhave guaranteed all amounts payable in respect of all Senior
Subordinated Notes. The Valentia Telecommunications guarantee is an unsecured, senior subordinated obligation which ranks junior in right of payment to all existing and future senior indebtedness of
Valentia Telecommunications, including the Senior Credit Facility and the Senior Notes, and ranks at least equally in right of payment with any existing or future unsecured subordinated indebtedness
of Valentia Telecommunications. Theeircomguarantee of all amounts payable under the Senior Subordinated Notes is an unsecured senior subordinated
obligation which ranks junior in right of payment to all existing and future senior indebtedness ofeircom, including its obligation under the Senior
Credit Facility, and ranks at least equally in right of payment with any existing or future unsecured subordinated indebtedness ofeircom. In
addition, eircomGroup plc has
also guaranteed on a subordinated basis all amounts payable in respect of all Senior Subordinated Notes. TheeircomGroup plc guarantee is a general,
unsecured subordinated obligation which ranks junior in right of payment to all existing and future senior indebtedness ofeircomGroup plc.

29.   Commitments

Capital commitments of the group, approved by the Board, amounted to €Nil (2004: €200 million).
€33 million (2004: €29 million) was contracted for by the group at 31 March 2005.

30.   Related Party Transactions

The company has availed of the exemption contained in FRS 8 "Related Party Disclosures" in respect of subsidiaries, 90 per cent or more of whose
voting rights are controlled within a group. Consequently the financial statements do not include disclosure of transactions with entities in theeircomGroup plc group.

31.   Reconciliation to United States Generally Accepted Accounting Principles

The Group's consolidated financial statements are prepared in accordance with accounting principles generally accepted in Ireland ("Irish GAAP"), which differ in
certain respects from United States generally accepted accounting principles ("U.S. GAAP").

F-172

---



In
particular under U.S. GAAP, a purchase transaction that results in an entity becoming substantially wholly owned establishes a new basis of accounting, which should be recorded in the
separate financial statements of the acquired company by applying "push down" accounting. This application of push down accounting represents the termination of the old accounting entity and the
creation of a new one. Since 100% ofeircomLimited was acquired by Valentia Telecommunications on 2 November 2001, Valentia Telecommunication's
basis of accounting in the assets and liabilities ofeircomLimited has been pushed down into the separate financial statements of eircomLimited for the
purposes of U.S. GAAP. Under Irish GAAP, push down accounting is not applied. See note 31(a) for further information.

This
difference, along with other differences, are described below together, where appropriate, with an explanation of the method used to determine the adjustments to net (loss)/profit
attributable to ordinary shareholders for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 and shareholders' equity as at 31 March 2004 and 2005.

The
following statements summarise the material adjustments, gross of their tax effect, which reconcile the net (loss)/profit attributable to ordinary shareholders amount and the equity
shareholders' funds amount under Irish GAAP to the amounts which would have been reported had U.S. GAAP been applied.

F-173

---



|                                                                                       |  | Notes |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|-------------------------------------------------------------------------------------- |  | ----- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Reconciliation of net income:                                                          |  |       |  |                                    |   |                                    |   |                                    |  
|Net profit attributable to Group shareholders (equity and non-equity) under Irish GAAP |  | (p)   |  | 320                                |   | 245                                |   | 256                                |  
|U.S. GAAP adjustments:                                                                 |  |       |  |                                    |   |                                    |   |                                    |  
|Tangible fixed assets                                                                  |  | (a)   |  | (77                                | ) | (71                                | ) | (57                                | )
|Intangible assets                                                                      |  | (a)   |  | (18                                | ) | (11                                | ) | (11                                | )
|Revenue                                                                                |  | (b)   |  | (9                                 | ) | (4                                 | ) | (5                                 | )
|Revaluations                                                                           |  | (c)   |  |                                   |   | 3                                  |   | 4                                  |  
|Provisions for restructuring and transformation costs                                  |  | (d)   |  | (94                                | ) | (60                                | ) | (8                                 | )
|Provision for exit from certain international and multimedia activities                |  | (e)   |  | 1                                  |   |                                   |   |                                   |  
|Pensions costs                                                                         |  | (f)   |  | 20                                 |   | (38                                | ) | (11                                | )
|Derivative financial instruments                                                       |  | (g)   |  | (3                                 | ) |                                   |   |                                   |  
|Annuity scheme                                                                         |  | (h)   |  | 36                                 |   |                                   |   |                                   |  
|Debt issue costs                                                                       |  | (i)   |  | (7                                 | ) | (69                                | ) |                                   |  
|Interest expense                                                                       |  | (i)   |  | (144                               | ) | (158                               | ) | (130                               | )
|ESOT Trust                                                                             |  | (j)   |  | (99                                | ) | (92                                | ) |                                   |  
|Capitalised interest costs                                                             |  | (k)   |  | 5                                  |   | 3                                  |   | 3                                  |  
|Indefeasible rights to use (IRU)                                                       |  | (l)   |  | 1                                  |   | 1                                  |   | 1                                  |  
|Exit of Golden Pages Limited                                                           |  | (m)   |  | (133                               | ) |                                   |   |                                   |  
|Impairment of long-lived assets                                                        |  | (n)   |  | 15                                 |   | 5                                  |   |                                   |  
|Share options                                                                          |  | (o)   |  |                                   |   | (7                                 | ) | (2                                 | )
|Deferred taxes on U.S. GAAP adjustments                                                |  |       |  | 41                                 |   | 41                                 |   | 10                                 |  
|                                                                                       | 
|Net (loss)/profit under U.S. GAAP attributable to ordinary shareholders                |  |       |  | (145                               | ) | (212                               | ) | 50                                 |  
|                                                                                       | 
|U.S. GAAP net (loss)/profit consists of (loss)/profit from:                            |  |       |  |                                    |   |                                    |   |                                    |  
|Continuing operations                                                                  |  |       |  | (140                               | ) | (212                               | ) | 50                                 |  
|Discontinued operations                                                                |  |       |  | (5                                 | ) |                                   |   |                                   |  
|                                                                                       | 
|Net (loss)/profit                                                                      |  |       |  | (145                               | ) | (212                               | ) | 50                                 |  
|                                                                                       | 
|Operating (loss)/profit from continuing operations                                     |  |       |  | (42                                | ) | 12                                 |   | 200                                |  
|                                                                                       | 

F-174

---



|                                                      |  | Notes |  | As at
31 March
2004 |   | As at
31 March
2005 |  
|----------------------------------------------------- |  | ----- |  | ------------------- | - | ------------------- | -
|
|Reconciliation of shareholders' equity:               |  |       |  |                     |   |                     |  
|Shareholders' funds under Irish GAAP                  |  |       |  | 1,024               |   | 1,062               |  
|U.S. GAAP adjustments:                                |  |       |  |                     |   |                     |  
|Goodwill                                              |  | (a)   |  | 492                 |   | 492                 |  
|Tangible fixed assets                                 |  | (a)   |  | 557                 |   | 500                 |  
|Intangible assets                                     |  | (a)   |  | 161                 |   | 150                 |  
|Revenue                                               |  | (b)   |  | (20                 | ) | (25                 | )
|Revaluations                                          |  | (c)   |  | (58                 | ) | (54                 | )
|Provisions for restructuring and transformation costs |  | (d)   |  | 8                   |   |                    |  
|Pensions costs                                        |  | (f)   |  | 154                 |   | 143                 |  
|Debt issue costs                                      |  | (i)   |  | 49                  |   | 42                  |  
|Interest expense                                      |  | (i)   |  | (14                 | ) | (13                 | )
|Valentia debt                                         |  | (i)   |  | (2,310              | ) | (2,310              | )
|Capitalised interest costs                            |  | (k)   |  | 13                  |   | 16                  |  
|Indefeasible rights to use (IRU)                      |  | (l)   |  | (24                 | ) | (23                 | )
|Impairment of long-lived assets                       |  | (n)   |  | 20                  |   | 20                  |  
|Deferred taxes on U.S. GAAP adjustments               |  |       |  | (104                | ) | (94                 | )
|                                                      | 
|Shareholders' equity under U.S. GAAP                  |  |       |  | (52                 | ) | (94                 | )
|                                                      | 

(a)   "Push Down" of Purchase Accounting Adjustments



On 2 November 2001,eircomLimited was acquired by Valentia Telecommunications. Under Irish GAAP, Valentia
Telecommunication's basis ineircomLimited upon the acquisition has not been "pushed down" into the separate financial statements of eircomLimited. Under
U.S. GAAP, since Valentia Telecommunications acquired 100% ofeircom,
Valentia Telecommunication's basis ineircomLimited is pushed down into theeircomLimited financial
statements effective 2 November 2001.

Under
U.S. GAAP, SFAS No. 141 "Business Combinations" applies, which addresses the accounting and reporting for all business
combinations initiated after 30 June 2001. SFAS No. 141 requires that the cost of an investment is assigned to assets acquired and liabilities assumed on the basis of their fair values
at the date of acquisition. In addition, SFAS No. 141 requires that an intangible asset must be separately identified and recognised apart from goodwill, and disclosed accordingly. An
intangible asset should be recognised apart from goodwill if it arises from contractual or other legal rights, or if it is capable of being separated or divided from the acquired entity and sold,
transferred, licensed or exchanged. The results of acquisition accounting (i.e. the step-up or step-down to fair market value and the recording of goodwill) must be allocated
(i.e. pushed down) to the respective reporting units to which it relates. For U.S. GAAP purposes, the fair values have been assigned to certain intangible assets as shown in the table below.
These intangible assets would not be recognised for Irish GAAP purposes since they do not meet the criteria for recognition required by FRS 10.

Effective
1 April 2002, under U.S. GAAP, theeircomGroup adopted SFAS No. 142, which established new standards
related to how acquired goodwill and other intangible assets are to be recorded upon their acquisition, as well as how they are to be accounted for after they have been initially recognised in the
financial statements. As a result of the adoption of this standard, the Group will not amortise goodwill, rather, they will test it for impairment on an annual basis based on a fair value approach.
Additionally under SFAS No. 142, since the acquisition of the Group by Valentia Telecommunications was after 30 June 2001, goodwill has not been amortised for periods after

F-175

---



2 November
2001 (the acquisition date). Upon adoption of this standard, the Group completed a transitional impairment test for its goodwill and intangible assets and determined that there were
no impairments to be recorded. The Group also completed its annual impairment test for its goodwill and indefinite-lived intangible assets as at 31 March 2005 and determined that there was no
impairment to be recorded.

The
following table represents the push down of Valentia Telecommunication's basis in the net assets ofeircomLimited acquired in
accordance with U.S. GAAP:

|                                                                                                                      |  | Notes  |  | €'m  |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------ |  | ---- | -
|Push down of fair value adjustments for Valentia Telecommunication's basis ineircomLimited under Irish GAAP           |  |        |  |      |  
|Tangible fixed assets                                                                                                 |  | (i)    |  | 715  |  
|Pension                                                                                                               |  | (ii)   |  | 208  |  
|Creditors and accruals                                                                                                |  | (iii)  |  | (36  | )
|Provisions for liabilities and charges                                                                                |  | (iv)   |  | (22  | )
|Net assets of Golden Pages                                                                                            |  | (v)    |  | 133  |  
|Push down of additional fair value adjustments for Valentia Telecommunication's basis ineircomLimited under U.S. GAAP |  |        |  |      |  
|Goodwill                                                                                                              |  |        |  | 492  |  
|Regulatory asset                                                                                                      |  | (vi)   |  | 13   |  
|Customer base                                                                                                         |  | (vi)   |  | 105  |  
|Trade name/trademark                                                                                                  |  | (vi)   |  | 82   |  
|Pensions                                                                                                              |  | (vii)  |  | (46  | )
|Restructuring and redundancy costs not recognised                                                                     |  | (viii) |  | 182  |  
|Indefeasible rights to use                                                                                            |  | (ix)   |  | (27  | )
|Deferred taxes on U.S. GAAP and Irish GAAP fair value adjustments                                                     |  | (x)    |  | (133 | )

The Irish GAAP fair value adjustments recorded by Valentia Telecommunications upon the acquisition of eircomLimited, which are pushed
down to the separate financial statements ofeircomLimited, represent
the following:



F-176

---





(b)   Revenue Recognition

Under
Irish GAAP, the Group recognises the revenue related to connection fees at the time the service is provided. Under U.S. GAAP, the connection fees are recognised over the
average customer life of three to six years. Expenses, where exceeding revenue, are only deferred to the extent of revenue.

"Staff Accounting Bulletin No. 104" ("SAB 104") provides guidance on revenue recognition under U.S. GAAP. Amongst other
items, SAB 104 addresses the timing of revenue recognition relating to non-refundable, up-front fees. The Group performs a detailed analysis of their connection fees and
associated expenses accordingly.

(c)   Revaluations

In
accordance with Irish GAAP, the Group's consolidated financial statements are prepared in accordance with the historical cost convention, except that property is periodically restated
on the basis of appraised values. Subsequent depreciation is computed on the revalued amounts. Under U.S. GAAP, such revaluations are not permitted and depreciation is computed on the
historical cost. Under U.S. GAAP depreciation charges would have been €3 million and €4 million lower, for the financial years ended
31 March 2004 and 31 March 2005 respectively, since the assets, after taking account of push-down adjustments, would have a lower depreciable base.

Under
U.S. GAAP, such revaluations are not permitted and depreciation is computed on the historical cost. Adjustment of the amounts reported under Irish GAAP for property to the
amounts reportable under U.S. GAAP would result in a reduction of the book value of tangible assets of €58 million and €54 million as at
31 March 2004 and 31 March 2005 respectively.

(d)   Provisions for Restructuring and Transformation Costs

Under
Irish GAAP, the Group had recorded provisions for a fundamental restructuring and certain voluntary redundancy schemes in respect of staff restructuring and other aspects of its
business transformation which are in the course of implementation, when a legal or constructive obligation exists, and the amount can be reasonably estimated.

Under
U.S. GAAP, costs related to voluntary early retirement and severance schemes are accounted for in accordance with SFAS No. 88. Generally, the timing of expense
recognition differs between Irish GAAP and U.S. GAAP because, under Irish GAAP, a constructive obligation is deemed to exist when the Group agrees to accept and discharge responsibility under
the terms of voluntary early retirement and severance schemes with the employees and their unions. U.S. GAAP requires that the individual employees have accepted the offer to retire or to
participate in severance programs before the expense is recognised.

F-177

---



The following table reconciles the movement in the staff restructuring provisions as presented under Irish GAAP to the amounts presented under U.S. GAAP (see note 17):

|                                                                                      |  | Staff restructuring
provision under
Irish GAAP |   | Adjustment |   | Staff restructuring
provision under
U.S. GAAP |  
|------------------------------------------------------------------------------------- |  | ---------------------------------------------- | - | ---------- | - | --------------------------------------------- | -
|
|As at 31 March 2002                                                                   |  | 153                                            |   | (153       | ) |                                              |  
|Utilised                                                                              |  | (83                                            | ) |           |   | (83                                           | )
|Charged to the consolidated profit and loss account                                   |  | 11                                             |   | 94         |   | 105                                           |  
|Transfer from accruals                                                                |  | 36                                             |   |           |   | 36                                            |  
|Transfer from provision for exit from certain international and multimedia activities |  | 9                                              |   | (9         | ) |                                              |  
|                                                                                      | 
|As at 31 March 2003                                                                   |  | 126                                            |   | (68        | ) | 58                                            |  
|                                                                                      | 
|Utilised                                                                              |  | (45                                            | ) |           |   | (45                                           | )
|(Credited)/charged to the consolidated profit and loss account                        |  | (1                                             | ) | 60         |   | 59                                            |  
|                                                                                      | 
|As at 31 March 2004                                                                   |  | 80                                             |   | (8         | ) | 72                                            |  
|                                                                                      | 
|Utilised                                                                              |  | (7                                             | ) |           |   | (7                                            | )
|Transfer                                                                              |  | (1                                             | ) |           |   | (1                                            | )
|Charged to the consolidated profit and loss account                                   |  | 6                                              |   | 8          |   | 14                                            |  
|                                                                                      | 
|As at 31 March 2005                                                                   |  | 78                                             |   |           |   | 78                                            |  
|                                                                                      | 

(e)   Provision for exit from certain international and multimedia activities

Under
Irish GAAP, the Group had recorded provisions for the exit from certain international and multimedia activities as part of its business transformation, which are in the course of
implementation when a legal or constructive obligation exists, and the amount can be reasonably estimated.

Under
U.S. GAAP, these transformation costs, which mainly relate to involuntary contract termination and voluntary staff exit costs, did not qualify as exit costs based on guidance
provided by the Emerging Issues Task Force Consensus 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Cost to Exit an Activity
(including certain costs incurred in a restructuring" ("EITF 94-3"). Certain costs related to warranties accrued under Irish GAAP, as a result of discontinuing
certain activities, did qualify for accrual under EITF 94-3.

The
following table reconciles the movement in the provision for exit from certain international and multimedia activities as presented under Irish GAAP to the amounts presented under
U.S. GAAP:

|                                                           |  | Provisions for exit
from certain international and multimedia activities under Irish GAAP |   | Adjustment |   | Provisions for exit
from certain international and multimedia activities under U.S. GAAP |  
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | - | ---------- | - | ---------------------------------------------------------------------------------------- | -
|
|As at 31 March 2002                                        |  | 11                                                                                        |   | (8         | ) | 3                                                                                        |  
|Utilised                                                   |  | (2                                                                                        | ) |           |   | (2                                                                                       | )
|Credited to the consolidated profit and loss account       |  |                                                                                          |   | (1         | ) | (1                                                                                       | )
|Transfer to provision for restructuring and transformation |  | (9                                                                                        | ) | 9          |   |                                                                                         |  
|                                                           | 
|As at 31 March 2003 and 2004 and 2005                      |  |                                                                                          |   |           |   |                                                                                         |  
|                                                           | 

F-178

---



(f)    Pension Costs

Under
Irish GAAP, pension costs are determined in accordance with Statement of Standard Accounting Practice No. 24, "Accounting for Pension
Costs" and costs are expensed over employees' working lives Under U.S. GAAP, pension costs are determined in accordance with the requirements of SFAS No. 87,
"Employers Accounting for Pensions" ("SFAS No. 87") and SFAS No. 88. In accordance with the requirements of U.S. GAAP, the Group performs
annual pension valuations. Differences between the amounts under Irish GAAP and U.S. GAAP arise from the requirement to use different actuarial methods and assumptions and the method of amortising
surpluses or deficits.

(g)   Derivative Financial Instruments

In
June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). This Statement became effective for the Group on 1 April 2001 and establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all freestanding and many embedded derivatives on the balance sheet at
their fair value, regardless of any hedging relationship designation. Derivative instruments must be classified as hedging transactions (either fair-value hedges, cash flow hedges or net
investment hedges in a foreign operation) or non-hedging transactions, and the accounting treatment of derivative instruments and hedged items depends on this classification. Changes in
the fair value of derivative instruments that do not qualify for, or are not designated in, hedging relationships are recognised immediately in current period earnings when they occur.

(h)   Annuity Scheme

The
Group established an annuity scheme whereby employees participating in a voluntary termination scheme could accept payment in one lump sum or in an annuity to be paid out over a
period of ten years. Under Irish GAAP, prior to 2 November 2001, the Group recorded a liability at the date that an employee elected to receive the annuity, which represented a net amount
consisting of the estimated present value of the fixed payment stream due to the employee less the value of the assets set aside to fund the liability, taking account of the expected future return on
those assets being invested for the period. Subsequently, due to the continued downturn in equity markets, the Group changed the way it estimated the net liability and calculated it as the net of the
present value of the fixed payment stream due to employees and the fair value of the assets set aside to fund the payment stream on the balance sheet date. Under U.S. GAAP, the liability for the
annuity due to the employee is treated separately from the assets set aside to fund the liability. The assets have been classified as trading securities under SFAS
No. 115,"Accounting for Certain Investments in Debt and Equity Securities", with all unrealised
gains or losses recorded through current earnings as a restructuring charge. As a result, a U.S. GAAP adjustment is recorded to measure the assets at their fair value.

The
annuity scheme liability and the fair value of the assets set aside to fund the liability were €155 million and €83 million at
31 March 2004, and €150 million and €72 million at 31 March 2005, respectively.

(i)    Debt and Related Debt Issue Costs and Interest Expense

Under
U.S. GAAP, in addition to the push down of Valentia Telecommunication's purchase accounting adjustments which reflect Valentia Telecommunication's basis in eircomLimited, the debt incurred to fund the
acquisition plus debt issuance costs and related interest expense is also pushed down since eircomLimited is an additional borrower and guarantor of the €1.4 billion debt facility of Valentia
Telecommunications and an
additional guarantor under the Senior Notes and Senior Subordinated Notes issued by Valentia Telecommunications andeircomFunding.

F-179

---



Under
Irish GAAP, these amounts are not reflected in the separate financial statements ofeircomLimited.

(j)    ESOT Trust

On
1 April 1999, the Telecom Employee Share Ownership Trust ("ESOT") was established for the benefit of eligible employees of the Group. The ESOT was funded by a combination of
third party loans, loans from the Group and contributions of shares by the Group.

The
net assets of the Trust were divided into approximately 329 million units. The units were allocated to employees, subject to a minimum period of twelve months of qualifying
employment with the Group, who had entered into contracts of participation with the ESOT. Employees that ceased to be employed by the Group retained their right to the units allocated before the
termination of their service. Each eligible employee was allocated the same number of units (pro rated if the service period is less than 5 years at 1 November 2003). The units of the
ESOT have been allocated to eligible employees through eleven notional allocations over a five year period ending 1 November 2003.

For
purposes of U.S. GAAP, the ESOT is accounted for byeircomGroup plc, the parent company of eircom, in accordance with AICPA Statement of Position
"Employers' Accounting for Employee Stock Ownership
Plans" ("SOP 93-6"). Accordingly, compensation expense equal to the average fair value of the Trust units allocated during the period that the employees earn the
allocation is recorded byeircomGroup plc. For the purposes of these financial statements, compensation expense
for the allocation related to the employees ofeircomhas been pushed down fromeircomGroup plc with an
offsetting amount recorded as a contribution of capital.

Trust
units allocated to employees ofeircomtotalled 60.0 million and 60.7 million in the financial year ended
31 March 2003 and the financial year ended 31 March 2004 respectively. As of 1 November 2003, since all units of the trust have been allocated, there will be no further
compensation charges related to the allocation of shares by the ESOT.

Under
Irish GAAP, the lump sum payment in respect of establishing the Trust of €127 million, paid to the ESOT by the Group, was expensed in the consolidated profit
and loss account of the Group in the financial year ended 1 April 1999. No further expense arises under Irish GAAP.

(k)   Capitalised Interest Costs

Under
Irish GAAP, the Group does not capitalise interest. Under U.S. GAAP, in accordance with the provisions of SFAS 34, "Capitalisation of Interest
Costs", the estimated amount of interest incurred while constructing major capital projects is required to be capitalised and depreciated over the lives of the related assets,
resulting in an increase of the Group's non-current assets under U.S. GAAP. The amount of interest capitalised is determined by reference to the weighted average interest rates on
outstanding borrowings.

The
U.S. GAAP adjustments resulted in cumulative gross recognised interest of €19 million and €25 million and accumulated amortisation of
€6 million and €9 million as at 31 March 2004 and 31 March 2005, respectively. Interest recognised amounted to
€7 million, €6 million and €7 million and amortisation amounted to €2 million,
€3 million and €4 million for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005, respectively.

(l)    Indefeasible Rights to Use

During
the financial year ended 31 March 2002, the Company entered into indefeasible rights to use ("IRU") contracts to sell capacity on its network as well as IRU contracts to
purchase capacity from a third party. Under Irish GAAP, the income associated with the service portion of the sales contract is being recognised over a seven-year period, and the remaining
IRU income was recognised when the contract was entered into. Under U.S. GAAP, the sales contracts were accounted for as

F-180

---



service
contracts with the entire income being deferred and recognised on a straight-line basis over a 17 to 25 year period. Under Irish GAAP, the purchase contracts have been
accounted for as a capital asset depreciated over a seven-year period. Under U.S. GAAP, the purchase contracts are accounted for as service contracts and accordingly, the
pre-paid balance has been recorded as a deferred debtor and is being amortised on a straight line basis as rent expense over a seven year period.

(m)  Exit of Golden Pages Limited

Under
Irish GAAP,eircomLimited recognised a gain upon exit of its discontinued operations. For the purposes of these financial
statements under U.S. GAAP, the step-up to the fair value of the net assets of Golden Pages Limited recorded by Valentia Telecommunications has been pushed down to eircomLimited. As a result, there was
an after-tax-loss recognised upon the exit of Golden Pages under U.S. GAAP of
€5 million.

The
net assets of Golden Pages Limited, at the exit date consisted of the following:

As at 2 May 2002€'mTangible Assets

10Intangible Assets

139Stocks

9Debtors

4Cash

12Creditors

(9
)Minority Interest

(10
)Net assets

155


(n)   Impairment of Long-Lived Assets

Under
Irish GAAP, the Group recognised impairments for certain assets based on results of revaluations and other factors including a review of discounted future cash flows where
appropriate. Under SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", ("SFAS No. 144"), an asset is
considered to be impaired when its carrying amount exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The undiscounted cash flows
include only the future cash flows that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset. Under Irish GAAP, the Group
also recognised impairment losses arising from revaluations of land and buildings where the revalued amount of a fixed asset is below the carrying value of the fixed asset. To the extent that the
revalued amount of the fixed assets are below the historical cost, the impairment charge is recognised in the profit and loss account under Irish GAAP. For certain long-lived assets
impaired by the Group, under Irish GAAP, the sum of the undiscounted cash flows directly associated with the assets exceeded their carrying value. Thus, the criteria for impairment under SFAS
No. 144 were not met and a portion of the impairment expense recognised under Irish GAAP was added back to net income for U.S. GAAP purposes.

During
the financial year ended 31 March 2004, the Group noted changes in circumstances and business climate affecting Global Crossing and Gemini International Cables that were
indicative of a potential impairment. Specifically, the Group noted significant over capacity in the international telecommunications market in which the Group operates. As a result, the Group
undertook an assessment of the recoverability of the carrying value of these assets. In this assessment, the Group examined separate undiscounted expected future cash flows resulting from these assets
over their remaining useful lives, which indicated an aggregate net negative cash flow for the period. These forecasts represented management's best estimates of future results of the forecast period.
Based on

F-181

---



the
projected negative cash flows for these assets over their remaining useful lives, the Group recorded an impairment charge during the financial year ended 31 March 2004 of
€9 million under both Irish GAAP and U.S. GAAP, to reduce the carrying value of the assets to their recoverable value of zero.

During
the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 the Group recognised impairment charges in respect of land & buildings of
€15 million, €5 million and €nil, respectively, where the revalued amount was below the historical cost of the relevant fixed assets.
Under U.S. GAAP, the sum of the undiscounted cash flows directly associated with the assets exceeded their carrying value. Thus, the criteria for impairment under SFAS No. 144 were not met, and
the impairment expense recognised under Irish GAAP was added back to net income for U.S. GAAP purposes.

(o)   Share Options

Under
Irish GAAP, the Group has not recognised compensation expense for share expense in the financial statements ofeircomLimited during
the year ended 31 March 2004. Under U.S. GAAP, in accordance with the guidance in FIN 44, "Accounting for Certain Transactions involvingStock Compensation, an Interpretation of APB Opinion
No. 25"("FIN 44") the accounting foreircomGroup plc's share-based compensation has been "pushed down" to the financial statements ofeircomLimited.

Under
Irish GAAP,eircomGroup plc has recognised compensation expense on share option grants where the exercise price is below the market
price of the underlying share on the date of grant. This expense is recognised over the vesting period of the option. Additionally,eircomGroup plc has
recognised compensation expense for share awards under the Key Executive Share Award Plan in full at the date of grant for the full fair value of the share award.

Under
U.S. GAAP, compensation expense on share option grants is recognised as the difference between the exercise price of the share option granted and the quoted market price of the
shares at the date of grant or measurement date and accrued over the vesting period of the options.

Under
U.S. GAAP, where options are granted over junior stock, compensation expense is not recognised until the transferability restrictions on the underlying junior stock lapse. At the
Admission date (24 March 2004), the transferability restrictions on the junior stock lapsed and compensation expense was recognised for outstanding junior stock awards and for option awards
over junior stock for the difference between the Admission price and the exercise price of the option (see note 32 (g)).

Under
U.S. GAAP, compensation expense for awards under the Key Executive Share Award Plan for the fair value of the share award on the date of grant is recognised over the
two-year vesting period (see note 32 (g)).

(p)   Income Statement

Under
Irish GAAP exceptional items are items which are derived from events or transactions which individually, or if of a similar type, in aggregate, need to be disclosed by virtue of
their size or incidence. Additionally, some of these exceptional charges under Irish GAAP are included after operating profit if certain criteria are met. Under U.S. GAAP, only items which are
considered unusual in nature and infrequent in occurrence (not reasonably expected to recur in the foreseeable future) qualify for presentation as "extraordinary" items under U.S. GAAP. Under U.S.
GAAP, extraordinary items are presented below income before extraordinary items in the statement of profit and loss. Under U.S. GAAP, restructuring charges, fixed asset impairments, gains and losses
on disposals, and other charges, disclosed as exceptional expenses under Irish GAAP, do not meet the criteria for presentation as extraordinary items under U.S. GAAP. Additionally, under U.S. GAAP
these exceptional expenses would be separated between continuing and discontinued operations.

Under
Irish GAAP, the Group elects to present "gross profit" in its consolidated profit and loss account, which is calculated as turnover minus cost of sales. Under Irish GAAP, the Group
elects to

F-182

---



include
only costs relating to payments to other carriers, commissions and the cost of customers' premises equipment in cost of sales. Under U.S. GAAP, the presentation of cost of sales and gross
profit on the basis used under Irish GAAP is not appropriate, as not all direct costs incurred to generate turnover are included in cost of sales, such as a portion of depreciation, amortisation,
provisions for doubtful accounts and net staff costs.

A
summary of the Group's income statements, as calculated under Irish GAAP and classified in accordance with U.S. GAAP, follows:

|                              |                                               | Financial
Year Ended
31 March
2003 |      | Financial
Year Ended
31 March
2004 |      | Financial
Year Ended
31 March
2005 |     
|----------------------------- | --------------------------------------------- | ---------------------------------- | ---- | ---------------------------------- | ---- | ---------------------------------- | ----
|
|Sales                         |                                               | 1,682                              |      | 1,628                              |      | 1,602                              |     
|Cost of sales                 |                                               | (1,277                             | )    | (1,171                             | )    | (1,135                             | )   
|                              |                                              
|Gross profit                  |                                               | 405                                |      | 457                                |      | 467                                |     
|Operating expenses            |                                               |                                    |      |                                    |      |                                    |     
|                              | Selling, general and administration costs     |                                    | (225 | )                                  | (170 | )                                  | (182
|                              |                                              
|Net operating income          |                                               | 180                                |      | 287                                |      | 285                                |     
|Other income/(expenses)       |                                               |                                    |      |                                    |      |                                    |     
|                              | Interest income                               |                                    | 25   |                                    | 4    |                                    | 4   
|                              | Interest expense                              |                                    | (15  | )                                  | (6   | )                                  | (2  
|                              | Income from Associates' operations            |                                    |     |                                    |     |                                    | 1   
|                              | Credit arising on demerger of mobile business |                                    |     |                                    |     |                                    | 4   
|                              | Gain on disposal of fixed assets              |                                    | 2    |                                    |     |                                    |    
|                              | Gain on exit from business divisions          |                                    | 175  |                                    | (1   | )                                  |    
|                              |                                              
|Other income/(expenses) (net) |                                               | 187                                |      | (3                                 | )    | 7                                  |     
|Income before income taxes    |                                               | 367                                |      | 284                                |      | 292                                |     
|Income taxes                  |                                               | (47                                | )    | (39                                | )    | (36                                | )   
|                              |                                              
|Net income                    |                                               | 320                                |      | 245                                |      | 256                                |     
|                              |                                              

(q)   Certain Leasing Transactions

The
Group entered into certain lease transactions whereby assets were leased or sold and leased back from the purchaser. In conjunction with each lease transaction the Group entered into
arrangements with third party financial institutions whereby the Group maintains deposits and other financial assets in return for their undertaking to pay the Group's lease payment obligations to the
lessor, including the repurchase of the assets. Under Irish GAAP and U.S. GAAP, these leases are accounted for as finance leases (capital leases as defined under SFAS No. 13,
"Accounting for Leases"). Under Irish GAAP, as the Group's lease obligations are fully defeased from the inception of the leases, the deposits and
related lease obligations are not recognised as separate assets and liabilities of the Group. Accordingly, the Group records no asset for the deposits and shows no liability for the lease obligations
in its consolidated balance sheet. Under U.S. GAAP, the outstanding lease obligations to the lessor would not be regarded as defeased by the deposit held by the third party financial institution,
since no legal right of offset exists. As a result, total assets and liabilities as at 31 March 2004 and 31 March 2005, are higher under U.S. GAAP by €146 million
and €127 million, respectively.

F-183

---



(a)   Employee Benefit Plans



For purposes of the U.S. GAAP reconciliation, the Group adopted the provisions of SFAS No. 87, amended by SFAS No. 132 "Employer's Disclosures about
Pensions and Other Postretirement Benefits, an Amendment of FASB Statements No. 87, 88 and 106". The following
table provides the components of net periodic pension costs under U.S. GAAP:

|                                                                  |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|----------------------------------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Service costs                                                     |  | 35,911                             |   | 41,462                             |   | 45,562                             |  
|Interest costs                                                    |  | 112,061                            |   | 110,588                            |   | 117,917                            |  
|Expected return on plan assets                                    |  | (154,124                           | ) | (113,960                           | ) | (137,637                           | )
|Amortisation of experience                                        |  |                                   |   | 20,982                             |   | 13,990                             |  
|Special termination benefits                                      |  | 7,954                              |   |                                   |   | 8,946                              |  
|                                                                  | 
|Net periodic benefit cost recognised in accordance with U.S. GAAP |  | 1,802                              |   | 59,072                             |   | 48,778                             |  
|                                                                  | 

The accumulated benefit obligation was €1,594 million and €2,007 million as at 31 March 2004
and 31 March 2005 respectively.

The
charge for special termination benefits is the result of the Group's early retirement schemes, which provide eligible employees with the opportunity to retire early, resulting in
additional pension costs.

The
following table provides details about the weighted-average assumptions used to calculate the pension costs during the years ending:

|                                          |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|----------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|Discount rate                             |  | 6.1                                | % | 5.5                                | % | 5.0                                | %
|Expected return on plan assets            |  | 7.1                                | % | 6.8                                | % | 6.7                                | %
|Rate of compensation and pension increase |  | 4.0                                | % | 3.5                                | % | 3.5                                | %

To develop the expected long-term rate of return on assets assumption, the company considered the historical returns and the future
expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.7% long-term rate of return on
assets assumption for the year ended 31 March 2005.

The
following table provides details about the weighted-average assumptions used to calculate the pension obligation as of:

31 March
2004

31 March
2005Discount rate

5.00
%
4.75
%Rate of compensation and pension increase

3.50
%
3.50
%


The dates used to determine pension movements under U.S. GAAP were 31 March 2003, 31 March 2004 and 31 March 2005.

F-184

---



The following table presents changes in benefit obligation, changes in plan assets and a reconciliation to amounts recorded in accordance with U.S. GAAP:

|                                                |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|----------------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Changes in benefit obligation:                  |  |                                    |   |                                    |   |                                    |  
|Benefit obligation at the beginning of the year |  | 1,807,314                          |   | 2,014,305                          |   | 2,360,373                          |  
|Service cost                                    |  | 35,911                             |   | 41,462                             |   | 45,562                             |  
|Interest cost                                   |  | 112,061                            |   | 110,588                            |   | 117,917                            |  
|Plan participants' contributions                |  | 17,948                             |   | 17,099                             |   | 16,776                             |  
|Actuarial losses                                |  | 81,347                             |   | 242,718                            |   | 439,949                            |  
|Benefits paid                                   |  | (62,254                            | ) | (65,799                            | ) | (66,411                            | )
|Other contributions                             |  | 14,024                             |   |                                   |   |                                   |  
|Special termination benefits                    |  | 7,954                              |   |                                   |   | 8,946                              |  
|                                                | 
|Benefit obligations at the end of the year      |  | 2,014,305                          |   | 2,360,373                          |   | 2,923,112                          |  
|                                                | 

|                                                       |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------------------------------ |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Changes in plan assets:                                |  |                                    |   |                                    |   |                                    |  
|Fair value of plan assets at the beginning of the year |  | 2,166,462                          |   | 1,689,775                          |   | 2,068,485                          |  
|Actual return on plan assets                           |  | (468,282                           | ) | 405,977                            |   | 205,847                            |  
|Group's contribution                                   |  | 21,877                             |   | 21,433                             |   | 37,727                             |  
|Plan participants' contribution                        |  | 17,948                             |   | 17,099                             |   | 16,776                             |  
|Benefits paid                                          |  | (62,254                            | ) | (65,799                            | ) | (66,411                            | )
|Other contributions                                    |  | 14,024                             |   |                                   |   |                                   |  
|                                                       | 
|Fair value of plan assets at the end of the year       |  | 1,689,775                          |   | 2,068,485                          |   | 2,262,424                          |  
|                                                       | 

Financial
Year Ended
31 March
2004

Financial
Year Ended
31 March
2005€'000

€'000Funded status:Funded status

(291,888
)
(660,688
)Unrecognised actuarial losses

445,882

803,631Prepaid benefit cost under U.S. GAAP

153,994

142,943


F-185

---



The pension plan weighted-average asset allocations by asset category are as follows:

Financial
Year Ended
31 March
2004

Financial
Year Ended
31 March
2005Asset CategoryEquity securities

68
%
68
%Debt securities

12
%
11
%Real estate

16
%
17
%Other

4
%
4
%Total

100
%
100
%


The Trustees of the pension plan approve the target asset allocation as well as deviation limits. The objective of the investment activities is to
maximise investment return within an acceptable level of risk, taking into consideration the liabilities of the main pension scheme.

The
assumption for the expected return in scheme assets is a weighted average based on an assumed expected return for each asset class and the proportions held of each asset class at the
beginning of the year. The expected returns on bonds are based on the gross redemption yields at the start of the year. Expected returns on other asset classes reflect consensus economic forecasts of
future returns.

The
expected rates of return are included in note 25 (c).



Contributions.The Group expects to contribute €26 million to its pension plan in the year ended
31 March 2006.



The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Pension
Benefits€'000For the years ended 31 March2006

68,5002007

72,0002008

76,0002009

81,0002010

84,500Years 2011-15

496,500




The Group sponsors a defined contribution pension plan primarily covering executive employees and new entrants. For the financial years ended 31 March
2003, 31 March 2004 and 31 March 2005, contributions made by the Group totalled €3 million, €4 million and
€4 million respectively.

F-186

---





U.S. GAAP deferred tax assets and liabilities are as follows:

As at
31 March
2004

As at
31 March
2005€'m

€'mNon-current deferred tax liability:Restructuring Provisions

1

Prepaid pensions obligations

19

18Capital allowances and other timing differences

50

56Fixed assets uplift

70

63Intangible assets

20

19Income to be taxed in future periods

21

20Other

2

2Deferred tax liability

183

178Current deferred tax asset interest

(2
)
(2
)Non-current deferred tax assets:Provisions for expenses

(9
)
(8
)Deferred revenue

(3
)
(3
)Other

(3
)
(3
)Non-current deferred tax assets

(15
)
(14
)Net deferred tax liability

166

162




The consolidated balance sheet of the Group prepared under Irish GAAP presents substantially the same information as that presented under U.S. GAAP. However,
presentation, classification and the U.S. GAAP reconciling items have a significant effect on the U.S. GAAP consolidated balance sheet.

The
following summarised balance sheet has been adjusted to reflect the U.S. GAAP reconciling items and is presented and classified in accordance with U.S. GAAP:

As at
31 March
2004

As at
31 March
2005€'m

€'mAssets:Current assets

583

518Non-current assets

3,200

3,040Total assets

3,783

3,558Liabilities and shareholders' equityCurrent liabilities

910

760Non-current liabilities

2,925

2,892Total liabilities

3,835

3,652Shareholders' equity

(52
)
(94
)Total liabilities and shareholders' equity

3,783

3,558


F-187

---





The consolidated statement of cash flows prepared under Irish GAAP presents substantially the same information as that required under U.S. GAAP by SFAS
No. 95, "Statement of Cash Flows" ("SFAS No. 95"). This standard differs, however, with regard to the classification of items within the cash flow statements, including the
classification of bank overdrafts, which are included as cash equivalents in the cash flow statement prepared for Irish GAAP purposes.

Under
Irish GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment,
acquisitions and disposals, equity dividends paid and management of liquid resources and financing. U.S. GAAP, however, would require only three categories of cash flow activity to be reported:
operating, investing and financing. Cash flows from taxation and returns on investments and servicing of finance shown under Irish GAAP are included as operating activities under U.S. GAAP. The
payment of dividends to the Company's shareholders, which is presented separately under Irish GAAP, is included as a financing activity under U.S. GAAP. Dividends paid to minority shareholders in
Group companies are classified as returns on investment and servicing of finance in the Irish GAAP cash flow statement and cash flows from financing activities under U.S. GAAP.

The
following condensed cash flow statement represents cash flows based on Irish GAAP measurement presented and classified in accordance with the U.S. GAAP requirements laid out in SFAS
No. 95:

|                                                 |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------------------------ |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Cash inflow from operating activities            |  | 516                                |   | 445                                |   | 456                                |  
|Cash inflow/(outflow) from investing activities  |  | (256                               | ) | 25                                 |   | (191                               | )
|Cash outflow from financing activities           |  | (389                               | ) | (563                               | ) | (323                               | )
|                                                 | 
|Decrease in cash and cash equivalents            |  | (129                               | ) | (93                                | ) | (58                                | )
|Cash and cash equivalents at beginning of period |  | 319                                |   | 190                                |   | 97                                 |  
|                                                 | 
|Cash and cash equivalents at end of period       |  | 190                                |   | 97                                 |   | 39                                 |  
|                                                 | 



The Group's total continuing turnover is comprised of revenue from the following products and services as indicated in the table below:

|                                |  | Financial
Year Ended
31 March
2003 |   | Financial
Year Ended
31 March
2004 |   | Financial
Year Ended
31 March
2005 |  
|------------------------------- |  | ---------------------------------- | - | ---------------------------------- | - | ---------------------------------- | -
|
|Access (rental and connections) |  | 423                                |   | 489                                |   | 557                                |  
|Voice traffic                   |  | 651                                |   | 596                                |   | 538                                |  
|Data traffic                    |  | 104                                |   | 112                                |   | 97                                 |  
|Data communications             |  | 204                                |   | 195                                |   | 180                                |  
|Interconnect                    |  | 210                                |   | 159                                |   | 165                                |  
|Other                           |  | 187                                |   | 159                                |   | 154                                |  
|Discounts                       |  | (97                                | ) | (82                                | ) | (89                                | )
|                                | 
|Total                           |  | 1,682                              |   | 1,628                              |   | 1,602                              |  
|                                | 

F-188

---



Of the Group's total turnover of €1,682 million, €1,628 million and
€1,602 million for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 respectively, approximately €41 million
(2%), €37 million (2%) and €49 million (3%) respectively, was generated from foreign customers located outside of Ireland.

The
Group does not hold significant long-lived assets outside of Ireland.



Commitments for minimum rentals for all capital leases, including defeased leases of €127 million (see note 31 (q)) which would be
included on the consolidated balance sheet prepared in accordance with U.S. GAAP, as at 31 March 2005 are as follows:

Capital leases€'000For the years ended 31 March2006

16,8922007

29,2442008

36,2372009

40,3582010 and thereafter

31,816Total minimum lease payments

154,547Less: amount representing interest

(27,055
)127,492


The weighted average interest rate of capital leases under U.S. GAAP as at 31 March 2004 was approximately 4.5% and at 31 March 2005
was approximately 5.7%.



In January 2002, Valentia Telecommunications, the parent ofeircomLimited and 100% owned subsidiary of eircomGroup plc, entered into separate agreements with six executives of the Group whereby Valentia Telecommunications had agreed to grant options
exercisable over yet to be issued
Valentia Telecommunications E Ordinary shares ("E Ordinary shares"). In January 2003, Valentia Telecommunications agreed to give these six recipients the alternative to exercise their options
over yet to be authorised Valentia Telecommunications C Shares ("C Shares") in lieu of E Ordinary shares.

The
E Ordinary shares and the C Shares carried no voting rights or rights to receive dividends, and were restricted as to their transferability. In accordance with the guidance
provided by FIN 38, "Determining the Measurement Date for Stock Option, Purchase, and Award Plans Involving Junior Stock" ("FIN 38"), the E Ordinary
shares were considered junior stock. The options vested in full and were exercisable twelve months after the date of grant at the fair market value of the E Ordinary shares as of the date the
obligation to grant became effective, January 2002. Fair market value as of this date was determined by an independent valuation. If unexercised, these options would have expired on the seventh
anniversary of their grant date.

During
the financial year ended 31 March 2004, all existing options under the C Scheme were exercised and in March 2004, the C Shares ultimately converted to
Ordinary Shares upon Admission to the London and Irish Stock Exchanges. No further options will be granted under this plan.

F-189

---



The
following table summarises the transactions of the Group's share option activity for the financial years ended 31 March 2004 and 31 March 2005.

|                                                                          |  | Number of
Shares |   | Weighted-average
Exercise price
|------------------------------------------------------------------------- |  | ---------------- | - | -------------------------------
|
|Unexercised options committed to issuance 31 March 2003                   |  | 3,558,800        |   | 5.82                           
|Options granted                                                           |  | 49,710           |   | 5.82                           
|Options exercised                                                         |  | (3,608,510       | ) | 5.82                           
|                                                                         
|Unexercised options committed to issuance 31 March 2004 and 31 March 2005 |  |                 |   | 5.82                           
|                                                                         



During September 2003, the shareholders of the Group approved a plan to grant options to acquire 862,598 E Ordinary shares at an exercise price of
€5.82 per share to selected senior employees. Upon Admission in March 2004, the plan was amended following the conversion of the E Ordinary Shares into Ordinary Shares such that
the exercise price was €5.82 for every five Ordinary Shares, or €1.164 per Ordinary Share. The total number of Ordinary Shares that may be acquired by the option
holders under the E Scheme did not exceed 4,312,970. Upon Admission, the options granted under the E Scheme became immediately exercisable for a period of 30 days. The Board had
discretion to permit options granted under the E Scheme to be exercised during the period of 12 months following Admission, up to March 2005. All outstanding options under the
E Scheme not exercised during this 12-month period lapsed or in certain circumstances may be allowed to be exercised after this date. No further options will be granted under this
plan.

The
following table summarises the transactions of the Group's share option activity for the financial years ended 31 March 2004 and 31 March 2005.

|                                                        |  | Number of
Shares |   | Weighted-average
Exercise price
|------------------------------------------------------- |  | ---------------- | - | -------------------------------
|
|Unexercised options committed to issuance 31 March 2003 |  |                 |   |                               
|Options granted                                         |  | 4,312,970        |   | 1.16                           
|Options exercised                                       |  | (2,065,265       | ) | 1.16                           
|                                                       
|Unexercised options committed to issuance 31 March 2004 |  | 2,247,705        |   | 1.16                           
|Options lapsed                                          |  | (16,540          | ) | 1.16                           
|Options exercised                                       |  | (2,177,700       | ) | 1.16                           
|                                                       
|Unexercised options committed to issuance 31 March 2005 |  | 53,465           |   | 1.16                           
|                                                       



The Share Option Plan allows eligible employees (including Executive Directors and Senior Management) to be granted options over existing or unissued ordinary
shares. The first grant of 8,402,442 options was made under the Share Option Plan to selected senior employees including the Executive Directors, on 22 June 2004 at a price of
€1.50.

The
exercise of any options granted under the Share Option Plan is conditional on achievement of performance targets over a three year period. For options granted during the financial
year ended 31 March 2005, the Remuneration Committee determined that the exercise of these options would be subject to the following performance target: (i) that eircom Group plc's
normalised adjusted earnings per share, based on UK GAAP, for the financial year ended 31 March 2007 must exceed 12.05 cents;

F-190

---



and
(ii) payment of a dividend by eircom Group plc of not less than 11 cents per share in each of the financial years ended 31 March 2005, 31 March 2006 and 31 March 2007
which reflects the assumed dividend yield as described in the Listing Particulars published in connection with Listing. Normalised adjusted earnings per share will be calculated by an independent
third party. These options become exercisable, once the performance criteria are achieved, on 22 June 2007 and remain exercisable until 22 June 2014.

|                                                        |  | Number of
Shares |   | Weighted-average
Exercise price
|------------------------------------------------------- |  | ---------------- | - | -------------------------------
|
|Unexercised options committed to issuance 31 March 2004 |  |                 |   |                               
|Options granted                                         |  | 8,402,442        |   | 1.50                           
|Options lapsed                                          |  | (52,989          | ) | 1.50                           
|                                                       
|Unexercised options committed to issuance 31 March 2005 |  | 8,349,453        |   | 1.50                           
|                                                       

The following table summarises all of the transactions of the entire Group's share option activity for the financial years ended 31
March 2004 and 31 March 2005.

|                                                        |  | Number of
Shares |   | Weighted-average
Exercise price
|------------------------------------------------------- |  | ---------------- | - | -------------------------------
|
|Unexercised options committed to issuance 31 March 2003 |  | 3,558,800        |   | 5.82                           
|Options granted                                         |  | 4,362,680        |   | 1.22                           
|Options exercised                                       |  | (5,673,775       | ) | 4.13                           
|                                                       
|Unexercised options committed to issuance 31 March 2004 |  | 2,247,705        |   | 1.16                           
|Options granted                                         |  | 8,402,442        |   | 1.50                           
|Options lapsed                                          |  | (69,529          | ) | 1.42                           
|Options exercised                                       |  | (2,177,700       | ) | 1.16                           
|                                                       
|Unexercised options committed to issuance 31 March 2005 |  | 8,402,918        |   | 1.50                           
|                                                       

The exercise price of all options was greater than the market value of the shares at the date of grant.

The
fair value of options granted for the financial years ended 31 March 2003, 31 March 2004 and 31 March 2005 reported below has been estimated at the date of grant
using Black-Scholes option pricing model with the following assumptions:

2003

2004

2005Expected life from vesting date (in years)

N/A

2.75

10.00Risk-free interest rate

N/A

3.2
%
4.5
%Volatility

N/A

36
%
19
%Dividend yield

N/A



7.33
%


The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. The Group's options granted prior to Admission, had characteristics significantly
different from those of traded options, and changes in the subjective input assumptions could materially affect the fair value estimate. Based upon the above assumptions the weighted average fair
value of the stock options granted under the E Scheme over Ordinary Shares was €0.06 per option during the financial year ended 31 March 2004. The weighted average fair
value of the stock options granted under the Share Option Plan over Ordinary Shares was €0.10 per option during the year ended 31 March 2005.

F-191

---





Certain executive directors and senior executives were granted awards over 1,472,198 Ordinary Shares in March 2004 at a fair value of
€1.55 per share. The awards vest 50% annually over two years on the anniversary of the date of Admission, which was 24 March 2004, and will be exercisable at no cost to the
holder. The portion to vest in March 2005 did not vest and it is anticipated that these will vest during the year ended 31 March 2006. No further awards will be granted under this plan.



On Admission, the Group granted 500,000 Ordinary Shares to two of its non-executive directors. The awards were immediately vested. The holders of
these shares have agreed not to dispose of more than 50% of their holdings in the Ordinary Shares until 31 December 2005.

Under
U.S. GAAP, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), as amended by
SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure" ("SFAS No. 148"), the Group has accounted
for its share based compensation in accordance with APB No. 25, "Accounting for Stock Issued to Employees". Additionally, as the E Ordinary Shares and C Shares were considered junior
stock, the Group applied the guidance in FIN 38 to the awards under the C Scheme and E Scheme. In accordance with U.S. GAAP, the Group recorded a compensation charge of
€6.6 million related to the C Scheme and the E Scheme during the financial year ended 31 March 2004, since the transferability restrictions and the
repurchase provisions lapsed upon Admission.

Under
U.S. GAAP, there was no compensation charge recorded under the Share Award Plan during the financial year ended 31 March 2004 since the shares were granted on
24 March 2004 and vest over two years. During the financial year 31 March 2005 the compensation charge relating to 50% of the shares under the Share Award Plan was
€1.1 million.

Under
U.S. GAAP, the compensation charge related to the 500,000 Ordinary Share awards was €775,000 during the financial year ended 31 March 2004.

Total
equity compensation charges under U.S. GAAP were €7.4 million for the financial year ended 31 March 2004 and €2.4 million for
the financial year ended 31 March 2005.

Had
the options and awards been accounted for in accordance with the provisions of SFAS No.123, pro forma net (loss)/income would have been as follows for the financial years ended
31 March 2004 and 31 March 2005:

|                                                                                                                                                 |  | Financial year ended |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------- | -
|
|
|Net (loss)/profit under U.S. GAAP attributable to ordinary shareholders, as reported                                                             |  | (212                 | )
|Add: Total equity related employee compensation expense determined under intrinsic value based method for all awards, net of related tax effects |  | 7                    |  
|Deduct: Total equity related employee compensation expense determined under fair value based method for all awards, net of related tax effects   |  | (4                   | )
|                                                                                                                                                 | 
|Pro forma net (loss)/profit                                                                                                                      |  | (209                 | )
|                                                                                                                                                 | 

F-192

---





Under Irish GAAP, on 1 January 1984 tangible assets valued, in accordance with the Postal and Telecommunications Services Act, 1983, at
€798.7 million were transferred to the Group. Since the Group did not maintain sufficiently detailed records to determine the historical cost for all assets, the valuation for
certain assets was based on the estimated replacement cost, adjusted for depreciation and inflation ("depreciated replacement cost"). The Company has adopted consistent treatment for purposes of U.S.
GAAP and thus no Irish/U.S. GAAP difference has been recorded.



|                                |  | As at
31 March 2004 |   | As at
31 March 2005 |  
|------------------------------- |  | ------------------- | - | ------------------- | -
|
|Trade Debtors                   |  | €285                |   | €285                |  
|Provision for Doubtful accounts |  | (66                 | ) | (75                 | )
|                                | 
|                                |  | €219                |   | €210                |  
|                                | 

33.   Recently Issued Accounting Standards Applicable to U.S. GAAP



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R"Share-Based
Payment"("SFAS 123R") which revises SFAS 123 and eliminates the option to apply the intrinsic value measurement provisions of APB 25. SFAS 123R requires
that the cost of all share-based payment transactions be recognised in the financial statements. SFAS 123R also establishes fair value as the measurement method in accounting for share-based
payments to employees. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. For public entities that do
not file as small business issuers, the standard is effective for the first interim or annual reporting period that begins after June 15, 2005. The Group adopted SFAS 123R on
1 April 2005 using the modified prospective transition method. Under the modified prospective method, and in accordance with Staff Accounting Bulletin 107 ("SAB 107"), the Group is not required
to restate prior year amounts. The Group estimates the application of the expensing provisions of SFAS 123R will result in a pre-tax expense of approximately
€2 million in the financial year ending 31 March 2006 excluding additional grants and awards.

In March
2004, FASB's Emerging Issues Task Force ("EITF") reached consensus on EITF 03-01,"The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"("EITF 03-01"). The guidance prescribed a three-step
model for determining whether an investment is other-than-temporarily impaired and requires disclosure for unrealised losses on investments. In September 2004, the FASB
issued FASB Staff Position ("FSP") EITF 03-1-1 "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1" ("FSP EITF
03-1-1"). FSP EITF 03-1-1 delays the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of EITF
03-01. The disclosure requirements of EITF 03-01 remain effective for fiscal years ending after June 15, 2004. No effective date for the measurement and recognition
guidance has been established in FSP EITF 01-1-1. During the period of delay, FSP EITF 01-1-1 states that companies should continue to apply current
guidance to determine if an impairment is other-than-temporary. The adoption of EITF 03-01, excluding paragraphs 10-20, did not impact the Group's
consolidated position, results of operations or cash flows. The Group will assess the impact of paragraphs 10-20 of EITF 03-01 once the guidance has been finalised.

In December
2003, the Securities and Exchange Commission issued "Staff Accounting Bulletin 104" ("SAB 104"). SAB 104 addresses certain aspects of the accounting by a vendor for
arrangements that involve more than one deliverable, or unit of accounting, and how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement.
SAB 104 has no impact on these financial statements.

F-193

---



eircomFunding

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders ofeircomFunding:

We
have audited the accompanying balance sheets ofeircomFunding as of 31 March 2004 and 31 March 2005 and the related
profit and loss accounts, cash flow statements and reconciliation of movements in equity shareholders' funds the financial period ended 31 March 2003 and each of the two years in the period
ended 31 March 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our
audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position ofeircomFunding at 31 March 2004 and 31 March 2005, and the results of their operations and their cash flows for each of the financial period ended 31 March 2003 and for each of the two
years in the period ended 31 March 2005, in conformity with accounting principles generally accepted in Ireland.

Accounting
principles generally accepted in Ireland 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 14 to the consolidated financial statements.

PricewaterhouseCoopers
Dublin, Ireland
28 June 2005

F-194

---



eircomFunding

Profit and Loss Account

Year Ended 31 March 2005

|                                              |  | Notes |  | Financial Period from
15 July 2002 to
31 March 2003 |  | Financial
Year ended
31 March 2004 |   | Financial
Year ended 31 March 2005 |  
|--------------------------------------------- |  | ----- |  | --------------------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | -
|
|Operating profit                              |  |       |  |                                                    |  |                                   |   |                                   |  
|Interest receivable from Group companies      |  | 2     |  |                                                    |  | 27,916                             |   | 42,346                             |  
|Interest payable and similar charges          |  | 3     |  |                                                    |  | (27,916                            | ) | (42,346                            | )
|                                              | 
|Profit on ordinary activities before taxation |  | 4     |  |                                                    |  |                                   |   |                                   |  
|Taxation on profit on ordinary activities     |  |       |  |                                                    |  |                                   |   |                                   |  
|                                              | 
|Profit retained for the financial period/year |  |       |  |                                                    |  |                                   |   |                                   |  
|                                              | 

The accompanying notes are an integral part of these financial statements.

F-195

---



eircomFunding

Balance Sheet

As at 31 March 2005

|                                                         |  | Notes |  | 2004    |   | 2005    |  
|-------------------------------------------------------- |  | ----- |  | ------- | - | ------- | -
|
|Fixed assets                                             |  |       |  |         |   |         |  
|Financial assets                                         |  | 5     |  | 509,598 |   | 509,598 |  
|                                                         | 
|Current assets                                           |  |       |  |         |   |         |  
|Debtors                                                  |  | 6     |  | 5,186   |   | 5,101   |  
|Cash at bank and in hand                                 |  |       |  | 1       |   | 1       |  
|                                                         | 
|                                                         |  |       |  | 5,187   |   | 5,102   |  
|Creditors: Amounts falling due within one year:          |  | 7     |  | 7,197   |   | 6,588   |  
|                                                         | 
|Net current liabilities                                  |  |       |  | (2,010  | ) | (1,486  | )
|                                                         | 
|Total assets less current liabilities                    |  |       |  | 507,588 |   | 508,112 |  
|                                                         | 
|Creditors: Amounts falling due after more than one year: |  | 8     |  | 507,578 |   | 508,102 |  
|                                                         | 
|Net assets                                               |  |       |  | 10      |   | 10      |  
|                                                         | 
|Capital and reserves                                     |  |       |  |         |   |         |  
|Equity share capital                                     |  | 11    |  | 10      |   | 10      |  
|Profit and Loss account                                  |  |       |  |        |   |        |  
|                                                         | 
|Equity shareholders' funds                               |  |       |  | 10      |   | 10      |  
|                                                         | 

The accompanying notes are an integral part of these financial statements.

F-196

---



eircomFunding

Cash Flow Statement

Year Ended 31 March 2005

|                                                                          |  | Notes |  | Financial Period
from
15 July 2002 to
31 March 2003
€'000 |  | Financial
Year ended
31 March 2004
€'000 |   | Financial
Year ended
31 March 2005
€'000 |  
|------------------------------------------------------------------------- |  | ----- |  | --------------------------------------------------------- |  | ---------------------------------------- | - | ---------------------------------------- | -
|Net cash inflow from operating activities                                 |  |       |  |                                                          |  |                                         |   |                                         |  
|Returns on investments and servicing of finance                           |  | 12(a) |  |                                                          |  | (18,851                                  | ) | 1,466                                    |  
|Capital expenditure and financial investment                              |  | 12(b) |  |                                                          |  | (509,598                                 | ) |                                         |  
|                                                                          | 
|Cash (outflow)/inflow before management of liquid resources and financing |  |       |  |                                                          |  | (528,449                                 | ) | 1,466                                    |  
|Financing                                                                 |  | 12(c) |  |                                                          |  | 528,450                                  |   | (1,466                                   | )
|                                                                          | 
|Increase in cash                                                          |  |       |  |                                                          |  | 1                                        |   |                                         |  
|                                                                          | 

Reconciliation of Net Cash Flow to (Increase)/Decrease in Net Debt

|                                                           |  | Notes |   | Financial Period from 15 July 2002 to 31 March 2003
€'000 |  | Financial Year ended 31 March 2004
€'000 |   | Financial Year ended 31 March 2005
€'000
|---------------------------------------------------------- |  | ----- | - | --------------------------------------------------------- |  | ---------------------------------------- | - | ----------------------------------------
|Increase in cash in the financial period/year              |  |       |   |                                                          |  | 1                                        |   |                                        
|Cash flow from (increase)/decrease in loans and other debt |  |       |   |                                                          |  | (528,449                                 | ) | 1,466                                   
|                                                          
|(Increase)/decrease in net debt                            |  | 12(d  | ) |                                                          |  | (528,448                                 | ) | 1,466                                   
|                                                          

The accompanying notes are an integral part of these financial statements.

F-197

---



eircomFunding

Statement of Total Recognised Gains and Losses

Year ended 31 March 2005

The Company has no recognised gains and losses other than those included in the results shown in the profit and loss account and, therefore, no separate statement
of total recognised gains and losses has been presented.

Note of Historical Cost Profits and Losses

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

Reconciliation of Movements in Equity Shareholders' Funds

|                                                           |  | Financial Period from
15 July 2002 to
31 March 2003
€'000 |  | Financial
Year ended
31 March 2004
€'000 |  | Financial
Year ended 31 March 2005
€'000
|---------------------------------------------------------- |  | --------------------------------------------------------- |  | ---------------------------------------- |  | ----------------------------------------
|Profit retained for the financial period                   |  |                                                          |  |                                         |  |                                        
|Equity share capital issued                                |  |                                                          |  | 10                                       |  |                                        
|                                                          
|Net addition to shareholders' funds during the period/year |  |                                                          |  | 10                                       |  |                                        
|Shareholders' funds at beginning of period/year            |  |                                                          |  |                                         |  | 10                                      
|                                                          
|Shareholders' funds at end of period/year                  |  |                                                          |  | 10                                       |  | 10                                      
|                                                          

The accompanying notes are an integral part of these financial statements.

F-198

---



eircomFunding

Notes to the Financial Statements

1      Accounting Policies and Estimation Techniques



The financial statements have been prepared in accordance with accounting standards generally accepted in Ireland and Irish statute comprising the Companies Acts,
1963 to 2003. Accounting standards generally accepted in Ireland in preparing financial statements giving a true and fair view are those published by the Institute of Chartered Accountants in Ireland
and issued by the Accounting Standards Board.

The
comparative periods are the year ended 31 March 2004 and the period from the date of incorporation, 15 July 2002 to 31 March 2003.

Certain
amounts in prior years have been reclassified to conform with the current years presentation.



The financial statements have been prepared in accordance with the historical cost convention. The reporting currency used in these financial statements is the
Euro, denoted by the symbol €.



Transactions denominated in foreign currencies are translated into euro at the rate of exchange ruling at the transaction date. Assets and liabilities denominated
in foreign currencies are translated at the rates ruling at the balance sheet date, or rates of exchange contracted for under various currency management instruments, with the resulting gain or loss
being dealt with through the profit and loss account.



The company enters into transactions in the normal course of business using a variety of financial instruments in order to hedge against exposures to fluctuating
exchange rates. Firmly committed transactions and the related receivable, or payable, may be hedged with forward exchange contracts.

Currency
swap agreements and forward exchange contracts are used to cover the company's foreign currency debt position. These are valued at year-end exchange rates and the
resulting gains and losses are offset against gains and losses on the translation of the related debt. The interest element of the contracts is reflected in interest payable and similar charges.

All
borrowings are initially stated at the fair value of the consideration received after deduction of issue costs. Issue costs together with finance costs are charged to the profit and
loss account over the term of the borrowings and represent a constant proportion of the balance of capital repayments outstanding. Accrued finance costs attributable to borrowings are included in
accrued charges within current liabilities. Accrued issue costs are netted against the carrying value of borrowings.

F-199

---



2      Interest Receivable from Group Companies

|                                        |  | Financial
Period from
15 July 2002 to
31 March 2003
€'000 |  | Financial
Year ended
31 March 2004
€'000 |  | Financial
Year ended
31 March 2005
€'000
|--------------------------------------- |  | --------------------------------------------------------- |  | ---------------------------------------- |  | ----------------------------------------
|Interest receivable from parent company |  |                                                          |  | 27,916                                   |  | 42,346                                  
|                                       

3      Interest Payable and Similar Charges

|                                                                                  |                         | Financial
Period from
15 July 2002 to
31 March 2003
€'000 |   | Financial
Year ended
31 March 2004
€'000 |         | Financial
Year ended
31 March 2005
€'000 |        
|--------------------------------------------------------------------------------- | ----------------------- | --------------------------------------------------------- | - | ---------------------------------------- | ------- | ---------------------------------------- | -------
|Interest and associated finance costs payable in respect of financing facilities: |                         |                                                           |   |                                          |         |                                          |        
|Repayable wholly or partly in more than 5 years                                   |                         |                                                          |   | 26,569                                   |         | 40,880                                   |        
|Amortisation of debt issue costs                                                  |                         |                                                          |   | 1,347                                    |         | 1,466                                    |        
|Exchange differences arising on foreign currency borrowings                       |                         |                                                           |   |                                          |         |                                          |        
|                                                                                  | Unrealised gains        |                                                           |  |                                          | (20,082 | )                                        | (11,674
|                                                                                  | Hedging contract losses |                                                           |  |                                          | 20,082  |                                          | 11,674 
|                                                                                  |                        
|Interest payable and similar charges                                              |                         |                                                          |   | 27,916                                   |         | 42,346                                   |        
|                                                                                  |                        

4      Profit on Ordinary Activities Before Taxation

|                                                                        |                            | Financial
Period from
15 July 2002 to
31 March 2003
€'000 |   | Financial
Year ended
31 March 2004
€'000 |   | Financial
Year ended
31 March 2005
€'000
|----------------------------------------------------------------------- | -------------------------- | --------------------------------------------------------- | - | ---------------------------------------- | - | ----------------------------------------
|Profit on ordinary activities before taxation is stated after charging: |                            |                                                           |   |                                          |   |                                         
|Directors' remuneration                                                 |                            |                                                           |   |                                          |   |                                         
|                                                                        | for services as directors |                                                           |  |                                          |  |                                         
|                                                                        | for management services   |                                                           |  |                                          |  |                                         
|                                                                       
|Auditors' remuneration                                                  |                            |                                                          |   |                                         |   |                                        
|                                                                       

Auditors' remuneration has been borne by the parent company Valentia Telecommunications.

5      Financial Assets

2004
€'000

2005
€'000Advances to parent company

509,598

509,598


F-200

---



6      Debtors

2004
€'000

2005
€'000Amounts owed by group companies

5,176

5,091Other debtors

10

105,186

5,101


The amount owed by the parent company is unsecured and interest free.

7      Creditors: Amounts falling due within one year

2004
€'000

2005
€'000Amounts owed to parent company (see note 9)

2,020

1,496Interest payable on Senior Subordinated Notes

5,177

5,0927,197

6,588


8      Creditors: Amounts falling due after more than one year

2004
€'000

2005
€'000Amounts owed to parent company (see note 9)

16,831

15,8898.25% Senior Subordinated Notes due 2013 (listed) (see note 9)

490,747

492,213507,578

508,102


9      Loans and Other Debt Payable

|                                                  |  | Within
1
year
€'000 |  | Between
1 & 2
years
€'000 |  | Between
2 & 5
years
€'000 |  | After
5
years
€'000 |  | Total
€'000
|------------------------------------------------- |  | ------------------- |  | ------------------------- |  | ------------------------- |  | ------------------- |  | -----------
|Amounts due to group companies                    |  | 2,020               |  | 2,020                     |  | 6,060                     |  | 8,751               |  | 18,851     
|8.25% Senior Subordinated Notes due 2013 (listed) |  |                    |  |                          |  |                          |  | 490,747             |  | 490,747    
|                                                 
|At 31 March 2004                                  |  | 2,020               |  | 2,020                     |  | 6,060                     |  | 499,498             |  | 509,598    
|                                                 
|Amounts due to group companies                    |  | 1,496               |  | 1,628                     |  | 5,800                     |  | 8,461               |  | 17,385     
|8.25% Senior Subordinated Notes due 2013 (listed) |  |                    |  |                          |  |                          |  | 492,213             |  | 492,213    
|                                                 
|At 31 March 2005                                  |  | 1,496               |  | 1,628                     |  | 5,800                     |  | 500,674             |  | 509,598    
|                                                 

In August 2003, the company issued €285,000,000 aggregate principal amount of 8.25% Senior Subordinated Notes due 2013 and
US$250,000,000 aggregate principal amount of 8.25% Senior Subordinated Notes due 2013.

F-201

---



Included
in the above amounts are:

2004
€'000

2005
€'000Repayable, otherwise than by instalments, within 1 year

2,020

1,496Repayable, otherwise than by instalments, between 1 and 2 years

2,020

1,628Repayable, otherwise than by instalments, between 2 and 5 years

6,060

5,800Repayable, otherwise than by instalments, due after 5 years

518,349

518,059Debt issue costs (offset against Senior Subordinated Notes due after more than 5 years)

(18,851
)
(17,385
)509,598

509,598


10    Financial Instruments

The Company holds or issues financial instruments for the following main purposes:



The
Company finances its operations out of bond issues.

Derivative
instruments are contractual agreements whose value reflects price movements in underlying assets and liabilities. The Company uses derivatives, where appropriate, to generate
the desired effective profile of currency rate risk. Derivative activity is carefully controlled and appropriately used and is an effective means of managing risk.

The
main risks arising from the use of financial instruments are market rate risk, liquidity risk and credit risk. Responsibility for managing these risks rests with the Board and in
respect of certain activities, the Treasury Committee, a management committee chaired by the Chief Financial Officer. It is, and has been throughout the period under review, the Company's policy not
to trade in financial instruments.

Debtors
and creditors have been excluded from all numerical disclosures below.



Market rate risk is defined as the exposure of the Company's financial position to movements in interest and foreign exchange rates. The principal aim of managing
these risks is to limit the adverse impact on shareholder value of movements in interest rates and foreign exchange rates.

The
main derivatives used are currency swaps. It is Company policy to hedge all currency risk in currencies which are not denominations of the euro. The Company achieves fixed rates on
its borrowings directly through the use of fixed rate debt.



There were floating rate deposits outstanding of €712 at 31 March 2005 (2004: €702). The interest rate on these deposits is
generally based on the appropriate Euribor rate.

F-202

---





|                     |  | Local Currency |  | Local Currency
|-------------------- |  | -------------- |  | --------------
|
|EUR                  |  | 285,000        |  |              
|Other currencies     |  | 224,598        |  |              
|                    
|Total all currencies |  | 509,598        |  |              
|                    

The Company has no interest-free financial liabilities.

As
at 31 March 2005, the Company had currency swap contracts of €224.598 million (2004: €224.598 million, 2003:
€nil) outstanding. After adjusting for the effect of swaps €509.598 million (2004: €509.598 million, 2003: €nil) of bank
and other debt bore interest at fixed rates, with a weighted average interest rate of 8.25% (2004: 8.25%).

The
weighted average life of the fixed rate debt and swaps is set out in the following table:



2004

2005Underlying Debt

9.4

8.4Swaps:we receive fixed interest



we pay fixed interest








As at 31 March 2005, after taking into account the effects of currency swaps the Company had no material foreign currency exposures.



Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, other than a
forced or liquidation sale.

The
following tables provide comparisons of the carrying amounts and fair values of the Company's fixed-rate financial assets and financial liabilities, including
derivatives. The fair values of short-term deposits approximate to their carrying amounts.

F-203

---



The
carrying value of currency swaps is affected by movements in the exchange rates of the currencies concerned, while the fair value reflects both interest rate and exchange rate
movements.

31 March 2004

31 March 2005Book Value
€'000

Fair Value
€'000

Book Value
€'000

Fair Value
€'000Financial assetsCash

1

1

1

1Advances to parent company

509,598

509,598

509,598

509,598509,599

509,599

509,599

509,599LiabilitiesUnderlying debtFixed rate

489,516

527,453

477,842

532,751Debt net of swapsFixed rate

509,598

553,545

509,598

587,486Currency swaps liability

(20,082
)
(26,092
)
(31,756
)
(54,735
)


The fair value of the advances to the parent company is determined based on the market value of the Company's fixed rate debt as it represents
financial instruments with terms identical to the financial asset.



The objective of liquidity management is to ensure the availability of sufficient funds to meet the Company's requirements and to repay maturing debt. This
objective is met by monitoring and controlling potential cash flows and maintaining an appropriate buffer of readily realisable assets and standby credit lines.

The
maturity profile of Company debt is set out in Note 9 of the financial statements.



The Company is exposed to credit risk relating to its cash and current financial assets. The Company places its cash with highly rated financial institutions. The
Company's financial assets represents advances to its parent company. The Company's policy is designed to limit exposure with any one institution and to invest its excess cash in low risk investment
accounts or with other Group companies.

Credit
risks are mainly related to counterparty risks associated with prepayments, amounts owed by Group companies, and derivative contracts.

Transactions
involving derivative contracts are managed by Irish Telecommunications Investments Limited, a wholly owned subsidiary of the ultimate parent company, within a framework of
limits approved by the Treasury Committee, which restrict the dealings to highly rated financial institutions.

F-204

---







Under the Company's accounting policy currency swap agreements are valued at year end exchange rates.

The
table below shows the extent to which the Company had unrecognised gains and losses, in terms of fair value, at the beginning and end of the period.

2004

2005€'000

€'000Unrecognised gains/(losses)Loss on contracts outstanding at start of year



(6,010
)Of which:Included in financial year



639Not included in financial year



(5,371
)Unrecognised loss arising in financial year

(6,010
)
(17,608
)Loss on contracts at end of year

(6,010
)
(22,979
)Of which:Expected to be included in next financial year

(639
)
(1,663
)Expected to be included in later years

(5,371
)
(21,316
)


11    Share Capital

2004

2005€'000

€'000Authorised:40,000 ordinary shares of €1 each

40

40Allotted and called up10,000 ordinary shares of €1 each

10

10


12    Amounts Included in the Cashflow Statement

Amounts included in the cashflow statement are reconciled or analysed as follows:



Financial Period
from
15 July 2002 to
31 March 2003

Financial
Year ended
31 March 2004

Financial
Year ended
31 March 2005€'000

€'000

€'000Interest received



22,739

42,431Interest paid



(21,392
)
(40,965
)Debt issue costs paid



(20,198
)


(18,851
)
1,466


F-205

---





Financial Period
from
15 July 2002 to
31 March 2003

Financial
Year ended
31 March 2004

Financial
Year ended
31 March 2005€'000

€'000

€'000Advance to parent company (net)



(509,598
)





Financial Period
from
15 July 2002 to
31 March 2003

Financial Year
ended
31 March 2004

Financial
Year ended
31 March 2005€'000

€'000

€'000Issue of Senior Subordinated Notes



509,598

Issue of share capital



1

Advance from/(to) parent company (net)



18,851

(1,466
)

528,450

(1,466
)




|                         |  | 31 March 2003 |  | Cash flows |   | Other  |  | 31 March 2004 |   | Cash flows |  | Other  |   | 31 March 2005 |  
|------------------------ |  | ------------- |  | ---------- | - | ------ |  | ------------- | - | ---------- |  | ------ | - | ------------- | -
|
|Cash at bank and in hand |  |              |  | 1          |   |       |  | 1             |   |           |  |       |   | 1             |  
|                         | 
|                         |  |              |  | 1          |   |       |  | 1             |   |           |  |       |   | 1             |  
|Debt due within one year |  |              |  | (2,020     | ) |       |  | (2,020        | ) | 1,466      |  | (942   | ) | (1,496        | )
|Debt due after one year  |  |              |  | (526,429   | ) | 18,851 |  | (507,578      | ) |           |  | (524   | ) | (508,102      | )
|                         | 
|                         |  |              |  | (528,448   | ) | 18,851 |  | (509,597      | ) | 1,466      |  | (1,466 | ) | (509,597      | )
|                         | 

13    Related Party Transactions

The company has availed of the exemption contained in Financial Reporting Standard 8 'Related Party Disclosures' in respect of subsidiaries, 90 per cent or more
of whose voting rights are controlled within a group. Consequently the financial statements do not include disclosure of transactions with entities consolidated in the eircomGroup plc.

14    Reconciliation to United States Generally Accepted Accounting Principles

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in Ireland ("Irish GAAP"), which differ
in certain respects from United States generally accepted accounting principles ("U.S. GAAP"). These differences are described below together, where appropriate, with an explanation of the method used
to determine the adjustments to net profit attributable to ordinary shareholders for the financial period from 15 July 2002 until 31 March 2003 and the financial years ended
31 March 2004 and 31 March 2005, and shareholder's equity as at 31 March 2004 and 31 March 2005.

The
following statements summarise the material adjustments, gross of their tax effect, which reconcile the net profit attributable to ordinary shareholders amount and the equity
shareholders' funds amount under Irish GAAP to the amounts which would have been reported had U.S. GAAP been applied.

F-206

---



|                                                                 |  | Notes |  | Financial Period from 15 July 2002 to 31 March 2003 |  | Financial Year Ended 31 March 2004 |   | Financial Year Ended 31 March 2005 |  
|---------------------------------------------------------------- |  | ----- |  | --------------------------------------------------- |  | ---------------------------------- | - | ---------------------------------- | -
|
|Reconciliation of net income:                                    |  |       |  |                                                     |  |                                    |   |                                    |  
|Net profit attributable to Company shareholders under Irish GAAP |  |       |  |                                                    |  |                                   |   |                                   |  
|U.S. GAAP Adjustments:                                           |  |       |  |                                                     |  |                                    |   |                                    |  
|Derivative financial instruments                                 |  | (a)   |  |                                                    |  | (6,010                             | ) | (16,969                            | )
|Deferred tax on U.S. GAAP adjustments                            |  |       |  |                                                    |  | 751                                |   | 2,121                              |  
|                                                                 | 
|Net loss under U.S. GAAP attributable to ordinary shareholders   |  |       |  |                                                    |  | (5,259                             | ) | (14,848                            | )
|                                                                 | 
|Operating profit from continuing operations                      |  |       |  |                                                    |  |                                   |   |                                   |  
|                                                                 | 

|                                            |  | Notes |  | As at 31 March 2004 |   | As at 31 March 2005 |  
|------------------------------------------- |  | ----- |  | ------------------- | - | ------------------- | -
|
|Reconciliation of shareholders' equity:     |  |       |  |                     |   |                     |  
|Equity shareholders' funds under Irish GAAP |  |       |  | 10                  |   | 10                  |  
|U.S. GAAP adjustments:                      |  |       |  |                     |   |                     |  
|Derivative financial instruments            |  | (a)   |  | (6,010              | ) | (22,979             | )
|Deferred tax on U.S. GAAP adjustments       |  |       |  | 751                 |   | 2,872               |  
|                                            | 
|Shareholders' equity under U.S. GAAP        |  |       |  | (5,249              | ) | (20,097             | )
|                                            | 



In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,"Accounting for Derivative Instruments
and Hedging Activities"("SFAS No. 133"). This Statement became effective for the Company on 1 April 2001 and establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. It requires recognition of all freestanding and many embedded derivatives on the
balance sheet at their fair value, regardless of any hedging relationship designation. Derivative instruments must be classified as hedging transactions (either fair-value hedges, cash
flow hedges or net investment hedges in a foreign operation) or non-hedging transactions, and the accounting treatment of derivative instruments and hedged items depends on this
classification. Changes in the fair value of
derivative instruments that do not qualify for, or are not designated in, hedging relationships are recognised immediately in current period earnings when they occur.

The
Company elected not to designate any of its derivative financial instruments in hedging relationships as defined by SFAS No. 133. Accordingly, for U.S. GAAP purposes the
Company recognises changes in the fair value of derivative financial instruments through current earnings.

15    Additional Disclosure Requirements Under U.S. GAAP



The U.S. GAAP non-current deferred tax asset of €2,872,000 relates to deriviative financial instruments.

F-207

---





The balance sheet of the Company prepared under Irish GAAP presents substantially the same information as that presented under U.S. GAAP. However, presentation,
classification and the U.S. GAAP reconciling items have a significant effect on the U.S. GAAP balance sheet.

The
following summarised balance sheet has been adjusted to reflect the U.S. GAAP reconciling items and is presented and classified in accordance with U.S. GAAP:

As at 31 March 2004

As at 31 March 2005€'000

€'000AssetsCurrent assets

5,187

5,102Non-current assets

510,349

512,470Total assets

515,536

517,572Liabilities and shareholders' equityCurrent liabilities

7,197

6,588Non-current liabilities

513,588

531,081Total liabilities

520,785

537,669Shareholders' equity

(5,249
)
(20,097
)Total liabilities and shareholders' equity

515,536

517,572




The statement of cash flows prepared under Irish GAAP presents substantially the same information as that required under U.S. GAAP by SFAS No. 95,
"Statement of Cash Flows" ("SFAS No. 95"). This standard differs, however, with regard to the classification of items within the cash flow
statements,
including the classification of bank overdrafts, which are included as cash equivalents in the cashflow statement prepared for Irish GAAP purposes.

Under
Irish GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment,
acquisitions and disposals, equity dividends paid and management of liquid resources and financing. U.S. GAAP, however, would require only three categories of cash flow activity to be reported:
operating, investing and financing. Cash flows from taxation and returns on investments and servicing of finance shown under Irish GAAP are included as operating activities under U.S. GAAP. The
payment of dividends to the Company's shareholders, which is presented separately under Irish GAAP, is included as a financing activity under U.S. GAAP.

F-208

---



The
following condensed cash flow statement represents cash flows based on Irish GAAP measurement presented and classified in accordance with the U.S. GAAP requirements laid out in SFAS
No. 95:

Financial Period from 15 July 2002 to 31 March 2003

Financial Year Ended 31 March 2004

Financial Year Ended 31 March 2005€'000

€'000

€'000Cash inflow from operating activities



1,347

1,466Cash outflow from investing activities



(509,598
)
Cash inflow/(outflow) from financing activities



508,252

(1,466
)Increase in cash and cash equivalents



1

Cash and cash equivalents at beginning of period/year





1Cash and cash equivalents at end of period/year



1

1


16.   Recently Issued Accounting Standards Applicable to U.S. GAAP

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R"Share-Based
Payment"("SFAS 123R") which revises SFAS 123 and eliminates the option to apply the intrinsic value measurement provisions of APB 25. SFAS 123R requires
that the cost of all share-based payment transactions be recognised in the financial statements. SFAS 123R also establishes fair value as the measurement method in accounting for share-based
payments to employees. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. For public entities that do
not file as small business issuers, the standard is effective for the first interim or annual reporting period that begins after June 15, 2005. The Group adopted SFAS 123R on
1 April 2005 using the modified prospective transition method. Under the modified prospective method, and in accordance with Staff Accounting Bulletin 107 ("SAB 107"), the Group is not required
to restate prior year amounts. FAS 123R will have no impact on eircom Funding.

In March
2004, FASB's Emerging Issues Task Force ("EITF") reached consensus on EITF 03-01,"The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"("EITF 03-01"). The guidance prescribed a
three-step model for determining whether an investment is other-than-temporarily impaired and requires disclosure for unrealised losses on investments.
In September 2004, the FASB issued FASB Staff Position ("FSP") EITF 03-1-1 "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1"
("FSP EITF 03-1-1"). FSP EITF 03-1-1 delays the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of
EITF 03-01. The disclosure requirements of EITF 03-01 remain effective for fiscal years ending after June 15, 2004. No effective date for the measurement and recognition
guidance has been established in FSP EITF 01-1-1. During the period of delay, FSP EITF 01-1-1 states that companies should continue to apply current
guidance to determine if an impairment is other-than-temporary. The adoption of EITF 03-01, excluding paragraphs 10-20, did not impact the Group's
consolidated position, results of operations or cash flows. The Group will assess the impact of paragraphs 10-20 of EITF 03-01 once the guidance has been finalised.

F-209

---