annual report stet hellas telecommunications s.a.’03 ependytwn/2003_annual_rep… · connection...

annual report Stet Hellas Telecommunications S.A.’03

Tabl

e of

Con

tent

sP

art I

: The

Com

pany

Fina

ncia

l Hig

hlig

hts

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. .p

.10

Sel

ecte

d Fi

nanc

ial D

ata

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. .p

.12

Sha

re P

rice

Per

form

ance

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p.14

Lette

r fr

om th

e Ch

ief E

xecu

tive

Offi

cer

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. .p.

16Th

e Co

mpa

ny a

nd it

s S

hare

hold

ers

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.p.

18B

oard

of D

irec

tors

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p. 1

9

Par

t II:

The

Bus

ines

sCo

mpa

ny E

volu

tion

- M

ilest

ones

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.p.

24M

arke

t Ove

rvie

w .

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.p.

26Cu

stom

ers

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.p.

28D

istr

ibut

ion

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p.30

Net

wor

k an

d In

form

atio

n S

yste

ms

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. .p

.32

Reg

ulat

ory

Ach

ieve

men

ts .

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. . .p

.35

Par

t III:

The

Peo

ple

Hum

an R

esou

rces

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.p.

40To

p M

anag

emen

t . .

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p.42

Com

pany

Str

uctu

re .

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. .p.

43S

pons

orsh

ips

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. .p.

44

Par

t IV

: The

Res

ults

Fina

ncia

l Dis

cuss

ion

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. .p

.44

Inde

x to

Con

solid

ated

Fin

anci

al S

tate

men

ts .

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p.44

Rep

ort o

f Ind

epen

dent

Pub

lic A

ccou

ntan

ts .

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.p.

44Co

nsol

idat

ed F

inan

cial

Sta

tem

ents

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. .p

.44

Not

es to

the

Cons

olid

ated

Fin

anci

al S

tate

men

ts .

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. . .p

.44

*Superior Standards

*

The

Com

pany

Stet Hellas Annual Report 2003

9


8


11


10

Financial Highlights

2001

2002

2003

Total Operating Revenues(in thousands Euro)

808,540

690,331

523,757

275,664

230,787

176,024

91,619

76,438

35,841

2001

2002

2003

Earnings before Interests, Taxes, Depreciation and Amortization (EBITDA)(in thousands Euro)

2001

2002

2003

Net Income(in thousands Euro)


13


12S

tet H

ella

s Te

leco

mm

unic

atio

ns S

.A.

and

subs

idia

ryS

elec

ted

Fina

ncia

l Dat

a[E

uro

in th

ousa

nds

(exc

ept s

hare

and

per

sha

re d

ata)

]

2001

2002

2003

2003

ú E

uro

ú E

uro

ú E

uro

U.S

. $

Sta

tem

ent o

f Inc

ome

Dat

a

Ope

ratin

g re

venu

es:

Rev

enue

s fr

om te

leco

mm

unic

atio

n se

rvic

es50

4.80

166

6.45

376

1.93

495

9.80

8

Sal

es o

f han

dset

s an

d ac

cess

orie

s18

.956

23.8

7846

.606

58.7

09

Tota

l ope

ratin

g re

venu

es52

3.75

769

0.33

180

8.54

01.

018.

517

Cost

of s

ales

and

ser

vice

s pr

ovid

ed(1

95.3

92)

(252

.752

)(3

31.4

20)

(417

.489

)

Gro

ss p

rofit

328.

365

437.

579

477.

120

601.

028

Pro

visi

on fo

r do

ubtfu

l acc

ount

s(5

.693

)(5

.081

)(7

.100

)(8

.944

)

Sel

ling,

gen

eral

and

adm

inis

trat

ive

expe

nses

(234

.953

)(2

98.2

40)

(303

.137

)(3

81.8

61)

Ope

ratin

g in

com

e87

.719

13

4.25

816

6.88

321

0.22

3

Inte

rest

and

oth

er fi

nanc

ial i

ncom

e/(e

xpen

se),

net:

(16.

637)

(14.

471)

(10.

818)

(13.

627)

Inco

me

befo

re in

com

e ta

xes

71.0

8211

9.78

715

6.06

519

6.59

6

Inco

me

taxe

s (p

rovi

sion

) ben

efit

(35.

241)

(43.

349)

(63.

446)

(79.

923)

Net

inco

me

35.8

4176

.438

91.6

1911

5.41

3

Net

Inco

me

per

shar

e-ba

sic

and

dilu

ted

0,48

0,92

1,10

1,39

Bal

ance

She

et D

ata

∆√TA

LA

SS

ETS

868.

553

994.

592

1.02

6.32

81.

292.

867

Long

-ter

m d

ebt,

net o

f cur

rent

mat

uriti

es12

2.06

7 22

2.06

710

0.00

012

5.97

0

Long

-ter

m d

ebt d

ue to

rel

ated

com

pani

es60

.000

60

.000

60.0

0075

.582

Long

-ter

m li

abili

ties

less

long

-ter

m d

ebt

52.8

46

57.5

3578

.648

99.0

72

Tota

l lia

bilit

ies

619.

285

626.

373

624.

809

787.

076

Tota

l sha

reho

lder

s' e

quity

249.

268

318.

219

401.

519

505.

791

Sol

ely

for

the

conv

enie

nce

of th

e re

ader

, eur

o am

ount

s ha

ve b

een

tran

slat

ed in

to d

olla

rs a

t the

rat

e of

$1.

2597

per

ú 1

.00,

the

noon

buy

ing

rate

on

Dec

embe

r 31

, 200

3.

Share Price PerformanceSTET Hellas shares are listed and traded on the NASDAQ National Market (ADRs) and on the Euronext Amsterdam Exchange (DDRs).

Boosted by the stock market rebound of the past year, STET Hellas’ share price performance witnessed significant gains in 2003, closing at $13.00—up 78.6%, outperforming even the NASDAQ Composite Index that gained 50.0% year-on-year and the NASDAQ Telco Index that gained an impressive 68.7% year-on-year.


15


14

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

STET Hellas Nasdaq Composite Nasdaq Telco

1 Jan

2003

15 Ja

n 200

3

29 Ja

n 200

3

12 Fe

b 200

3

26 Fe

b 200

3

12 M

arch

2003

26 M

arch

2003

09 A

pril 2

003

23 A

pril 2

003

07 M

ay 20

03

21 M

ay 20

03

04 Ju

ne 20

03

18 Ju

ne 20

03

02 J

uly 2

003

16 J

uly 2

003

30 Ju

ly 20

03

13 A

ug 20

03

27 A

ug 20

03

10 S

ept 2

003

24 S

ept 2

003

08 O

ct. 20

03

22 O

ct. 20

03

05 N

ov. 2

003

19 N

ov. 2

003

03 D

ec. 2

003

17 D

ec. 2

003

31 D

ec. 2

003

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

-20.0%


17


16

Letter from the Chief Executive OfficerDear Shareholders,

In 2003, STET Hellas’ dedicated and disciplined efforts to improve earnings and cash flows produced another year ofhealthy results. Within a market context that is mostly characterized by parallel preparations for 3G mobile telephony andthe upcoming Olympic Games, we set new growth and cash flow generation milestones, confirming the successful com-pletion of the company’s turnaround and underscoring the period of new growth opportunities, now on the horizon.

Over the past year, STET Hellas’ management team delivered strong top-line growth, up 17.1% year-on-year, solid prof-itability improvement with EBITDA rising to 275.7 million Euro, up 19.4% year-on-year, and increased free cash flow gen-eration of 92.3 million Euro. We used our financial strength not only to improve our balance sheet and provide a tangi-ble return to all of our shareholders— delivering a stable dividend of ú 0.10 per share, but also to simultaneously trans-form ourselves for the future: In a rapidly changing telecommunications environment, and as both competition and tech-nological development will continue, our organization must be poised for success.

To this end we continued to successfully execute our tri-fold strategy of improving synergies with the Telecom ItaliaMobile group and maintaining our leadership in innovation, consolidating our distribution paradigm, and consistentlyfocusing on free cash flow generation.

Even as I write this letter, we at STET Hellas have taken many significant steps to equip ourselves for the future. One such action was our recent re-branding fromTELESTET to TIM, a strategic joint-initiative between STET Hellas’ and Telecom Italia Mobile’s managements, aimed at strengthening the company’s image by lever-aging on TIM’s brand awareness as well as on the advanced technical know-how and innovation associated with the TIM group. The company’s re-branding intro-duces to the Greek market a well-established and internationally recognized brand name and enables STET Hellas to take its rightful place within the Europeanmobile landscape, thus securing the company’s continuous prosperity in an interdependent global community.

Furthermore, we have taken the lead in the new era of UMTS mobile telephony, ushering in 3G services to the Greek market, in-line with our strategy of graspingnew opportunities for continuous profitable growth. STET Hellas’ 3G subscribers will be able to conduct video calls, experience a wide range of innovative value-added services, surf the Web and browse WAP with connection speeds up to 384 kbps. The future of mobile telecommunications is demanding, and we at STETHellas remain committed to expanding each customers’ mobile experience.

The company placed significant attention on the successful transition to 2.5G and 3G services over the past year, and for this reason we continued to roll outseveral high-tech and in-demand services over the course of last year, such as TIM Dating, TIM MMS Weather, TIM Movies, and TIM Video News. Furthermore, inthe beginning of 2004, we united the entire spectrum of these advanced value-added services under a user-friendly graphical user interface called TIM Imagine,thus simplifying access to our customers’ everyday communication, entertainment and information needs. Once again, our customer-centric approach in combi-nation with our commitment to innovation was verified for the second year in a row, through the “Best Value Added Services” award during the Fourth InfoComConference on Telecommunications and IS technology in Greece.

However, offering innovative services is only part of the task at hand, and thus we focused on extending our distribution reach during the past year, by furtherstrengthening our direct distribution channel of TELESTET Centers, now re-branded to “TIM” stores, that grew to 160 outlets at the end of 2003, while widening ourdistribution reach in non-traditional points-of-sales by enriching our commercial agreement with the Hellenic Postal Service, expanding on-board sales of thecompany’s products and services to the vessels of Strintzis lines and Superfast ferries and extending sales of both contract and prepaid products to EFG Eurobank’scredit card holders, making our products widely available in approximately 2,100 points-of-sale by the end of 2003.

On the network front, the preparations for the Athens 2004 Olympic Games were of strategic importance for us in 2003 as was the deployment of an end-to-end UMTS network, while our Information Technology’s focus was on providing rich functionality and full support for our own distribution channel, workingto enable our billing infrastructure to support upcoming 3G services, and updating the systems landscape in the critical area of pre-paid telephony to facilitatethe provision of improved services.

On a final note, I am pleased to mention that our shareowners have benefited significantly from our share price performance over the past year. Boosted by thestock market re-bound of 2003, we witnessed significant capital appreciation of our stock, closing the year with a share price of $13.00—up 78.6% year-on-year andoutperforming the NASDAQ Composite Index by almost 30 percentage points. Moreover, this strong outperformance was rewarded in June 2003, with the 21stposition of the world’s 2002 best performing technology companies on Business Week’s Info Tech 100 list, as a result of the significant improvement in thecompany’s financial and share price performance.

Looking ahead, the Greek regulatory environment will continue to challenge in 2004. The Greek NRA will place additional pressure on us to further reduce inter-connection rates— in line with the NRA’s goal of converging fixed-to-mobile and mobile-to-mobile interconnection rates. Additionally, the onset of the new regu-latory framework which is expected to be passed at some point in 2004 and the subsequent introduction of a new Electronic Communication Law, will significantlychange the market definitions affecting mainly interconnection and access-related issues among others, and place further regulatory constraints and obligationson the company. Furthermore, the launch of Number Portability is a significant turning point for the Greek telecommunications industry.

Nonetheless, our strong financial and operating performance of the past three years have enabled us to look towards the future with confidence in the fundamentalstrength of our company. We will continue our determined efforts towards long-term profitability improvement as well as a re-enforced position in the Greekmobile market, and we remain committed to breaking through the outstanding barriers to growth in mobile communications to deliver the full value of our assetsto our customers and our shareholders.

Nikolaos VarsakisChief Executive Officer


19


18

The Company and its ShareholdersThe CompanySTET Hellas Telecommunications S.A., was founded in 1992 and has been providing mobile telecommunications services in the Greek market since June 1993.Following its re-branding in early 2004, the company operates under the “TIM” brand name and offers network access and related value-added services in the GSM900 MHz and DCS 1800 MHz bands. One of four operators licensed to provide mobile telephony in Greece, STET Hellas focuses on innovation and quality service,and offers various prepaid and contract services, covering the needs of all the different market segments. The company introduced prepaid telephony to Greece in1997, and was the first to offer WAP services in May 2000. STET Hellas has been offering full commercial GPRS services since June 2001, and obtained a UMTSlicense in July 2001. In August of 2002, the company launched Multimedia Messaging Services (MMS), first in Greece with automatic terminal settings activationover the air, facilitating customers’ experience with this new technology. At the end of 2002, STET Hellas signed a commercial agreement leasing a Wireless LocalLoop license that will enable the bundling of mobile and Fixed Wireless Access service elements, creating a one-stop-shop solution for the business marketsegment. Finally, the company ”soft-launched” UMTS services near the tail end of 2003, while a full commercial UMTS launch took place in the beginning of 2004—introducing the new era of mobile telephony to the Greek market.

ShareholdersFollowing the acquisition of Verizon Europe Holdings II B.V.’s 17.45% stake in STET Hellas in August of 2002, TIM International N.V. (a fully owned subsidiary ofTelecom Italia Mobile S.p.A.) holds 80.257% of the company*, while the remaining 19.743% of the company’s shares are floated on the NASDAQ National Market andthe Euronext Amsterdam Exchange.

Following a share capital increase in October 2001, the total number of STET Hellas registered shares authorized, issued and outstanding is 83,193,220.

* TIM International N.V. holds directly through ordinary shares, and indirectly through ADRs and DDRs, 81.40% of the total STET Hellas ordinary shares.** N.V. Algemeen Nederlands Trustkantoor ANT is the custodian representing the STET Hellas ADSs and DDRs traded on the NASDAQ and Euronext Amsterdam stock exchanges.

Board of DirectorsSTET Hellas is administered by the Board of Directors, which is responsible for the management and administration of the company. The members of the Boardof Directors are elected for a three-year term by the General Assembly of the Shareholders. The current members of the Board of Directors are:

Stylianos Argyros. Chairman of the Board of Directors, Mr. Argyros has a broad range of business experience and has held high administrative posts in Greeceas well as abroad. Studied at Amherst (B.Sc. in Chemistry) and M.I.T. (M.Sc. and Ph.D. in Materials Science). Also Chairman of the Board and Chief Executive Officerof PREVEZA MILLS S.A and Vice-President of ASPIS BANK. Member of the Board at: ELAN VENTURES S.A., S&B MINERALS S.A., DELTA HOLDING S.A, and P.G.NIKAS S.A.. Member of the Executive Committee of the TRILATERAL COMMISSION. Former Member of the European Parliament (M.E.P.). Mr. Argyros has servedas President and Chairman of the Board of the Federation of Greek Industries, Vice President of UNICE, World President of the Textile Institute (U.K.) and Memberof the Board of ALBA.

Nikolaos Varsakis. Managing Director and Chief Executive Officer. Mr. Varsakis joined STET Hellas with a vast experience in the telecommunications market. Hebegan his career at the Philips Group, where he held a series of managerial positions internationally. In 1993, he co-founded Radio Korassidis Telecom and becamethe Managing Director. Prior to joining STET Hellas, he held the position of general manager at Radio Korassidis Microcenter. Mr. Varsakis holds a B.A. fromUniversity of La Verne and an MBA from The University of South California.

Attilio Achler. Member of the Board of Directors. Mr. Achler joined SIP (Societa’ Italiana per l’ Esercizio delle Telecomunicazioni p.a.) in 1971 where he assumedvarious positions in the areas of Transmission, Network, National Public Network/Radio Systems. In 1992 following a company reorganization he became respon-sible for the GSM Radio Network of the Mobile Telecommunication Services division, and in 1994, Mr. Achler assumed the responsibility of the MobileServices/Network Administration division of Telecom Italia. A year later, he joined Telecom Italia Mobile with responsibility for the Network Administration divi-sion. He is currently responsible for the Network department. Mr. Achler is a holder of a Bachelor Degree in Engineering.

Giuseppe Roberto Opilio. Member of the Board of Directors. Mr. Opilio joined Telecom Italia Mobile in 1999, with 16 years of working experience with companiessuch as Parfina Group, Gepi Group S.p.A., American Society for Quality Control and Galgano Group Consulting and Management Training Company. Upon joiningTIM, he assumed the position of Vice President in Human Resources and Organizational Development. In 2001, he assumed the position of HR Executive VicePresident for the TIM Group, and in February 2004 he became the Executive Vice President for the Customer Operations.

Roberto Pellegrini. Member of the Board of Directors. Mr. Pellegrini joined Telecom Italia Mobile in 1998 as Marketing and Sales Director. He began his careerwith IBM and Amdahl in marketing and sales. In 1991 he was appointed General Director of GOAL SYSTEMS and in 1992 he was appointed Managing Director forItaly of the Legent Software Company and subsequently became Vice President for Southern Europe. In 1995, he joined Telecom Italia as a commercial director inthe division of Mobile Services, and in July of 1995, Mr. Pellegrini joined Telecom Italia Mobile with responsibility for the division of Commercialization and OperatingMarketing. In 1998, he became commercial director adding to his area of responsibility the Marketing, Advertising and Product Promotion divisions. Since 1999 hehas been the director of the Business department. Mr. Pellegrini holds a B.S. in Electrical Engineering.

Elisabetta Ripa. Member of the Board of Directors. Ms. Ripa joined Telecom Italia Mobile in 1995 in the department of Planning, Strategic Marketing andInternational Affairs, with eight years of industry experience in companies such as L.D.M. S.r.l., Promomedia Italia S.a.s, SIP and Telesoft America. A year afterjoining TIM S.p.A., she became a member of the staff of the General Director with the responsibility for the Action Planning and Control division, ManagementEurope division (International Affairs) and International Management division (Planning and Control). In 2001, she began reporting directly to the Managing Directorin the role of Head of Staff, and in August 2002 she also assumed the responsibility of the Mobile Business Development division. Mrs. Ripa holds a B.S. in Financeand Commerce.

Stefano Rossi. Member of the Board of Directors. Mr. Rossi joined SIP’s legal department with many years of experience as an internal corporate attorney. In 1995he moved to the International Legal Affairs department of STET International S.p.A., the former holding Company of Telecom Italia, where he participated in closeinteraction with the International Department to develop major cross border ventures with the Group. From 1997 to 2000 he served as Legal Project Manager inSTET International assisting and cooperating with TIM S.p.A. and Telecom Italia S.p.A. in several international projects in the Mediterranean Basin and LatinAmerica. In 2000, Mr. Rossi was appointed Vice President of Subsidiaries’ Corporate Affairs of Telecom Italia Mobile.

STET Hellas Shareholder Structure

19.743% Free Float**

80.257% TIM International N.V*

*Superior ∂xpectations

*

The

Bus

ines

s


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22


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Key Milestones in the Company’s Evolution

04

03

02

01

00

99

98

97

96

95

94

93

04

03

02

01

00

99

98

97

96

95

94

93June 1993STET Hellas Telecommunications S.A. commences commercial operations

June 1995Total customers reach 100,000

May 1997Launch of prepaid telephony first in Greece

June 1998Initial public offer of STET Hellas on the NASDAQ National Market and the Euronext Amsterdam stock exchanges

July 1999On Line Stock Services available

October 1999Total customers reach 1,000,000

December 1999International roaming for prepaid customers launched

May 2000WAP services introduced

June 2001STET Hellas launches full GPRS services

July 2001UMTS license acquired

December 2001Total customers reach 2,000,000

September 2002First 3G video call in Greece via STET Hellas’ UMTS infrastructure

May 2003“For All” – new pre-paid product launched

January 2004STET Hellas is first in Greece to commercially launch UMTS

February 2004Company re-brands from “TELESTET” to “TIM”

January 2003Bundled-minutes based packages introduced

August 2002STET Hellas launches MMS- first in Greece with automatic terminal settings activation “over the air”

June 2000Greece’s first m-commerce application launched


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26

Market OverviewThe Greek mobile market continued to grow in 2003, bringing total mobile customers to more than 10 million at the end of the year, which indicates a nominalpenetration level of around 95%. Nonetheless, room for growth still remains considering the combination of the relatively high inactivity level in the Greek mobilemarket and the tendency towards multiple SIM card ownership, as well as the traffic upside potential, stemming from the already evident trend of fixed-to-mobile substitution.

The market saw heightened competition over the past year, as the Greek mobile operators shifted their customer acquisition strategies towards the highestyielding market segments, in their common pursuit of sustainable growth.

The distribution battle intensified in 2003, with two mobile operators rapidly expanding their direct distribution networks as effective tools towards customer acqui-sition and retention, while STET Hellas took one step beyond to continue widening its distribution reach through increased presence in non-traditional points of sale.

Finally, parallel preparations for the 2004 Olympic Games and the passage towards third generation mobile telephony, combined with increased regulatory activ-ity witnessed over the past year further challenged operators profitability. More specifically on the regulatory front, the decision on mobile number portabilitynecessitated increased investments, the company was notified as having Significant Market Power in the mobile market— a year after the same decision washanded down to its peers, and a new draft telecom law imposing mandatory site co-location and tighter distance rules for antennae installations was proposed.


29


28O

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31


30

DistributionSTET Hellas continued to focus on distribution in 2003 to enlarge its products and services reach, both through the expansion of its own distribution chain ofTELESTET Centers, now re-branded to “TIM” stores, as well as by increasing its presence in non-traditional points of sale.

Given the importance of the “TIM” stores, both from a commercial and an operational point of view, the company steadily continued to expand its direct distributionchannel throughout the year. At year-end these points-of-sales grew to 160 shops and generated approximately 40% of the company’s total gross activations,versus around 18% in full-year 2002. The goal of this rollout is to establish an integrated offer with a one-stop-shop approach by offering in addition to sales,integrated services and customer support, act as an “educational” agent for 2.5G and 3G services, as well as increase control over this important component ofthe company’s cost structure.

STET Hellas’ aim towards further penetrating alternative distribution channels was met through enriching its commercial agreement with the Hellenic PostalService, making the company’s contract products the only ones available in over 700 postal offices throughout Greece, as well as by commencing a cooperationagreement with EFG Eurobank Ergasias S.A.— one of the largest banks in Greece, extending sales of both contract and prepaid products to the bank’s credit cardholders.

Additionally, STET Hellas extended on-board sales of the company’s products and services to the vessels of Strintzis lines and Superfast ferries, ultimately betterpositioning its products and services to holiday travelers, and delivered another break-through in non-traditional distribution, by introducing sales of prepaidrenewal cards, FREE2GO packages and connection packs through vending machines in high-traffic areas. As a result of these efforts, the company’s core distri-bution network grew to more than 2,100 points-of-sale at the end of 2003.

STET Hellas also boosted sales of the B BEST product & services line by establishing a more targeted and segmented sales approach towards this marketsegment, that resulted in business customers accounting for around 43% of the Company’s total contract customer base at the end of 2003.


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32

Network Throughout 2003, STET Hellas continued to invest in network infrastructure in order to meet increasing traffic demands, improve network performance, enrich its service portfolio, and meet regulatoryrequirements.Network capacity has been increased through the installation of additional GSM Radio Base Stations (RBSs), the installation and integration of new Base StationControllers (BSCs) and a new Mobile Switching Center (MSC), as well as the hardware modernization of several MSCs. In addition, a number of hardware expan-sions were performed in many nodes of the Company’s Core Network and additional carriers were introduced in the Radio part, aiming to serve the increasingtraffic demands and to improve network quality.

The company’s focus of improving network performance and quality was one of the main drivers of STET Hellas’ network deployment in 2003. Apart from the expan-sion activities, optimization on the Radio sub-system— through the design and implementation of a new frequency plan took place in the Attica and Thessalonikiareas, while data transcript integrity checks were performed on the Core Network. Furthermore, the installation and integration of two new management systemsfor network monitoring was accomplished.

In-line with regulatory requirements, STET Hellas undertook all necessary activities to support the Mobile Number Portability feature for all existing and futurecustomer subscriptions. All necessary network modifications have been completed, and commercial availability of the service commenced in the Greek market onMarch 1, 2004, in accordance with Greek NRA regulation.

Aiming to further contribute to the improvement of its network performance and in line with the company’s major shareholder’s (TIM) strategy, a new prepaidsolution based on Intelligent Network (IN) technology was installed. The new solution is able to support Mobile Number Portability and address forthcomingcommercial demands.

In addition, new interconnections with three new fixed alternative carriers were established, while new points of interconnection with the existing operators wereimplemented in order to increase network efficiency.

Moreover, the construction of STET Hellas’ optical fibre network in the Athens area commenced during 2003, interconnecting a number of major hub sites. The newoptical network provides increased capacity, protection against severe weather conditions and 3rd party interference. Furthermore, the rollout of a Fixed WirelessAccess network commenced with the installation of a number of LMDS base stations in the Athens and Thessaloniki areas.

The network preparations for the Athens 2004 Olympic Games were of strategic importance for STET Hellas in 2003; the Impact Analysis and the Crash Programfeasibility studies were completed and the relevant project plans were identified.

In accordance with its UMTS licence requirements and aiming to enrich the company's services portfolio for both circuit switched and packet switched services, anend-to-end UMTS network has been deployed. The UMTS services were soft launched to a select group of users in late 2003, and commercially launched in the firstmonth of 2004.

Finally, in order to enable the launch of various advanced data services, meet the projected needs during the 2004 Olympic Games and further rollout the Company’sUMTS network, an IP backbone network was established, capable of serving both user and network management traffic.


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34

Information SystemsYear 2003 can be characterized as a year of major accomplishments for STET Hellas’ IS Department, whose strategic drivers during the yearwere to provide rich functionality and full support for its direct distribution channels, enable the company’s billing infrastructure to support upcoming 3G services, and update the systems landscape in the critical area of pre-paid telephony to facilitate the provision of improved services.Regarding the “TIM” stores, various services were introduced during the year, to support a wide variety of business functions (e.g. customer electronic cancellation,contract request, change of SIM cards, payments and Point-of-Sale inventory monitoring for contract customers handset upgrade). These services are currentlyavailable in all of our own stores, and are of critical importance in serving existing or potential customers through the company’s direct distribution chain. In addi-tion, a unified retail system was implemented and integrated with the company’s back-office systems, to facilitate centralized inventory management and the intro-duction of an automatic replenishment process.

Regarding 3G billing, STET Hellas successfully implemented a state-of-the-art UMTS billing system— in-line with Telecom Italia Mobile’s strategy and aiming atincreasing synergies with the Telecom Italia group. Another major project in the area of billing was the launch of an advanced Bill Generation System based onXML technology, whose introduction makes it possible to personalize and change the bill layout on demand.

Additionally, STET Hellas’ IS organization also undertook all necessary activities to support the introduction of Mobile Number Portability, in accordance withregulatory requirements.

Regulatory AchievementsThe company responded effectively to the continuously aggressiveregulatory environment of Greek telecommunications in 2003.During the year, the Greek National Regulatory Authority (NRA) declared STET Hellas as having Significant Market Power (SMP) in the mobile market— one yearafter the same decision was handed down to its peers. Regarding this NRA’s decision, the company petitioned at the Council of State against the SMP classificationon the grounds that the market conditions for determining such a notification have not differed significantly since last year, when STET Hellas received an exemptionfor the SMP in the mobile market notification.

However, the NRA excluded the company from a decision declaring the rest of the mobile incumbent operators as having Significant Market Power in theInterconnection Market, as a result of its successful line of defense against such a decision.

Additionally, the company worked closely with the Greek NRA and the other mobile operators throughout the year, to meet the legal requirements for the finalphase of the implementation of Mobile Number Portability— which commenced on March 1st, 2004, and proceeded with reducing the interconnection charges forfixed-to-mobile call termination, following the relevant guidelines set by the National Regulator.

Following the official publication of the New European Regulatory Framework for electronic communications (a series of EU Directives that were passed in 2000necessitating the EU member states to redefine their telecommunications regulatory environment by implementing new electronic communication legislation nolater than July 2003), the Greek Ministry of Transport and Communications issued an official Public Consultation with regard to a new draft Law. Following STETHellas’ and the other Greek mobile operators’ feedback, the Ministry issued a revised draft Law and forwarded it to the other Ministries for approval prior toofficial submission before the Parliament. However, national approval of this Law has been postponed due to the national elections and the subsequent change ingovernment in March of 2004.

Related to this new European Regulatory Framework, STET Hellas successfully hosted for the first time in Greece a “GSM Europe Plenary Meeting” in May of thispast year, with representatives from the Greek NRA, the European Commission, and the majority of European mobile operators in attendance, to address concernsstemming from the implementation in Greece of the new EU framework.

Finally, STET Hellas’ international regulatory efforts and close cooperation with the European Union throughout the year was enhanced through its cooperation not onlywith the Telecom Italia Mobile regulatory team, but also through the GSM Europe Association and its specialized working groups, which the company is a member of.

*Superior Ideals

*

The

Peo

ple


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38


41


40

Human ResourcesDuring 2003, more than 180 new employees joined the company’s highly skilled, customer-focused work force, bringing the total number of full-time equivalentemployees to 1,361—with women accounting for 46.5% of the work force while men represented the remaining 53.4%. New employees were hired primarily in the areasof Customer Service, Information Systems, Sales and Network. Women made up 46.5% of the work force and men 53.4%. The average employee age was 32 years.

The quality of STET Hellas’ employees is reflected in their high level of education: 42.4% are holders of Bachelor degrees, with an additional 18.7% bearing a Mastersor Doctoral degree, while another 24% holds other advanced or technical degrees. All employees are fluent in Greek and English, with a number of them having athird or fourth language on their CV.

During the year the company placed a major emphasis on the improvement of the managerial skills of its employees through initiatives such as the “PerformanceAppraisal” seminar that is geared towards providing all its supervisors, managers and directors with appropriate tools for effective staff appraisals. Additionally,the Company proceeded with 3G Technology training for all technical staff, to better-equip its employees to meet the demands of UMTS. Furthermore, the “TIMCollege” project is another example of STET Hellas’ focus on encouraging sector knowledge and managerial education.

Additionally, to come closer to realizing the company’s goal of becoming the preferred employer in the Greek market among young graduates, STET Hellasorganized the “3rd Annual Career Day” attended by more than 500 students from reputable Universities and Colleges in Greece, to inform prospective candidatesof employment opportunities with the company.


43


42

Company Structure

Chairman of the BoardS. Argyros

Chief Financial OfficerR. Caterini

Business Planning& Control

Finance & Administration

InvestorRelations

TechnologyManagement

NetworkImplementation

Network Operations& Maintenance

NetworkDevelopment

Operations& Web Technologies

Business Systems

Corporate Financial Services

Decision Support& CRM Services

Program &Account Office

Prepaid & Value AddedBilling Services

Human Recources

General Services& Property

Security

Purchasing Logistics& Inventory

ConsumerRetail Sales

CorporateSales

Consumer& Business

TIM, TIM StoresAdvertising & Trade

CustomerService

Chief Network OfficerM. Gamberini

Chief Information OfficerN. Costaras

Secretary GeneralN. Gatti

Chief Commercial OfficerD. Papagiannopoulos

Managing DirectorN. Varsakis

Communication

Internal Audit& Quality

Strategy &Project Management

Legal &Regulatory Affairs

Value Added Services& Roaming

Board of Directors

Top ManagementWe completed the restructuring of our management in 2002, implementing a more flat organizational structure by creating a chief officer level to which executivedirectors of related divisions report. These chief officers report directly to STET Hellas’ Chief Executive Officer. As of December 2003, STET Hellas’ top managementconsists of the following individuals:

Nikolaos Varsakis. Managing Director and Chief Executive Officer. Born in 1956, Mr. Varsakis joined STET Hellas in February 2001 with vast experience in thetelecommunications market. He began his career at the Philips Group, where he held a series of managerial positions internationally. In 1993, he co-founded RadioKorassidis Telecom and became the Managing Director. Prior to joining STET Hellas, he held the position of general manager at Radio Korassidis Microcenter.Mr. Varsakis holds a B.A. from University of La Verne and an MBA from The University of South California.

Ruggero Caterini. Chief Financial Officer. Born in 1961, Mr. Caterini joined STET Hellas in September 2002 with 12 years of experience in financial operations. Hebegan his financial career with Istituto Mobiliare Italiano S.p.A., and he joined TIM in 1996, where he was involved in economic evaluations for TIM’s internationalsubsidiaries within the Administration & Control department. In September 1998, he assumed the role of the controller for TIM’s South American subsidiaries .Ayear later, he was appointed CFO and Investor Relations Director of Tele Celular Sul Participacoes, TIM’s Brazilian subsidiary. Prior to joining the company, he wasthe CFO of Mobilkom Austria. Mr. Caterini holds a B.S. degree in Mechanical Engineering from the University of Rome “La Sapienza”.

Nikolaos Costaras. Chief Information Officer. Born in 1955, Mr. Costaras joined STET Hellas in November 2002 as an IS Executive Director, having 12 years broadexperience in Information Systems. He began his career in Credit Bank and assumed a series of managerial positions in Greek IT and Telecommunicationcompanies. Mr. Costaras holds a B.S. in Computer Science and an MSc in Computer Science and Software Design.

Michele Gamberini. Chief Network Officer. Born in 1963, Mr. Gamberini joined STET Hellas in November 2002, with 8 years experience in the sector of radio andcell planning. Prior to his current position, he has also worked for Omnitel and Telecom Italia Mobile. Mr. Gamberini holds a B.S. in Electronic Engineering fromthe University of Rome “La Sapienza” and a Post-Degree Specialization School in Telecommunications, Istituto Superiore Poste e Telecomunicazioni.

Nicola Gatti. Secretary General. Born in September 1963, he joined STET Hellas in September 2002 with 16 years of experience in the telecommunications sector.He started his career in the Research and Development department of Telecom Italia, where he was involved in many different functions such as the ServiceArchitecture department, the Key Account department. Before joining the company as a Secretary General, he was a project and area manager in the StrategicMarketing Planning and International Affairs department of TIM. Mr. Gatti holds a B.S. in Electrical Engineering, from the University of Rome “La Sapienza”.

Dimitris Papagiannopoulos. Chief Commercial Officer. Born in 1963, Mr. Papagiannopoulos joined STET Hellas in October 2001 with 10 years of experience inmarketing and sales positions. He began his career in Memotek Systems SA and joined DHL International (Hellas) in 1994. Prior to joining STET Hellas he was theCommercial Director of DHL International (Switzerland). Mr. Papagiannopoulos holds a B.S. in Business Administration and an MSc in Political Science from theLondon School of Economics.


45


44

Sponsorships STET Hellas’ sponsorship programs continued to broaden in 2003, demonstrating for another year the company’s commitment to supporting a wide range ofnon-profit cultural, educational, sports-related and charitable community endeavors throughout Greece. The sponsorship programs for the past year fell intofour different categories and included:

STET Hellas and The Arts Music concert in the Theater of Herodus Atticus with George Dalaras

STET Hellas celebrated its 10-year anniversary with one of the great music events of the year, the concert of the popular Greek singer George Dalaras, entitled“Oblation to Asia Minor”. The concert took place in the ancient theater of Athens on June 21st, 2004 with over 6,000 people in attendance.

Festival “Ermoupolia 2003”

For the second consecutive year, STET Hellas was the main sponsor of “Ermoupolia 2003”, the most significant cultural festival in the Cyclades region, that tookplace on the island of Syros. “Ermoupolia” contained around forty different events (theater plays, music concerts, exhibitions etc.) over a period of two months.

STET Hellas and Society Doctors Without Borders – Greece

“Medecines Sans Frontieres” is among the various humanitarian organizations that STET Hellas supports. The company’s cooperation with the “Medicines SansFrontiers” organization began in late 2001, and over the past year continued with the sponsorship of a photography exhibition that traveled across Greece, providingviewers with a harsh visual reality that many children across the world experience daily, while stimulating contributions towards the improvement of their livingconditions, through an SMS donation service.

Youth Assistance

STET Hellas complemented its multidimensional sponsorship programs in 2003 by continuing to support various child support foundations, that included the“Hellenic Society for the Protection and Rehabilitation of Disabled Children”, the “Make A Wish Foundation”, the “Children’s Smile Association” and “ActionAid Hellas”.

Environmental protection

In a continuous effort to protect Greece’s scarce forest resources, STET Hellas once again supported the efforts of nine municipalities in Western Athens, as wellas the Association for Development in Western Athens to secure Mt. Egaleo's fire safety, by donating prepaid packages to cover the volunteers' communicationneeds with the Operations Center and the Fire Brigade.

Additionally, the company integrated a widespread recycling program as part of the company’s everyday procedures during the year and expanded both its plasticand metal recycling programs. Based on international data on recycling levels, the company is estimated to have saved more than 1,000 trees during the past year.


47


46

Sponsorships STET Hellas and Athletics Sailing boat Zantino

The company’s long-standing relationship with sailing began in 1994 when it began its sponsorship of the ZANTINO sailing boat. The ZANTINO’s all-female crew,the only one of its kind in Greece, is captained by Mr. Panagiotis Strouzas, and has won various distinctions in many races.

The Aegean Sailing Rally

The company continued— for a fifth consecutive year, its exclusive sponsorship of the “National Aegean Sailing Rally,” the most well known race in Greece attractingmore than 60 sailing crews each year. STET Hellas also organized cultural events in the islands that were included in the race.

National Sponsor of the Greek Rowing Federation

In 2003, STET Hellas continued sponsoring the Greek Rowing Federation, an organization composed of more that 50 clubs from all over the country whose athleteshave achieved significant international records, including ones at the Olympic Games in Sydney and the World Championships of Lucerne. STET Hellas also sponsorsthe National Rowing teams in their preparations for the 2004 Olympic Games.

Maroussi – TELESTET basketball team

STET Hellas was the official sponsor, for the third year in a row, of the Maroussi basketball team, which participated in the National League with significantdistinctions on both national and European levels.

“TELESTET” All Star Game

STET Hellas was the exclusive sponsor of the first “All-Star” soccer game organized by the Hellenic Football Association. Top-level Greek and Cypriot playerscompeted against the respective foreign players from leading national category teams. STET Hellas “All Star Game” was unique because both the players andcoaches were chosen from the sports fans themselves.

STET Hellas and EducationFollowing the success of its initiative to donate modern technological equipment to the schools of the Evros Prefecture in 2001 and in the Dodecanese in 2002, STETHellas once more supported the children of another remote area of Greece in the areas of Ioannina and Thesprotia by donating new technological equipment, andproviding computer training to both students and teachers of 45 primary and secondary schools in the area.

*Superior Performance

*

The

Res

ults


51


50


53


52Fi

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t the

end

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002.

Inde

x To

The

Fin

anci

al S

tate

men

tsR

epor

t of I

ndep

ende

nt P

ublic

Acc

ount

ants

(Ern

st &

You

ng –

200

3, 2

002,

200

1) .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .p.

44

Bal

ance

she

ets

as a

t Dec

embe

r 31

, 200

2 an

d 20

03 .

. . .

. . .

. . .

. . .

. . .

. . .

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. . .

. . .

. . .

. . .

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. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

p.44

Sta

tem

ents

of I

ncom

e fo

r th

e ye

ars

ende

d D

ecem

ber

31, 2

001,

200

2, a

nd 2

003

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. .p

.44

Sta

tem

ents

of S

hare

hold

ers'

Equ

ity a

s at

Dec

embe

r 31

, 200

1, 2

002

and

2003

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.p.

44

Sta

tem

ents

of C

ash

Flow

s fo

r th

e ye

ars

ende

d D

ecem

ber

31, 2

001,

200

2 an

d 20

03 .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

.p.

44

Not

es to

the

Fina

ncia

l Sta

tem

ents

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

. . .

p.44


55


54

REPORT OF INDEPENDENT AUDITORSTo the Shareholders and Board of Directors of:STET HELLAS TELECOMMUNICATIONS S.A.

We have audited the accompanying balance sheets of STET HELLAS TELECOMMUNICATIONS S.A. (a Greek corporation) as of December 31, 2003 and 2002, and therelated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statementsare 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 weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examin-ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reason-able basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of STET HELLAS TELECOMMUNICATIONS S.A.as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in con-formity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNGAthens, Greece

February 26, 2004


57


56S

tet H

ella

s Te

leco

mm

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atio

ns S

.A.

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ance

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ets

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