Versatel AG by benbenzhou

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									Versatel AG
Interim Financial Report for the second quarter 2008
                                                             TABLE OF CONTENTS

                                                                                                                                                          Page

FORWARD-LOOKING STATEMENTS...............................................................................................................iii
PRESENTATION OF FINANCIAL INFORMATION .........................................................................................iii
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS.......................................................................................................................... 1
RECENT EVENTS................................................................................................................................................. 15
FINANCIAL SECTION ........................................................................................................................................F-1


SCHEDULE 1




                                                                               ii
                                    FORWARD-LOOKING STATEMENTS

          This report includes forward-looking statements within the meaning of the securities laws of applicable
jurisdictions. These forward-looking statements include, but are not limited to, all statements other than
statements of historical facts contained in this report, including, without limitation, those regarding Versatel AG’s
(referred to as “Company” or “Versatel”, and together with its subsidiaries, the “Versatel Group”) future financial
position and results of operations, its strategy, plans, objectives, goals and targets and future developments in the
markets where the Company participates or is seeking to participate. In some cases, you can identify forward-
looking statements by terminology such as “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” or “will” or the negative
of such terms or other comparable terminology. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the Company’s actual results, performance or achievements,
or industry results, to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions
regarding the Company’s present and future business strategies and the environment in which the Company will
operate in the future. These risks, uncertainties and other factors include, among other things, those listed under the
caption “Risk Factors” as well as those included elsewhere in this report.

                            PRESENTATION OF FINANCIAL INFORMATION

         Unless otherwise indicated, the financial information presented in this report has been prepared in
accordance with International Financial Reporting Standards, as adopted by the European Union (“IFRS”). This
report contains the Company’s unaudited consolidated interim financial statements (IFRS) for the second
quarter of 2008 (with comparative date for the second quarter 2007) and the notes thereto.

          Versatel uses adjusted consolidated and segment EBITDA as supplementary figures for internal
controlling purposes (“Adjusted EBITDA”) and as a measure of its operating results. Adjusted EBITDA, as
defined by Versatel, is equal to earnings before interest and income taxes and similar expenses, other financial
earnings (net), interest and similar profits, amortization, depreciation and impairment on property, plant and
equipment and intangible assets (“EBITDA”), plus costs and minus income which, in Versatel’s view, represent
one-time effects and accordingly are not representative of its current business operations. In the view of
Versatel, Adjusted EBITDA provides a reliable view of the Company’s routine operating capacity, adjusted for
one-time items. As a whole, the adjustments made on an actual basis in the second quarter of 2008 amounted to
approximately €3.5 million, which were attributable to the restructuring and 30+ cost-cutting program, to
mergers and acquisitions and to the project to streamline the corporate structure (Project Hagen). See “Recent
Events”. The adjustments made on an actual basis in the second quarter of 2007 amounted to approximately €6.2
million, of which approximately €2.2 million were attributable to measures in the course of the further
integration of Versatel West-Deutschland GmbH (“Versatel West” and, together with its subsidiaries, the
“Versatel West Group”) and TROPOLYS Beteiligungs GmbH (“TROPOLYS” and, together with its
subsidiaries, the “Tropolys Group”) around €3.3 million were in connection with the preparation of the initial
public share offering of the Company and the new financing and € 0.7 million were attribuable to other non-
recurring costs.

        Adjusted EBITDA margin (“Adjusted EBITDA Margin”) is, for the second quarter 2008 and 2007,
Adjusted EBITDA as a percentage of revenue, on a consolidated basis.

          Neither EBITDA nor Adjusted EBITDA is a recognized measure in accordance with IFRS or should be
viewed as a substitute for earnings before taxes, operating earnings, net loss, net cash flow from operating
activities or other income statement or cash flow items computed in accordance with IFRS, or as a measure of
profit margin or liquidity. EBITDA and Adjusted EBITDA do not necessarily indicate whether cash flow will be
sufficient or available to meet Versatel’s cash requirements, and the historical operating results of Versatel
cannot be derived from that figure. EBITDA and Adjusted EBITDA are not reliable indicators of future results.
Moreover, Adjusted EBITDA is subject to a certain amount of discretion, e.g., with respect to the classification
of certain costs and integration or acquisition financing expenses. Since not all companies compute Adjusted
EBITDA in the same way, the computation of Adjusted EBITDA chosen by Versatel is not necessarily
comparable with figures with similar terms used by other companies.

        The financial information included in this report is not intended to comply with the reporting
requirements of the U.S. Securities and Exchange Commission (the “SEC”). Compliance with such
requirements would require the presentation of financial information in accordance with accounting principles



                                                          iii
generally accepted in the United States (“U.S. GAAP”) and the modification or exclusion of certain financial
measures and the presentation of certain other information not included herein or the exclusion of certain
information presented herein.

         Certain figures cited in this report (including percentages) have been subject to rounding in accordance
with standard commercial practice. Such commercially rounded figures and the associated percentages cited in
the tables may not necessarily add up precisely to the totals given in the tables. The percentages used in the text
were computed based not on commercially rounded values, but on actual values. Therefore, the percentages in
the text may differ in some cases from percentages calculated based on rounded values.




                                                        iv
                         MANAGEMENT’S DISCUSSION AND ANALYSIS
                 OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following presentation and analysis of the financial condition and results of operations of the
Versatel Group should be read in connection with the unaudited consolidated interim financial statements
(IFRS) of Versatel AG for the second quarter of 2008 (with comparative data for second quarter of 2007) and
the notes thereto contained in this Financial Section of this report.

          The following discussion of the financial condition and results of operations of the Versatel Group
contains forward-looking statements that are based on assumptions relating to the future development of
Versatel’s business. There are numerous factors, including without limitation those discussed under “Forward-
Looking Statements” and in the “Risk Factors” section of the Versatel AG Annual Report for the year ended
December 31, 2007, which could lead to the actual results of the Versatel Group deviating significantly from the
results expected on the basis of these forward-looking statements.

         All figures presented in the text of this section are stated in millions of euros, unless otherwise
indicated, and were rounded in accordance with standard commercial practice to the first decimal place.

         Versatel has revised its segment reporting in the financial year 2008. To promote comparability across
the periods, the segment figures for the second quarter of 2007 have been restated corresponding to the second
quarter of 2008. Improved information systems made it possible to better associate costs with units and a larger
proportion of costs can now be directly assigned. These changes produce more relevant and more reliable
financial information.

Overview

          Versatel is one of the leading facilities-based alternative telecommunications operators (“Altnet”) in
Germany. Among the predominantly facilities-based providers, Versatel is the second largest Altnet based on
total revenue and the third largest Altnet based on the number of broadband contracts. On a consolidated basis
for the second quarter of 2008, Versatel generated revenue of €211.0 million, Adjusted EBITDA of €65.1
million, an Adjusted EBITDA Margin of 30.9 percent, and a consolidated net profit of €7.9 million.

         Versatel divides its business into three core business units:

         •   Residential Segment, in which Versatel provides bundled DSL broadband and voice products
             (“Broadband Bundles”) to residential customers. In the second quarter of 2008, the Residential
             Segment generated revenue of €87.8 million (constituting 41.6 percent of total revenue) and
             Adjusted EBITDA of 25.1 million (equal to an Adjusted EBITDA Margin of 28.6 percent).

         •   Business Segment, in which Versatel markets a broad range of telecommunications products and
             services to businesses of every size, from local, small office/home office customers to large
             national and regional businesses. In the second quarter of 2008, the Business Segment generated
             revenue of 47.9 million (constituting 22.7 percent of total revenue) and Adjusted EBITDA of €9.5
             million (equal to an Adjusted EBITDA Margin of 19.8 percent).

         •   Wholesale Segment, in which Versatel delivers both standard and customized products and
             services to wholesale customers. In the second quarter of 2008, the Wholesale Segment generated
             revenue of €75.3 million (constituting 35.7 percent of total revenue) and Adjusted EBITDA of
             €30.6 million (equal to an Adjusted EBITDA Margin of 40.6 percent).

Major Factors Affecting the Results of Operations

         The Company believes that the following factors have contributed substantially to the development of
its business and the financial, earnings and liquidity position in the past three years and are expected to continue
to have a major impact:

         •   Market development: Market developments in Germany have a major impact on Versatel as it is
             active only in Germany. In terms of total sales, Germany is the largest market for fixed-line
             telephony in Europe, but has one of the lowest broadband penetration rates. This, along with the




                                                         1
             general growth of IP-based communication and an increase in electronic data traffic, created strong
             demand for broadband services and network capacity in all three of Versatel’s business units in the
             second quarter of 2008. The spread of broadband is increasingly replacing dial-up analog and
             ISDN lines as the preferred internet access technology – more than 50% of Germany’s population
             relies on broadband internet access. This development has particularly benefited providers of DSL-
             based broadband services like Versatel, since DSL was the most common access technology in
             Germany, with a total market share of over 15.3 percent and certain local market shares of 30
             percent as at June 30, 2008. In addition, companies are increasingly using virtual private networks
             (VPNs) for their electronic data traffic.

         •   Competition and price pressure: The German telecommunications market is highly competitive,
             leading to a sharp decline in prices for telecommunications products and services in recent years.
             In response, Versatel and other infrastructure-based carriers have begun to offer more voice and
             data services as package deals, increasingly for flat rates beginning in 2005. Beginning in May
             2007, Deutsche Telekom announced new aggressive pricing plans for its products and services
             and, as a result, the pricing differential between Deutsche Telekom and Versatel has decreased.
             Other competitors of Versatel have responded by reducing prices for their products and services,
             which in turn resulted in Versatel reducing its pricing to respond to competitors’ new pricing
             plans. During the course of 2007 there was an ongoing price war in the German
             telecommunication market, not only initiated by Deutsche Telekom but also by alternative
             operators such as Vodafone, Arcor and Alice. This development has continued throughout the
             second quarter 2008, in particular as new market entrants such as mobile and cable network
             operators have further increased competition and consequently pressure on the established
             operators in the market.

         •   Marketing and sales: Especially in the mass-market telecommunications market for residential
             customers in which the products offered by the various providers do not differ fundamentally,
             product marketing and commission-based sales are very important for the acquisition of new
             customers. New products and bundles in particular are frequently advertised in major marketing
             campaigns in order to raise the provider’s name recognition and generate demand for the products.
             The Versatel Group’s numerous marketing campaigns in recent years have led to increased
             marketing expenses.

         •   Technology and network: In order to offer products featuring the latest technology and provide
             customers with sufficient capacity, infrastructure-based carriers like Versatel need a high-capacity
             fiber optic network. This network must be routinely expanded, updated and maintained. In
             particular, infrastructure-based carriers are now investing in converting their networks to an All IP
             Next Generation Network, which Versatel initiated in 2006.

         •   Regulation: Alternative carriers have to lease local access (or “the last mile”) from Deutsche
             Telekom in order to obtain direct access to end customers. Deutsche Telekom is currently
             obligated to provide access to copper-based local loop customer subscriber lines at regulated prices
             (currently €10.50 per month pursuant to a decision of the Federal Network Agency of March 30,
             2007). These prices are a major expense for Versatel. The German Federal Network Agency,
             which regulates those prices, has steadily reduced local loop fees in recent years. In addition, as
             telecommunications providers, Versatel and its competitors are obligated to provide each other
             with interconnection services in order to reach customers in the networks of other providers in
             exchange for regulated fees, which are a major factor in the development of Versatel’s sales and
             cost of materials. These interconnection fees are routinely updated by the Federal Network
             Agency.

Major Revenue and Cost Factors

Major Revenue Factors

         Versatel generates its revenue from the sale of telecommunications products and services to residential,
business and wholesale customers in the following product categories: fixed line (DSL and ISDN), IP VPN
solutions, voice and data projects, value-added services, leasing of data lines and transmission of voice and data
volume (termination), call-by-call and carrier pre-selection and other services. Versatel also generated revenue
from the receipt of regulated interconnection fees from Deutsche Telekom and other telecommunications



                                                        2
providers in order to link the customers of those providers with residential and business customers connected to
Versatel’s network. Revenues are reported without value-added tax and after-sales deductions. Revenues are
recorded in the period in which they were generated or the service was rendered based on the realization
principle. Customer activation and installation fees (including associated expenses) and other expenses
associated with the acquisition of customers are separated and recorded over the duration of the contract. In the
second quarters of 2007 and 2008, DSL broadband and telephone bundles comprised the largest revenue factor
for Versatel.

Residential Customers

         Residential Segment revenue is determined primarily by the sale of broadband product bundles, which
include DSL broadband access, telephony and other value-added products and services with various data
transmission speeds and flat rates. The vast majority of DSL product bundles feature flat rates for data use. Most
product bundles feature flat rates for local and national landline calls, or allow customers to add those calls for a
surcharge. Versatel’s residential customer revenue depends on the following parameters:

         •   Number of customer contracts: Versatel’s sales depends on the number of customer contracts in its
             portfolio. This portfolio changes when customers are added (“gross adds”) and when contracts are
             terminated (“churn”). As a general rule, the number of customers equals the number of customer
             contracts in the Residential Segment.

         •   ARPU: The average revenue per user (“ARPU”) is of key importance for managing Versatel’s
             operations and for the development of its revenues. ARPU is computed on a monthly basis by
             dividing the total revenues generated from the sale of products and the provision of services by the
             number of customer contracts. ARPU is an operating measure and not a financial measure and is
             not a recognized measure in accordance with IFRS and should not be viewed as a substitute either
             for income statement data computed in accordance with IFRS, or as a measure of profitability.
             Since not all companies compute ARPU in the same way, the computation of ARPU chosen by
             Versatel is not necessarily comparable with operating measures or figures with similar terms used
             by other companies in the same industry. ARPU depends on the price of products and product
             bundles resulting from basic monthly fees, flat rates and the shrinking share of volume-based rates.

          The prices for telephony and broadband products in Germany have increasingly decreased over the past
years. As a result, the Residential Segment’s ARPU has steadily decreased. There can be no assurance that
Versatel will be successful in managing the price decrease for telephony and broadband products in Germany in
the future. In recent years, Versatel often has managed to sell more and higher-priced products and product
bundles to its existing residential customers prior to termination of their contracts and to new customers,
especially larger broadband bundles on the basis of two-year contracts. In order to prevent the loss and
voluntary churn of customers, Versatel has restructured its customer relationship management program in recent
years, in particular introducing customer retention and recovery programs. To further grow total revenue there
has been increasing focus in the Residential Segment on attracting new customers through the development and
intensification of marketing and sales measures and on the introduction of new product bundles.




                                                         3
       The table below provides an overview of the relevant performance indicators in the Residential
Segment:

                                                                                         Second quarter
                                                                           2007                                     2008
                                                                                            (unaudited)
Customer contracts (in thousands, each as of
   the period indicated)…....................................                             630.8                                    727.2
   thereof, broadband (DSL)………….………...                                                    547.7                                    691.6
   thereof, narrowband (ISDN, telephony only)...                                           67.9                                     26.3
   thereof, others...………………………………                                                          15.2                                      9.2

          Broadband bundles accounted for approximately 88.9 percent of segment revenue on a consolidated
basis for the second quarter of 2008 (85.9 percent of segment revenue for the second quarter of 2007), while
sales of narrowband products consisted of approximately 4.2 percent of segment revenue on a consolidated basis
for the second quarter of 2008 (10.5 percent of the segment revenue for the second quarter of 2007). Another 6.9
percent of segment revenue on a consolidated basis for the second quarter of 2008 (3.6 percent of the segment
revenue for the second quarter of 2007) consists of “other products,” including the receipt of regulated
interconnection fees and revenue from other call-by-call and carrier pre-selection services, which is on a
downwards trend. The Company does not report quarterly churn data.

Business Customers

          Revenue from small and mid-sized customers and businesses in the Business Segment is generated
primarily from standardized product modules, including DSL broadband, IP VPN, leased lines and telephone
services. Large customers are offered project-based products and system solutions which are customized to meet
the specific needs of the customer. Versatel’s revenue in the Business Segment depends primarily on revenue
from existing customers, revenue from new contracts, service reductions per contract and terminated contracts.
It also depends on the conditions for each standardized and project-based service (including the number of
points of presence or available lines as part of product bundles or IP-based VPNs). The standardization of the
product range declines along with customer size and order volume.

            The table below provides an overview of the relevant performance indicators in the Business Segment:

                                                                                         Second quarter
                                                                           2007                                     2008
                                                                                           (unaudited)
Revenues (in € thousands)……...………………..                                                   49,013                                   47,928
     thereof, broadband (DSL)……….………….                                                    5,637                                    6,946
     thereof, telephony……………….………….                                                      21,625                                   19,533
     thereof, VPN (IP VPNs and leased lines)…..                                          14,450                                   13,719
     thereof, others………………………………                                                          7,301                                    7,730
Sales employees (number, expressed as full time
    equivalents (FTE))(1)…………………………….                                                       134                                      126
 ____________________
(1)
      Full time equivalent (FTE) is a comparative measure, which represents the amount of time a full time employee works during a certain
      period.

         The largest portion of Business Segment revenue for the second quarter of 2008 and 2007, in each case
on a consolidated basis, was comprised of sales of telephony products, with broadband sales rising. Of segment
revenue on a consolidated basis for the second quarter of 2008, 40.8 percent was generated from telephony
products, and 28.6 percent was derived from IP VPNs and leased lines, compared to 44.1 percent and 29.5
percent, respectively, for the second quarter of 2007. Another 16.1 percent of segment revenue on a
consolidated basis for the second quarter of 2008 represented “other products” (14.9 percent of segment revenue
on a consolidated basis in the second quarter of 2007), and included the receipt of regulated interconnection
fees, revenue from the operation of special lines and revenue from carrier preselection services. The remaining
14.5 percent of segment revenue on a consolidated basis for the second quarter of 2008 (11.5 percent of segment
revenue on a consolidated basis in the second quarter of 2007) came from broadband products. As of June 30,
2008, there were 126 sales employees (FTE) employed in the Business Segment, compared to 134 as June 30,
2007.




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Wholesale Segment

         Wholesale segment revenue is generated primarily from the transmission of voice and data volumes to
other carriers and the provision of leased line connections. Versatel’s wholesale revenues depend on:

             •      Interconnection: Revenues from interconnection services for the transmission of voice and data
                    volumes (termination) to other carriers in Versatel’s network area, to wireless carriers and abroad,
                    depend primarily on the scope of use (generally measured in minutes) and the price per minute.
                    Prices for national termination are based on the regulated connection fees which carriers must pay
                    Deutsche Telekom to use its network.

             •      Bandwidth: Bandwidth revenue depends primarily on connections provided through leased lines,
                    capacity, the price for each individual service and contract length. Unused capacity in Versatel’s
                    network is leased to other providers.

             The table below provides an overview of revenues in the Wholesale Segment:

                                                                                         Second quarter
                                                                              2007                        2008
                                                                                           (unaudited)
Revenues (in € thousands)……...………………..                                          31,653                       75,300

          65.5 percent of Wholesale Segment revenue on a consolidated basis for the second quarter of 2008 was
comprised of bandwidth services (49.0 percent on a consolidated basis for the second quarter of 2007), while
revenue from interconnection services comprised 33.1 percent of the Wholesale Segment revenue for the second
quarter of 2008 (43.6 percent on a consolidated basis for the second quarter of 2007). 1.4 percent of Wholesale
Segment revenue on a consolidated basis of the second quarter of 2008 came from “other products” like value-
added services and the lease of points of presence (7.4 percent on a consolidated basis for the first quarter of
2007). In the second quarter of 2008 Versatel was able to close a long-term finance-lease contract with a
national carrier in Germany. The agreement relates to the transfer of an unlimited licence to use contractually
specified infrastructure for an initial 30-month fixed term with an extension option for a further 12 years. As a
result of this contract Versatel posted one-off revenues of € 29.7 million in the second quarter of 2008 with an
EBITDA-Margin of approximately 50 percent.

Material Cost Factors

             The table below provides an overview of Versatel’s material costs:

                                                                                         Second quarter
                                                                              2007                        2008
                                                                                           (unaudited)
Costs (as a percent of revenues)
Cost of materials and purchased services ..................                                43.0                       45.9
Personnel expenses ....................................................                    14.7                       10.6
Other operating expenses...........................................                        26.4                       16.0
Amortization, depreciation and impairment
  losses……………………………………………..                                                                41.4                       23.0

         Cost of materials and purchased services is comprised of fixed and variable network expenses. Fixed
network expenses are essentially comprised of expenses for leased telecommunications infrastructure, such as
networks and fiber optic cable (backbone). They also include expenses for the use of Deutsche Telekom’s local
loops, which are used by residential customers and a large proportion of business customers to connect to the
Versatel Group’s network. These fees are paid monthly for each line. Variable network expenses primarily
include interconnection fees payable to Deutsche Telekom and other alternative carriers for the transmission of
data and telephone signals. The increase in network expenses in the second quarter of 2008 tracks the expansion
of the wholesale business and reflects costs relating to the finance lease agreement.

         Another major cost factor is personnel expenses. Versatel had 1,355 employees (expressed in full-time
equivalents) as of June 30th, 2008. The personnel expenses include fixed and variable salary components, as
well as social security expenses and other personnel expenses.




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         Another major cost factor is other operating expenses. Among other operating expenses are marketing
expenses, which comprise a major portion of this line item. The numerous marketing campaigns of Versatel in
the past resulted in increased costs. Versatel expects that the expenses to gain new customers will further
increase going forward, which is likely to have a negative impact on the gross margins. Versatel expects to
amortize expenses incurred for the acquisition of new customers over the minimum contract term. In addition,
other operating expenses include expenses for upkeep and maintenance, rent and ancillary costs (for technical
and management facilities), legal and consulting expenses, travel expenses and other expenses.

          Amortization, depreciation and impairment losses reflects the decrease in value of intangible assets and
property, plant and equipment, based on the expected useful life of the asset. Depreciation of intangible assets is
essentially comprised of capitalized sales commissions in the Residential Segment, which are depreciated over
the two-year contract term, and also includes indefeasible rights of use (“IRU”) to leased fiber optic cable and
cable ducts, which are depreciated over the contractual term, or over a shorter useful life, if customary in that
case. Depreciation of property, plant and equipment refers to telecommunications equipment, switches,
backbone, other facilities and fixtures, fittings and equipment.

Results of Operations in the second quarter of 2008 and 2007

        The table below shows selected consolidated financial data from the Company’s unaudited
consolidated interim financial statements (IFRS) for the second quarter of 2008 and 2007.

                                                                                                        Second quarter
                                                                                                 2007                    2008
                                                                                                           (unaudited)
Selected Financial Data from the Consolidated Income
   Statements
Revenues..............................................................................                  163,455                  211,013
Own work capitalized(1).........................................................                           3,357                    3,000
Other operating income.........................................................                            3,248                    0,807
Cost of materials and of purchased services .........................                                   (70,342)                 (96,947)
Personnel expenses................................................................                      (23,971)                 (22,464)
Amortization, depreciation and impairment losses
   on intangible assets and property,
   plant and equipment..........................................................                        (67,597)                 (48,430)
Other operating expenses ......................................................                         (43,233)                 (33,758)
Income from the acquisition and the disposal of
   fully consolidated entities.................................................                              —                        —
Profit/(Loss) before financial result and income
   taxes..................................................................................              (35,083)                   13,221
Finance costs .........................................................................                 (41,480)                 (11,165)
Other interest and similar income .........................................                                4,402                    0,832
Profit/(Loss) before income taxes ......................................                                  72,161                    2,888
Income tax benefit/-expense .................................................                             15,581                    5,009
Consolidated Profit/(Loss)..................................................                            (56,580)                    7,897

Additional Data
EBITDA(2) .............................................................................                  32,515                   61,651
Adjusted EBITDA(3) ............................................................                          38,710                   65,138

(1)
        “Own work capitalized” consists essentially of network development and IT programming work performed by own personnel.
(2)
        For a definition of EBITDA, see “Presentation of Financial Information.”
(3)
        Adjusted EBITDA is EBITDA adjusted for one-time effects; for details see “Presentation of Financial Information.”

Revenues

Group

         In the second quarter of 2008, Versatel’s consolidated revenues amounted to €211.0 million, compared
to €163.5 million in second quarter of 2007. The increase in revenues of Versatel in the second quarter of 2008
of €47.5 million or 29.1 percent compared to the second quarter of 2007 were mainly driven by the growth of
the Wholesale Segment. In addition to attaining a marked rise in termination and broadband revenues, Versatel
signed a long-term finance-lease contract with a carrier in Germany. Connecting this carrier`s main distribution
frames to its optical fibre network brought Versatel revenues of €29.7 million in the second quarter of 2008.




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Residential Customers

         The table below provides an overview of Versatel’s revenues in the Residential Segment for the second
quarter of 2008 and 2007:

                                                                         Second quarter
                                                               2007                          2008
                                                                           (unaudited)
(in € thousands)
Broadband (DSL)……………………………………………...                                      71,117                        78,036
Narrowband (ISDN/telephony)………………………………..                                 8,724                         3,695
Other…………………………………………………………...                                            2,947                         6,054
Total……………………………………………………….......                                        82,788                        87,785

        Versatel’s consolidated revenue of 87.8 million from residential customers in the second quarter of
2008 (compared to €82.8 million in the second quarter of 2007) was primarily the result of ongoing high
demand for broadband products, partly at the expense of narrowband products.

         The revenues of Versatel in the second quarter of 2008 and 2007 were primarily the result of high and
sustained demand for broadband products, at the expense of narrowband products. In particular, in 2008 and in
2007, Versatel launched several new DSL and telephony product bundles during the period to address the
demand perceived by Versatel for such bundles.

Business Customers

         The table below provides an overview of Versatel’s revenues in the Business Segment for the second
quarter of 2008 and 2007:

                                                                         Second quarter
                                                               2007                          2008
                                                                           (unaudited)
(in € thousands)
Broadband (DSL)……………………………………………...                                       5,637                         6,946
Telephony……………………………………………………...                                         21,625                        19,533
VPN (IP VPN and leased lines)...……………………………..                            14,450                        13,719
Other…………………………………………………………...                                            7,301                         7,730
Total……………………………………………………….......                                        49,013                        47,928

         In the second quarter of 2008, Versatel’s consolidated revenues from business customers amounted to
€47.9 million, compared to €49.0 million in the second quarter of 2007. The largest section thereof, €19.5
million (or 40.8 percent of net segment revenue) in the second quarter of 2008 was attributable to the sale of
telephony products (compared to €21.6 million or 44.1 percent of net segment revenue in the second quarter of
2007). Another €13.7 million (or 28.6 percent of net segment revenue was accounted for by the demand of
business customers for VPNs, in particular IP-VPNs (compared to €14.5 million or 29.5 percent of net segment
revenue in the second quarter of 2007). The decrease in Versatel’s consolidated revenues from business
customers was attributable to price and margin pressure.

Wholesale Segment

         The table below provides an overview of Versatel’s revenues in the Wholesale Segment for the second
quarter of 2008 and 2007:

                                                                         Second quarter
                                                               2007                          2008
                                                                           (unaudited)
(in € thousands)
Data Services…...……………………………………………...                                    15,518                        49,299
Voice Services.………………………………………………...                                     13,795                        24,911
Other…………………………………………………………...                                            2,340                         1,090
Total……………………………………………………….......                                        31,653                        75,300




                                                      7
          Versatel’s consolidated revenues from wholesale customers in the second quarter of 2008 amounted to
€75.3 million, compared to €31.7 million in the second quarter of 2007. The Wholesale segment remained the
driver of growth in the second quarter of 2008. By marketing the network infrastructure to resellers and other
network operators, Versatel is also benefiting indirectly from general growth of the telecoms market. As well as
increasing voice termination revenues, it also lifted high-margin broadband revenues. In this revenue segment,
Versatel has entered into a long-term contract with a carrier in Germany. Connecting this carrier`s main
distribution frames to its optical fibre network brought Versatel revenues of €29.7 million in the second quarter
of 2008.

         .

Cost of Materials and Purchased Services

          Versatel’s cost of materials and purchased services in the second quarter of 2008 amounted to €96.9
million, compared to €70.3 million in the second quarter of 2007. Interconnection expenses represented the
largest item within Versatel’s total cost of materials and purchased services in the second quarter of 2007 (€33.4
million) and in the second quarter of 2008 (€44.5 million). As a result of customer growth, monthly rent for
Deutsche Telekom local loops was the second largest item in the second quarter of 2007 (€22.3 million) and in
the second quarter of 2008 (€25.9 million). Due to the aforementioned effects, cost of materials and purchased
services comprised 43.0 percent and 45.9 percent of Versatel’s revenues in the second quarter of 2007 and 2008,
respectively.

Personnel Expenses

          Versatel’s personnel expenses in the second quarter of 2008 were €22.5 million, compared to €24.0
million in the second quarter of 2007. The decrease in personnel expenses was due to restructuring measures as
part of the 30+ project. Versatel’s personnel expenses comprised 10.6 percent of revenues in the second quarter
of 2008 and 14.7 percent of revenues in the second quarter of 2007.

Amortization, Depreciation and Impairment Losses on Intangible Assets and Property, Plant and Equipment

         Versatel’s amortization, depreciation and impairment losses on intangible assets and property, plant
and equipment in the second quarter of 2008 was €48.4 million, compared to €67.6 million in the second quarter
of 2007. The decrease in amortization, depreciation and impairment losses was due to impairment in the second
quarter of 2007, which led to a write off of Goodwill in the amount of €18.4 million.

Other Operating Expenses

         Versatel’s other operating expenses in the second quarter of 2008 amounted to €33.8 million, compared
to €43.2 million in the second quarter of 2007. The decrease in operating expenses in the second quarter of 2008
was due among other things to savings in connection with the 30+ project and efficiency drive. These savings
mostly relate to reduced advertising and marketing activities by Versatel. The figures of the second quarter 2007
are also swelled by consulting services, both for the IPO and the floating rate note issue. Versatel’s other
operating expenses in the second quarter of 2008 comprised 16.0 percent of Versatel’s revenues.

Profit/Loss Before Financial Result and Income Taxes

        Versatel’s profit before financial result and income taxes was €13.2 million in the second quarter of
2008, compared to a loss of €(35.1) million in the second quarter of 2007.

Financial Result

         Versatel’s financial result in the second quarter of 2008 was €(10.3) million, compared to €(37.1)
million in the second quarter of 2007, a result which was primarily driven by the refinancing activities due to the
IPO and the floating rate note.

Profit/Loss for the Period

        In the second quarter of 2008, Versatel reported a consolidated profit of €7.9 million, compared to a
consolidated loss of €(56.6) million in the second quarter of 2007.



                                                        8
Adjusted EBITDA

         Versatel uses adjusted consolidated and segment EBITDA as supplementary figures for internal
controlling purposes. Adjusted EBITDA, as defined by Versatel, is equal to earnings before interest and income
taxes and similar expenses, other financial earnings (net), interest and similar profits, amortization, depreciation
and impairment losses on property, plant and equipment and intangible assets, plus costs and minus income
which, in Versatel's view, represent one-time effects and accordingly are not representative of its current
business operations. For the second quarter of 2007 total one time effects were equal to €6.2 million, which
mainly represents the one-time expenses in connection with the IPO and the new financings. In the second
quarter of 2008, the adjustments made on an actual basis amounted to approximately €3.5 million, of which €0.1
million related to the Project Hagen, € 0.6 million related to mergers and acquisitions and €2.8 million related to
the 30+ program.

         In the view of Versatel, Adjusted EBITDA provides a view of the Company's routine operating
capacity, adjusted for one-time effects. Adjusted EBITDA is not a recognized measure in accordance with IFRS
and should not be viewed as a substitute for earnings before taxes, operating earnings, net loss, net cash flow
from current business activity or other income statement or cash flow items computed in accordance with IFRS,
or as a measure of profit margin or liquidity. Adjusted EBITDA does not necessarily indicate whether cash flow
will be sufficient or available to meet Versatel's cash requirement, and the historical operating results of
Versatel cannot be derived from that figure. Adjusted EBITDA is not a reliable indicator of future results.
Moreover, Adjusted EBITDA is subject to a certain amount of discretion, e.g., with respect to the classification
of certain costs and integration or acquisition financing expenses. Since not all companies compute Adjusted
EBITDA in the same way, the computation of Adjusted EBITDA chosen by Versatel is not necessarily
comparable with figures with similar terms used by other companies.

        The table below provides an overview of the computation of Versatel’s Adjusted EBITDA for the
second quarter of 2008 and 2007:

                                                                                                          Second quarter
                                                                                                   2007                    2008
                                                                                                             (unaudited)
(in € thousands)
Profit/-loss before interest and income taxes................................                             (35,083)                13,221
Amortization, depreciation and impairment losses on
  intangible assets and property, plant and equipment ...............                                      67,597                 48,430
One-time costs for integrating TROPOLYS and
   Versatel West............................................................................                2,156
Consulting expenses for acquisition financing and
  acquisition projects ...................................................................                     12                    617
Restructuring expenses..................................................................                                           2,735
Expenses for Project Hagen (to simplify the corporate
  structure                                                                                                                         135
Expenses in connection with the IPO ...........................................                             3,319
Other one-time expenses ...............................................................                       709
Total one-time effects ..................................................................                   6,196                  3,487
Adjusted EBITDA(1)(2) .................................................................                    38,710                 65,138

(1)
        For a definition of EBITDA, see “Presentation of Financial Information.”
(2)
        Adjusted EBITDA is EBITDA adjusted for one-time effects; for details see “Presentation of Financial Information.”

Versatel’s Adjusted EBITDA in the second quarter of 2008 was €65.1 million, and operating free cash
flow (defined as Adjusted EBITDA minus investments) was €35.6 million. In the second quarter 2007,
Adjusted EBITDA was €38.7 million and operating free cash flow was €(9.4) million. The increase in
Adjusted EBITDA was due to the finance-lease transaction in the Wholesale Segment as well as savings
from the efficiency program 30+.Business Unit Profit Margins

        Versatel’s adjusted gross margin is defined as revenue plus own work capitalized and other operating
income minus cost of materials and expenses for purchased services as a percentage of revenue, adjusted for
own work capitalized and other operating income. The Adjusted EBITDA margin is Adjusted EBITDA as a
percentage of revenue.

         The table below shows Versatel’s adjusted gross margin and Adjusted EBITDA Margin and those of its
three business units on a consolidated basis as of June 30, 2007 and 2008:



                                                                                               9
                                                                                                                                                                   Second quarter
    (in percent)                                                                                                                                            2007                    2008
                                                                                                                                                                     (unaudited)
Adjusted gross margin
   Residential customers .....................................................................................................................               63.6                          58.6
   Business customers .........................................................................................................................              59.1                          52.8
   Wholesale........................................................................................................................................         57.0                          54.5
   Total ................................................................................................................................................    61.0                          55.9
Adjusted EBITDA margin(1)
   Residential customers .....................................................................................................................               22.0                          28.6
   Business customers .........................................................................................................................              21.5                          19.8
   Wholesale........................................................................................................................................         31.5                          40.6
   Total ................................................................................................................................................    23.7                          30.9

     (1)       (1)
                      Adjusted EBITDA is EBITDA adjusted for one-time effects; for details see “Presentation of Financial Information.”

      The decrease in the adjusted gross margins was a result of price pressure. The decrease in the Adjusted
     EBITDA Margin in the Business Segment was due to lower revenues and price pressure. The increase in the
     Adjusted EBITDA Margin in the Residential Segment was due to more efficient use in marketing tools and cost
     savings through the 30+ program. The increase in the Adjusted EBITDA Margin in the Wholesale Segment was
     due mainly to the financial-lease transaction. The Adjusted EBITDA Margin for the Wholesale Segment
     amounted to 40.6 percent in the second quarter of 2008 and 31.5 percent in the second quarter of 2007,
     corresponding to 25.8 percent and 47.0 percent of the Adjusted EBITDA of the Versatel Group in the second
     quarter of 2007 and 2008, respectively. The Adjusted EBITDA Margin for the Business Segment amounted to
     19.8 percent in the second quarter of 2008 and 21.5 percent in the second quarter of 2007, amounting to 27.2
     percent and 14.5 percent of the Adjusted EBITDA of the Versatel Group in the second quarter of 2007 and
     2008, respectively. The Adjusted EBITDA Margin for the Residential Segment amounted to 28.6 percent in the
     second quarter of 2008 and 22.0 percent in the second quarter of 2007, amounting to 47.0 percent and 38.5
     percent of the Adjusted EBITDA of the Versatel Group in the second quarter of 2007 and 2008, respectively.

     Liquidity and Capital Resources

     Overview

              Versatel’s operating cash flow in the six months ending June 30, 2008 was €60,4 million, compared to
     €88,4 million in the six months ending June 30, 2007. The decrease in cash flows from operating activities
     largely mirrors the change in working capital.

              Versatel also has available the Revolving Facility of €75 million entered into on April 26, 2007
     concurrently with the cancellation of the previously existing revolving credit facility. In addition, Versatel had
     €84,8 million in cash and cash equivalents as of June 30, 2008. As of June 30, 2008, Versatel had issued
     undrawn letters of credit in favor of Vodafone in an amount of €58.5 million, and WestLB AG, under the
     Revolving Facility, has entered into an ancillary facility agreement with the Company in an amount of €8
     million under which undrawn letters of credit have been issued.

              Versatel AG operates a group-wide cash pooling system. Under the additional cash pooling agreement
     of July 2008 between WestLB AG, Versatel AG and 11 group companies participating in the cash pool, special
     cash pool accounts are maintained for Versatel AG and the participating group companies with WestLB AG in
     order to enable effective pooling. At a certain time on a daily basis, a settlement occurs between the main
     account (master account) and the ancillary accounts, with the balance of the ancillary accounts being reset to
     zero. Amounts credited to WestLB AG that originate from the daily transfer of account credits between Versatel
     AG and the participating group companies incur interest at the market standard, EDNID-based, interest rate of
     0.50 percent.

     Cash Flow Statement

               The cash flow statement was prepared in accordance with IAS 7 and includes cash flow from operating
     activity, cash flow from investing activity and cash flow from financing activity. Additionally, the figure
     “operating cash flow” was also included to reflect the effect of net interest payments on the cash flow from cash
     flow from operating activity. “Operating cash flow” is not a measure recognized by IFRS and differs
     significantly from measures recognized by IFRS for the cash flow. Cash flow from operating activity is
     determined using the indirect method. The cash and cash equivalents recorded in the statement include the liquid




                                                                                                               10
funds reported in the balance sheet. Cash flow from operating activity eliminates operating income and expenses
with no effect on payments, as well as the result from the disposal of property, plant and equipment. Cash flow
from operating activity also takes into account interest payments and income tax.

         Cash flow from investing activity includes cash investments in property, plant and equipment and
intangible assets as well as effects arising from changes in the group of consolidated companies.

        Cash flow from financing activity is comprised of payments to and from equity providers, as well as
borrowings and repayment of financial debt. Liquid funds include cash in banks, checks and cash on hand.

        The table below shows Versatel’s cash flow data for six months ending June 30, 2008 (with
comparative data for six months ending June 30, 2007). The table further shows the adjusted operating cash
flow and net interest payments and taxes on income of Versatel for six months ending June 30, 2008 (with
comparative data for six months ending June 30, 2007):

                                                                                                                         Six months ending June, 30
      (in percent)                                                                                                      2007                    2008
                                                                                                                                (unaudited)
Operating cash flow(1)………………………………………………………………..                                                                 88,376                    60,387
Net interest payments and taxes on income………………………………                                                           (34,199)                  (21,841)


                                                                                                                               (unaudited)
Net cash from operating activity…………………………………………………….                                                             54,177                  38,546
Net cash used in investing activity…………………………………………………..                                                        (194,989)                (70,354)
Net cash from financing activity…………………………………………………….                                                            128,004                  (3,917)
Changes in cash and cash equivalents with effect on payments ........................................            (12,808)                (35,725)
Cash and cash equivalents at the beginning of the year.....................................................       78,001                 120,594
Cash and cash equivalents at end of period...................................................................     65,193                  84,869
_________________________
(1)
         The operating cash flow is calculated as cash flow from operating activity plus net interest payments and taxes on income. The
         underlying data is taken from the respective consolidated cash flow statements. Operating cash flow is not a measure recognized in
         accordance with IFRS and differs materially from measures of cash flow recognized in accordance with IFRS.

Operating Cash Flow and Net Cash from Operating Activities

         Versatel’s operating cash flow in the six months ending June 30, 2008 was €60,4 million, compared to
€88,4 million in the six months ending June 30, 2007. The decrease in cash flows from operating activities
largely mirrors the change in working capital.

         The net cash from operating activity is calculated by subtracting net interest payments and taxes on
income from the operating cash flow. The net interest payments of the Versatel Group in the six months ending
June 30, 2008 amounted to €21.8 million (compared to €34.2 million in the six months ending June 30, 2007).
The decrease is due to the refinancing activities in connection with the IPO and the floating rate note.

Cash Flow from Investing Activities

        Versatel’s net cash outflow for investing activities in the six months ending June 30, 2008 were
€70.4 million, compared to €195.0 million in the six months ending June 30, 2007.

          In the first six months of 2007, Versatel's net outflow resulted from investments in fixed assets
(92.0 million), purchases of available-for-sale securities (93.2 million) and purchases of minority shareholdings
(9.8 million).

          In the first six months of 2008, Versatel's net outflow resulted predominantly from investments in
fixed assets. These primarily included investments in technical equipment and customer-specific investments
such as splitters, as well as the payment of installation fees to Deutsche Telekom and amounted to €70.4 million.

Cash Flow from Financing Activities

         Versatel’s net cash outflow from financing activities in the six months ending June 30, 2008 was €3.9
million (compared to €128.0 cash inflow in the six months ending June 30, 2007). The €128.0 million cash




                                                                                      11
provided by financing activities in the first half year 2007 mainly comprises proceeds from the flotation on
Frankfurt Stock Exchange, proceeds from the floating grate note issue and debt repayments effected in
connection with the floating rate note issue.




                                                    12
       Obligations

       Financial Obligations

                Versatel’s financial obligations consist primarily of financing lease and other financial obligations. The
       other financial obligations include accounts payable to banks and obligations arising from supplier loans. The
       financial lease obligations result from agreements concluded by companies of Versatel for the long-term lease of
       network infrastructure.

                 The primary financial obligations of Versatel will consist of indebtedness incurred under the Revolving
       Facility and the Notes. The table below shows Versatel’s financial obligations as of June 30, 2008 and 2007:

                                                                                                                                                                         Second Quarter
    (in percent)                                                                                                                                              2007                        2008
                                                                                                                                                                           (unaudited)
Non-current obligations
Notes/Bonds......................................................................................................................................              512,689                       514,094
Liabilities to banks............................................................................................................................                   591                           121
Shareholder loans..............................................................................................................................                     —                             —
Liabilities from finance leases..........................................................................................................                       78,891                        74,577
NGN ports/IN platform ....................................................................................................................                          —                             —
Other .................................................................................................................................................             —                            646
Current obligations
Notes/Bonds......................................................................................................................................                   —                             —
Liabilities to banks............................................................................................................................                   614                           428
Liabilities from finance leases..........................................................................................................                        5,979                         5,940
NGN ports/IN platform ....................................................................................................................                       1,429                             0
Other .................................................................................................................................................          1,602                           458
Total .................................................................................................................................................        601,795                       596,264


                 The financial obligations of Versatel AG amounted to €596.2 million as of June 30, 2008 (compared to
       €601.8 as of June 31, 2007. The significant decrease in financial obligations in the first half-year of 2008
       compared to the first half-year of 2007 is primarily attributable to the refinancing activities due to the IPO and
       the floating rate note.

       Contractual Obligations

              The table below shows Versatel’s contractual obligations and commitments, other than purchase
       commitments, as of June 30, 2008, sorted by the period in which they are due to mature:

                                                                                                                                 Maturing
                                                                                                                                  in less                 Maturing              Maturing
                                                                                                                                 than one                  in one to              in over
           (in € thousands)                                                                          Total                         year                   five years            five years
                                                                                                (unaudited)                     (unaudited)               (unaudited)          (unaudited)
       Financial obligations ...................................................                  515,746                            578                      428                514,740
       Financing lease obligations .........................................                       80,517                         11,623                    35,465                33,429
       Operating lease obligations .........................................                      108,227                         36,512                    49,384                22,331

                 The operating lease transactions concluded by Versatel relate primarily to obligations from leases and
       leases of buildings, technical equipment and vehicles.

                        .

       Investments

       Major Investments in the Second quarter of 2008 and 2007

                        The table below provides an overview of Versatel’s investments in the second quarter of 2008 and
       2007:




                                                                                                                   13
                                                                                                                                        Second quarter
    (in percent)                                                                                                               2007                        2008
                                                                                                                                             (unaudited)
Non-current obligations
Investments in intangibles and property, plant                                                                                   48.1(1)                     29.5(2)
   and equipment (in € million)........................................................................................
As a percent of revenue.....................................................................................................          29.4                     14.0


  (1)
          Approximately 57 percent of this figure was spent on growth-related investments, approximately 26 percent was invested in expanding
          network capacity and approximately 17 percent was spent on maintenance-related investments.
  (2)
          Approximately 65 percent of this figure was spent on growth-related investments, approximately 29 percent was invested in expanding
          network capacity and approximately 6 percent was spent on maintenance-related investments.



            In the second quarter of 2008, Versatel invested a total amount of €29.5 million in property, plant and
  equipment and intangible assets. Of this amount, €19.1 million was growth-related, aiming to support further
  customer growth, such as installation fees, devices to support customer installations, access technology (ports
  and main distribution frames) and capitalized sale commissions. Further investments of an additional €8.4
  million included investments in investments in transmission and switching technology and the expansion of the
  glass fiber network. Versatel spent €2.0 million (or 0.9 percent of revenues) on maintenance, which included the
  refurbishment of some of the existing shops, as well as the relocation of the technical location in Stuttgart.

            In the second quarter of 2007, Versatel invested a total amount of €48.1million in property, plant and
  equipment and intangible assets. Of this amount, €27.5 million was growth-related, aiming at supporting further
  customer growth, such as installation fees, devices for the installation at customers, access technology (ports and
  main distribution frames) and capitalized sale commissions. Further investments of an additional €12.4 million
  included investments in transmission and switching technology and the expansion of the glass fiber network. A
  total of 90 new MDFs were connected, which resulted in an extension of the Network coverage area by 850,000
  reachable households, leading to a total coverage of approximately 9.0 million reachable households. Versatel
  spent €8.2 million (or 5.0 percent of revenues) on maintenance, which included the refurbishment of some of the
  existing shops, as well as the opening of new Versatel shops.

  Investment Grants

           jetz! Kommunikation GmbH & Co. KG received public funds in 2002 in the form of an investment
  grant from the funds of the Planning Committee for Regional Economic Infrastructure. A sum of €1.6 million
  was awarded in order to extend the Jena site between 2001 and 2005. This assistance was granted subject to
  conditions which must be met during a term of five years, ending on June 30, 2010. The conditions include use
  of the funds in accordance with the intended purpose of the grant, meeting certain employment targets and
  retention of the funded assets in Thuringia. Furthermore, the decision to grant the funds can be revoked if the
  supported site is transferred to a third party during the term of the financial support.

           In 1998, Versatel West received approval for public funds in the form of an investment grant
  amounting to about €0.9 million to expand the Dortmund site between the years 1998 and 2000. The assistance
  was granted subject to conditions which had to be met during a term of eight years, ending on December 31,
  2008. The conditions included use of the funds in accordance with the intended purpose of the grant and the
  creation and maintenance of certain permanent places of employment.

           In 2003, Versatel Nord-Deutschland GmbH received public funds in the form of an investment grant
  amounting to about €0.6 million in order to expand the Flensburg site between the years of 2001 and 2004. The
  assistance is granted subject to conditions which must be met during a seven-year term ending on December 31,
  2011. The conditions include use of the funds in accordance with the intended purpose of the grant and the
  creation and maintenance of certain permanent places of employment. Another €2.9 million in public funds
  were awarded for expansion of the Flensburg site between 2004 and 2007, in the form of an investment grant.
  This assistance also is granted subject to conditions which must be met during a five-year term ending on
  August 1, 2012. The conditions include use of the funds in accordance with the intended purpose of the grant
  and the creation and maintenance of certain permanent places of employment. Furthermore, the decision to grant
  the funds can be revoked if the supported site is transferred to a third party during the term of the financial
  support.




                                                                                                     14
Current and Planned Investments

         Among the most significant current investments and planned future investments of the Versatel Group,
which are geographically limited to Germany, are the strategic expansion of the Network through the connection
and installation of equipment in additional Deutsche Telekom MDFs as well as the transformation of the
Network into an All-IP Next Generation Network by the end of 2008.

         In the second quarter of 2008, the total investments of the Versatel Group amounted to €29.5 million.
Approximately €19.1 million of this amount was for customer enrollment and retention, €8.4 million for
increasing capacity and €2.0 million for maintenance.

         In 2008, the Company currently plans to invest approximately €161 million, of which approximately
€88 million shall be spent on growth-related investments and another approximately €38 million on increasing
Network capacity and to a lesser degree on maintenance. An amount of approximately €25 million thereof shall
be invested into the NGN, bringing the total amount of investments into the NGN up to €41million until the end
of 2008.

Critical Accounting Policies

          When preparing the consolidated financial statements in accordance with IFRS as applicable in the
European Union, Versatel applied certain accounting policies that are material for the discussion of the financial
condition and results of operations of the Versatel Group. The application of some of these accounting policies
is based on estimates and assumptions that sometimes require difficult and complex assessments and decisions
and affect the reported amounts and disclosures. These assessments may subsequently turn out to have been
erroneous and may thus lead to revisions of the financial information concerned. Some of the policies provide
for alternative methods. Details on which alternatives Versatel has chosen are set out below.

         Further information is provided in the notes to the consolidated financial statements appearing in the
Financial Section of this report. There were no material changes in critical accounting policies in the first half
year of 2008.



Acquisition of AKF Telekabel TV und Datennetze GmbH

         On June 18, 2008, Versatel announced the acquisition of AKF Telekabel TV und Datennetze GmbH
(“AKF”), a Frankfurt-based level 4 cable operator. AKF was part of the Deutsche Wohnen AG group, one of the
largest housing companies in Berlin. AKF, as a level 4 cable operator, services 76,000 addressable households,
of which approximately 50,000 are within Versatel’s Network coverage area. Through its acquisition of AKF,
Versatel has gained direct technical access to the final customer, eliminating the need to make future payments
to rent access to the last mile of Deutsche Telekom AG. The purchase price was €30 million, including debt,
and was partly financed from Versatel’s cash reserves.

         Control transferred on July 3, 2008. The company was renamed Versatel Telekabel GmbH, Frankfurt
am Main, by members’ resolution dated July 18, 2008, the name change taking effect upon being recorded in the
Franfurt am Main local court commercial register.

Versatel wins legal proceedings over the “Versatel” wordmark

         On July 11, 2008, TeleVersa GmbH withdrew its objection to the registration of the German wordmark
‘Versatel’. On April 18, 2005, TeleVersa GmbH had filed an objection against the registration of the ‘Versatel’
brand due to an existing similarity and the danger of confusion with its own brand, citing a brand licensing
agreement with the then proprietor of the brand. Versatel AG had applied to have the objection dismissed on the
grounds that it had been filed by TeleVersa, who was not the proprietor of the brand. Following the withdrawal
of the objection and the name’s entry in the brand register, the ‘Versatel’ brand now enjoys full trademark
protection in Germany.




                                                       15
                                                                       FINANCIAL SECTION

The following English-language financial statements is a translation of the German-language financial
statements and have been extracted from the Report for the Second Quarter and first half year of 2008 of
Versatel AG.

Unaudited consolidated interim financial statements (IFRS) of Versatel AG for the second quarter,
    2008 (with comparative data for the second quarter, 2007)
    Consolidated Income Statement....................................................................................................................................... F-2
    Consolidated Balance Sheet............................................................................................................................................. F-4
    Consolidated Statement of Equity.................................................................................................................................... F-5
    Condensed Consolidated Cash Flow Statement ............................................................................................................... F-6
    Selected Explanatory Notes to the Interim Financial Statements..................................................................................... F-8




                                                                                        F-1

								
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