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Annual Report 2010 Telekom Slovenia Group Telekom Slovenije, dd

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					         Annual Report 2010
         Telekom Slovenia Group
         Telekom Slovenije, d. d.




                                      Annual Report 2010

                                    Telekom Slovenia Group
                                    Telekom Slovenije, d. d.




Ljubljana, 5 April 2011
             Annual Report 2010
             Telekom Slovenia Group
             Telekom Slovenije, d. d.


Contents

1     INTRODUCTION ............................................................................................................................................ 1

    1.1      Highlights of the Telekom Slovenia Group .............................................................................. 1
    1.2      Letter from the President of the Management Board .............................................................. 2
    1.3      Statement of responsibility of the Management Board ........................................................... 5
    1.4      Strategic development plan ..................................................................................................... 6
    1.5      The Telekom Slovenia Group on the map of Europe ............................................................. 9
    1.6      Organisation of the Telekom Slovenia Group ....................................................................... 10
    1.7      Report of the Supervisory Board ........................................................................................... 12
    1.8      Corporate governance statement .......................................................................................... 15
    1.9      Share trading and ownership structure ................................................................................. 25
    1.10     Significant achievements of the Telekom Slovenia Group .................................................... 29
    1.11     Significant events after the balance sheet date ..................................................................... 30
    1.12     Risk management .................................................................................................................. 31



2     BUSINESS REPORT OF THE TELEKOM SLOVENIA GROUP ................................................................... 42

    2.1      Financial results of the Telekom Slovenia Group .................................................................. 42
    2.1.1    Key financial performance indicators..................................................................................... 42
    2.2      Financial management and performance .............................................................................. 43
    2.3      Investments ........................................................................................................................... 46
    2.4      Business environment and trends in the sector .................................................................... 47
    2.4.1    Macroeconomic environment ................................................................................................ 47
    2.4.2    Trends in the ICT sector ........................................................................................................ 47
    2.4.3    Regulation of the electronic communications market and the competition protection .......... 50
    2.5      Sales and marketing .............................................................................................................. 53
    2.5.1    Market position ...................................................................................................................... 53
    2.5.2    Brand Management ............................................................................................................... 55
    2.5.3    Sales and marketing .............................................................................................................. 58
    2.5.4    Development of services and the network ............................................................................ 62
    2.5.5    Financial results from the operations of Telekom Slovenia Group companies ..................... 66



3     SUSTAINABILITY REPORT ......................................................................................................................... 69

    3.1      Responsible management of sustainable development ........................................................ 70
    3.2      Responsible human resource management.......................................................................... 73
    3.2.1    Commitment to non-discrimination ........................................................................................ 73
    3.2.2    Employee structure ................................................................................................................ 74
    3.2.3    Educational structure of employees ...................................................................................... 74
    3.2.4    Employment of disabled persons .......................................................................................... 75
    3.2.5    Organisational climate and employee satisfaction and culture ............................................. 75
              Annual Report 2010
              Telekom Slovenia Group
              Telekom Slovenije, d. d.


    3.2.6     Employee training and development ..................................................................................... 76
    3.2.7     Managing innovation ............................................................................................................. 78
    3.2.8     Cooperation with employee representatives ......................................................................... 78
    3.2.9     Responsibility for employees and related groups outside the workplace.............................. 78
    3.2.10 Health and safety at work ...................................................................................................... 79
    3.2.11 Family-Friendly company certificate ...................................................................................... 79
    3.2.12 Communication with employees ............................................................................................ 80
    3.3       Social responsibility ............................................................................................................... 80
    3.3.1     Major sponsorships and donations ........................................................................................ 80
    3.3.2     Protection of competition ....................................................................................................... 82
    3.4       Environmental responsibility .................................................................................................. 82
    3.4.1     Environmental developments in 2010 ................................................................................... 83
    3.4.2     Overview of the key environmental objectives in 2010 ......................................................... 83
    3.4.3     Environmental indicators ....................................................................................................... 85
    3.5       Responsibility to customers ................................................................................................... 88
    3.6       Responsibility for quality ........................................................................................................ 90
    3.7       Responsibility to suppliers ..................................................................................................... 91
    3.8       Responsibility for security ...................................................................................................... 92
    3.9       Content according to GRI G3 reporting guidelines................................................................ 93
    3.10      Suistainability verification statement...................................................................................... 95



4      FINANCIAL REPORT .................................................................................................................................. 96

    4.1       Introductory notes .................................................................................................................. 96
    4.2       Financial report of the Telekom Slovenia Group ................................................................... 97
    4.2.1     Financial statements of the Telekom Slovenia Group ........................................................... 97
    4.2.2     Notes to the consolidated financial statements of the Telekom Slovenia Group and summary
              of significant accounting policies of the Group .................................................................... 104
    4.2.3     Independent Auditor's Report for the Telekom Slovenia Group .......................................... 152
    4.3       Financial report of Telekom Slovenije, d. d. ........................................................................ 153
    4.3.1     Financial statements of Telekom Slovenije, d. d. ................................................................ 153
    4.3.2     Notes to the financial statements and summary of significant accounting policies of Telekom
              Slovenije, d. d. ..................................................................................................................... 160
    4.3.3     Independent Auditor's report ............................................................................................... 202



5      ABBREVIATIONS OF TECHNICAL TERMS .............................................................................................. 203
              Annual Report 2010
              Telekom Slovenia Group
              Telekom Slovenije, d. d.


                                                                             1 INTRODUCTION

                                           1.1             Highlights of the Telekom Slovenia Group

In 2010 the Telekom Slovenia Group:
        - generated EUR 843.5 million in operating revenues, down 1.5% on the previous year;
        - introduced several new services, products and content on all markets, which will improve
            the quality of the user experience and thus customer satisfaction;
        - had 333,214 broadband connection and 2,604,128 fixed and mobile telephony
            connections; and
        - began to comprehensively restructure operations and optimise processes, which will
            ensure the future commercial success and development of the Telekom Slovenia Group.

In 2011 the Group will:
        - implement planned measures aimed at improving operations;
        - continue to restructure and optimise business processes; and
        - merge Telekom Slovenije, d. d. and Mobitel, d. d. to create a stronger and more efficient
            parent company, and thus a more successful Telekom Slovenia Group in the long term.


Operating revenues (in EUR million) and revenues per employee of the Telekom Slovenia
Group (in EUR thousand)

                                                                  880                                                                        192

                                                                  860                                                                        190

                                                                  840                                                                        188

                                                                                                                                             186
                                                                  820
                                                                                                                                             184
                                                                  800
                                                                                                                                             182
                                                                  780
                                                                                                                                             180
                                                                  760
                                                                                                                                             178
                                                                  740
                                                                                                                                             176
                                                                  720                                                                        174
                                                                  700                                                                        172

                                                                  680                                                                        170
                                                                             2006     2007          2008          2009          2010
                              Operating revenues                             749      787           852           856           844
                              Operating revenues per av. employee in T EUR   189      185           188           179           177




EBITDA and EBITDA margin (as a percentage of operating revenues) of the Telekom Slovenia
Group

                                                                    350                                                                            45

                                                                                                                                                   40
                                                                    300
                                                                                                                                                   35
                                                                    250
                                                                                                                                                   30
                                                                    200                                                                            25

                                                                    150                                                                            20

                                                                                                                                                   15
                                                                    100
                                                                                                                                                   10
                                                                      50
                                                                                                                                                   5

                                                                        0                                                                          0
                                                                               2006         2007           2008          2009          2010
                             Delež EBITDA v posl. prih. v %                     293          298           312           268           247
                            EBITDA margin in %                                 39.1          37.9          36.7          31.3          29.3



* EBITDA – earnings before interest, taxes, depreciation and amortisation.




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Structure of the Telekom Slovenia Group's equity and liabilities (in EUR million)

                                      2.500



                                      2.000



                                      1.500



                                      1.000



                                        500



                                           0
                                                  2006   2007    2008    2009    2010
                                    Liabilities   482    678     725     924     850
                                    Equity        989    1.063   1.014   1.002   808




                       1.2      Letter from the President of the Management Board

Dear investors, shareholders and partners,

The 2010 financial year was dynamic and characterised by tremendous challenges. It was a year in
which we searched for an exit from the grips of the recession and financial uncertainty. It also marked
the beginning of a slow and unstable global economic recovery. For the Telekom Slovenia Group, it
was a year of significant changes. We established the underlying strategic and commercial bases for
the long-term development and growth of our companies.

The beginning of the demanding, but unavoidable, process of restructuring operations represents the
basic precept. The merging of the parent company Telekom Slovenije, d. d. and Mobitel, d. d. and the
consolidation of Group companies represent a transition to the more efficient implementation of
processes and the improved exploitation of synergies between electronic communications, information
technology and media. I believe that the effect of the restructuring of operations will bring long-term
benefits to users, owners and employees.

To ensure a clear and transparent starting point for further development, we have also verified the fair
value of investments in some subsidiaries and appraised real estate. Assessments by the certified
appraiser resulted in the revaluation of investments in companies in south-eastern Europe and Najdi in
Slovenia. These had a significant impact on expenses in the previous year and thus on the operating
result. I must emphasise that the revaluation had no impact on the current operations of companies,
while the solvency of the Telekom Slovenia Group remains unchanged.

The Management Board of Telekom Slovenije, d. d. immediately adopted and began to implement
measures, approved by the Supervisory Board, to improve the situation. These measures are
comprehensive and include reducing all types of costs, the restructuring of operations in Macedonia
and Kosovo, the possible sell-off of non-strategic investments, the restructuring of business
processes, the optimisation of working capital, the protection of claims from regulated services, the
optimisation and sale of real estate and changes in sales and marketing. The operating environment
also demands personnel changes, the establishment of a new system of governance of subsidiaries
and the reduction of labour costs.

Operating results marred by impairments
The Telekom Slovenia Group generated operating revenues of EUR 843.5 million, down 1.5% on the
previous year. Net loss in the amount of EUR 210.3 million, which is incomparably lower than in 2009,
was the result of the impairment of financial investments in south-eastern Europe and the impairment
of receivables owing to default by alternative operators. Here I must state my belief that the Group's
largest investments in Kosovo and Macedonia are justified in the long term, despite the problems
faced in these countries, and must be developed. These markets are less developed in terms of
telecommunications, and thus present a business opportunity. Excluding the effect of impairments,
operating profit would have reached EUR 32.7 million, and would have been EUR 20 million higher in
the context of regular payments by alternative operatives (which would have precluded the need to
impair receivables).



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The conditions on the Group's key markets, which reflect all the characteristics of global markets
where the effects of the recession and financial crisis can still be felt, are also reflected in operating
results. The emergence of new technologies, stiff competition, more demanding and aware users and
pressures from regulatory bodies all affect operating conditions. Conditions, the economic
environment and business expectations have also changed on our markets. Taking an aggressive
market approach in the region, and investments in the modernisation of the organisation, networks
and services ensure the appropriate conditions for the future growth of the entire Group.

The user is and remains the focus of our attention
The newly defined mission of the Telekom Slovenia Group is "We are the best at connecting people –
any time, any place". The user is the focus of our operations. All of our activities are thus aimed at the
continuous improvement of the user experience and increased customer satisfaction. To that end in
2010, we focused on innovation, adapting to the needs of users, consolidation, ensuring convergence,
development and investment, and on the optimisation of operations on foreign markets.

We earmarked EUR 113.6 million for investments that will expand our services and solutions, and
bring them even closer to users, who increasingly require interpersonal communications and
connectivity, and the optimisation of operations.

Our response is a range of unique, advanced, secure, continuously accessible and competitively
priced user experiences of the highest quality. To that end, we revamped our range of broadband
service packages during the previous financial year. We upgraded and expanded IPTV services,
introduced the new SiOL BOX multimedia centre, and enriched our range of online media and
television and interactive content. We upgraded the TIS (telephone directory), expanded the range of
broadband mobile internet and mobile television services and broke new ground in Macedonia with
Digital TV.

We see the key advantage of Telekom Slovenia Group companies in the synergies created by fixed
and mobile telecommunication and internet solutions, and their upgrading through systems integration
and the continuous introduction of new and interesting media and content. We are the only service
provider on our key markets who can fully satisfy the needs of users for advanced communication
services, the optimisation of work and access to content in one location. We are leaving behind other
services providers on the market with our broad range of services in all segments, while ensuring a
high level of customer satisfaction through prudent after-sales support. Good relations with users and
investment in brands have once again brought the Group the flattering "Superbrand" and "Trusted
Brand" titles.

Creating the future today
The main activities that will characterise future operations are the organisational restructuring of the
Telekom Slovenia Group in Slovenia in the scope of the Orion project and the drafting of a long-term
strategic plan for the entire Group. The Company's Management Board has set itself five challenges
for the future as its key priorities: the consolidation of operations and the restructuring of the
organisation; quality dialogue with employees; a focus on the operations of companies in Macedonia
and Kosovo; the ordering of relations with regulatory bodies; and the ordering of relations with
alternative operators.

Organisational restructuring primarily includes Telekom Slovenije and Mobitel. However, other Group
companies are included in the process as appropriate. Nearly 250 employees, representing all Group
companies, are directly participating in the Orion project. The project was formally kicked off last July,
when five main working groups of experts and several sub-groups were created. By the end of the
year, all processes were catalogued by key work areas. Companies were compared and harmonised,
and the basic organisational structure defined. The process is fully in line with established plans in
terms of timing. In parallel with restructuring processes, the Management Board, together with external
service providers and key internal personnel, also drafted a new strategy for the Telekom Slovenia
Group. The new organisational structure must be comparable with the most successful European
operators in terms of key performance indicators. The aim of the Telekom Slovenia Group is to
establish the highest development standards and criteria.

The precondition for the successful completion of the organisational restructuring is the trust of all
employees. They are therefore informed constantly with regard to the objectives and aims of the

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restructuring and the progress of processes. We set up an online centre with all key information
regarding the overall process, the composition of working groups, objectives, mission, vision and
values. We personally presented the project to employees at meetings throughout Slovenia and
provided first-hand answers to their questions.

Success is based on people and their values
The Telekom Slovenia Group is aware that the core of our competitiveness is hidden in consolidated
processes and satisfied employees. A year-long project to increase cohesion within the Group is
already bearing fruit. Our identity on the market is based on our brands and our corporate culture. This
is not only based on an identifiable vision and clear mission, but also on a clear strategy, values,
commitment, trust and teamwork. To maintain this level, we are investing heavily in training,
motivational programmes and the management by objectives process. Employees ensure higher
productivity and targeted development via the exchange of professional knowledge and business
experience. The high rate of motivation and commitment continues to be reflected in successful
project realisation. I believe that the Telekom Slovenia Group has a highly-trained team, whose fruitful
cooperation and interaction will ensure the growth, competitiveness and excellent reputation of its
companies and employees, and the solutions and content offered to the market.

We know how to recognise commitment to the company and understand the needs of the environment
in which we operate. We believe that focusing on sustainable development, demonstrating social
responsibility and active environmental protection are the cornerstones of every company’s success
and penetrability. We also encourage top-level achievements in sports, culture and science through
sponsorships, donations and patronage in the environment in which we operate. As responsible
members of society, we understand the pressures and social problems faced by people.

Long-term increase in the value of the Group
The Republic of Slovenia remains the company's largest single owner, followed by the KAD and SOD
funds. Last year Telekom shares largely followed the general trend in SBI TOP share prices on the
Ljubljana Stock Exchange, and ended 2010 at EUR 86. I expect the share price to rise again following
the introduction of the new organisational structure, the re-establishment of normal conditions on the
international stock markets and the return of investor confidence, as the share price is at present
significantly undervalued. Its operating results and clear plans for the future represent reasons for
investor confidence in the Telekom Slovenia Group.

We are well aware of the challenges posed by the future
The Telekom Slovenia Group is an advanced and competitive player on today's market. Its solutions
make an important contribution to the development of Slovenia’s economy and other markets in south-
eastern Europe. Our aim is to further improve the efficiency of operations, to be a leader on the
electronic communications market, to achieve ever better operating results and increase the value of
the Group. We are therefore determined to implement strategic measures aimed in particular at the
retail segment. We focus on creating the highest possible value for ourselves, and our customers,
partners and shareholders. The priorities and strategic guidelines that we will follow to that end are
clear. The stabilisation of sales and selective growth in services await us on our primary market of
Slovenia. Operations outside of Slovenia must be restructured and uniform operating standards
introduced. Another significant challenge will be the development of a uniform international wholesale
approach. We will promote innovation in the development and marketing of services, solutions and
content, and thus increase revenues while maintaining high market shares. We expect additional
revenues from the development of digital media advertising (initially in Slovenia) and increased
content monetisation, which is a current European and global trend.

There are many challenges and opportunities before us. We will face them bravely, prudently and in a
fully transparent manner. We will invest in maintaining our competitive advantages in the areas of
technology, marketing and internal organisation. We will upgrade integrated service quality control and
continually seek synergies within the Group, mainly in convergent solutions and fresh market
approaches. By adapting and computerising business processes, by ensuring an effective
management system and by developing our human resources, we will create a learning and adaptable
environment in which the user is the centre of attention. We have the know-how, desire, will and
competence to achieve our objectives.




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Dear investors, shareholders and partners, together with our employees, we will continue to ensure
the growth, development and successful market approach of the Telekom Slovenia Group for you, our
esteemed investors. In this, we are counting on your continued support and creative participation.

Together with my colleagues from the Management Board and all employees, I thank you for your
trust.
                                                                      Ivica Kranjčević
                                                                President of the Management
                                                                Board of Telekom Slovenije,
                                                                             d. d.




Ljubljana, April 2011




                          1.3     Statement of responsibility of the Management Board

The members of the Management Board and Supervisory Board of Telekom Slovenije, d. d. hereby
declare that the annual report of the Telekom Slovenia Group and Telekom Slovenije, d. d. and all its
constituent parts, including the corporate governance statement, have been compiled and published in
accordance with the Companies Act and the International Financial Reporting Standards.

The Management Board is responsible for compiling the annual report of the Telekom Slovenia Group
and Telekom Slovenije, d. d., including the financial statements and notes, to present a true and fair
picture of the financial position and the results of the operations of both the Group and the company.

The Management Board also declares that the financial statements of the Group and the company
have been compiled on a going-concern basis, that the chosen accounting policies have been
consistently applied and that any changes therein have been disclosed.

The Management Board is responsible for taking measures to prevent and detect fraud and
irregularities, and for securing the value of the assets of Telekom Slovenia Group and Telekom
Slovenije, d. d.

                                                            Management Board of Telekom Slovenije, d. d.



Ivica Kranjčević            Zoran Vehovar, MSc      Marko           Dr Jožko Peterlin   Darja Senica
                                                    Boštjančič
President     of    the     Vice-President of the   Member of the   Member  of   the    Member of the
                            Management Board        Management      Management Board    Management
                                                    Board                               Board     and



Management
Board

                                                                                        Workers
                                                                                        Director




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                                      1.4      Strategic development plan

The Telekom Slovenia Group will build its strategic development plan for the period 2011 to
2015 as the leading telecommunications operators in Slovenia and a provider of innovative
services, and on the markets of south-eastern Europe as a growing and profitable alternative
operator, whose cost effectiveness will be ensured in part by synergies within the Telekom
Slovenia Group.

Changes in the local, regional and global economic environment as a result of the economic crisis
have required the Telekom Slovenia Group to give thorough consideration to its future strategic
policies and objectives. One of the primary tasks of the Management Board of the parent company,
Telekom Slovenije, d. d., following its formation and assumption of responsibilities in the first half of
2010, was the drafting of a new strategic plan for the next 10 years.

In drafting the strategic plan, the Management Board searched for answers to key strategic issues with
the help of a thorough analysis of the economic environment, markets, risks, trends in consumer
demand and technological trends, and an analysis of the activities of regulatory bodies. Based on the
findings of these analyses, it developed a strategy for the Telekom Slovenia Group for the period 2011
to 2015, which includes a vision, objectives, strategic guidelines and functional strategies. The
business plan of the Telekom Slovenia Group for 2011 was approved by the Supervisory Board of the
parent company, Telekom Slovenije, d. d. at its meeting of 2 February 2011. The strategic business
plan for the period 2011 to 2015 is in the approval phase.

Mission, vision and values

Mission
Telekom Slovenia Group is making possible for its users, that they are always and everywhere
best connected with own nearbys, co-workers and contents
We are the best at connecting individuals and families, and we are the best at connecting them to
services that make their life easier, with relevant information and high-quality content. We provide for
the high-quality, comprehensive and reliable connection of companies and institutions, and individual
devices.

Vision
The leader in integrated communications, simple to use.
By connecting all mobile and fixed information and communication technologies, services, multimedia
content and devices, the Group will provide individuals and businesses a simple and secure user
experience of the highest quality. It will thus remain the leader in the telecommunications sector in
Slovenia and become a leader in the IT and media sectors. The Group will be a cost effective and
profitable ICT operator on markets outside of Slovenia.




                        Mission                      Vision                 Values
                  Telekom Slovenia Group                               We are a well-tuned team.
                  is making possible for its         The leader in
                     users, that they are             integrated        We live with the user.
                   always and everywhere           communications,       We are reliable and
                  best connected with own           simple to use.            innovative.
                  nearbys, co-workers and                              We are proud of our roots
                                                                             and talents.
                          contents




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Values

We are a well-tuned team.
The employees in the Telekom Slovenia Group work in a creative environment, in constant touch with
the most cutting-edge technologies. We value commitment, self-initiative and entrepreneurial thinking.

We live with the user.
Our guiding principle is a satisfied customer. We ensure a friendly user experience with an attractive
offer, carefully thought-out services and content, and excellent support.

We are reliable and innovative.
We have the most reliable and extensive networks, which will continue to ensure high-quality services
in the future. We are pioneers in the introduction of the latest generations of mobile and fixed
telecommunications and multimedia content, and above all ensure their interconnectivity.

We are proud of our roots and talents.
We invest responsibly in Slovenian society and the environment, and support the development of local
expertise and the exchange of experiences and innovative solutions between the markets on which
we operate. We are responsibly aware of our importance to all of our partners and owners.

Strategic guidelines and objectives of the Telekom Slovenia Group

The key strategic goal of the Telekom Slovenia Group is to be the leading telecommunications
operator in Slovenia in 2015, and a provider of innovative services, with a stable market share, that
builds on its competitive advantages with regard to customers, quality and technological innovation.
The Telekom Slovenia Group will be a growing and profitable alternative operator on the markets of
south-eastern Europe, whose cost effectiveness will be ensured in part by synergies within the
Telekom Slovenia Group.

We will focus on the Slovenian market, where market synergies are in place:
− between fixed, broadband and mobile communication services for residential users;
− between telephony and ICT services (Avtenta.si, d. o. o.) for business users;
− between Planet 9, d. o. o. and Najdi, informacijske tehnologije, d. o. o.; and
− between GVO, d. o. o. and Telekom Slovenije, d. d.

In order to exploit the aforementioned synergies and strategic advantages, the Telekom Slovenia
Group needs an appropriate organisational structure that will facilitate the optimisation of operations.
To that end, the Management Board drafted a detailed report in the scope of the Orion project, with a
primary focus on the merging of Telekom Slovenije, d. d. and Mobitel, d. d. into a single company. The
merger will facilitate the rounding off and optimisation of service-related business processes in one
location. The Supervisory Board approved the detailed report at its December meeting, while
introduction of adopted technical solutions began at the beginning of 2011. The merged company will
begin operating on 1 July 2011.

With its new organisational structure, the Telekom Slovenia Group will be prepared to implement its
new strategic guidelines, which include the following:

-   growth in revenues and maintaining the market shares of telecommunication services in Slovenia;
-   development of ICT services;
-   development of digital media advertising and the monetisation of digital media and applications in
    Slovenia;
-   development of international wholesale services;
-   profitable growth in selected countries of south-eastern Europe;
-   systematic reduction of procurement costs and investments;
-   development of human resources, increase in labour productivity, and restructuring from a
    technologically oriented company to a sales and service oriented company;
-   quality and business excellence; and
-   sustainable development.




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Realisation of plans in 2010

The Telekom Slovenia Group generated EUR 843.5 million in operating revenues in 2010, down 1.5%
on the previous year. EBITDA stood at EUR 247.2 million, down 8%. The EBITDA margin was down
6% to stand at 29.3%.

During the second half of 2010, Telekom Slovenije began verifying the fair value of investments in
subsidiaries in Macedonia, Kosovo, Albania, the Republic of Srpska, and in the subsidiary Najdi,
Informacijske storitve. The assessment of the certified appraiser indicated that the recoverable amount
of investments in foreign subsidiaries has fallen below their book value. For this reason, the Telekom
Slovenia Group recorded impairments of assets in the amount of EUR 211.2 million, disclosed under
other operating expenses. Together with impairments owing to the non-payment of contractual
obligations by alternative operatives, this resulted in a significant deterioration in the Group's operating
result in 2010.

EBIT (earnings before interest and taxes) was negative in the amount of EUR 178.5 million due to the
aforementioned impairments. Excluding the impairment of goodwill and other property, plant and
equipment and intangible assets in the total amount of EUR 211.2 million, operating profit would have
stood at EUR 32.7 million and would have been EUR 20 million higher in the context of regular
payments by alternative operatives (which would have precluded the need to impair receivables).
Following the calculation of corporate income tax in the amount of EUR 7.9 million, the Telekom
Slovenia Group disclosed a net loss of EUR 210.3 million in 2010.

The adjusted values of investments resulted in a decrease in equity and in the debt-to-equity ratio. The
Group, however, remains less indebted than the average European telecommunications operators.


Plans for 2011

Owing to the operating results achieved in 2010 and other objective economic and market
circumstances, the Management Board of Telekom Slovenije, d. d. has already adopted and is in the
process of implementing measures to improve the situation and realise plans for 2011.

The aforementioned measures are primarily based on:
- reducing all types of costs;
- the restructuring of operations in Macedonia and Kosovo;
- the possible sell-off of non-strategic investments;
- changes in sales and marketing,
- the restructuring of business process and the reduction of procurement costs;
- the optimisation of working capital;
- the protection of claims for regulated services and
- the optimisation and sale of real estate.

In the current circumstances, the governance of subsidiaries must be adapted or a new method of
governance established. Costs must also be reduced. The merger of Telekom Slovenije and Mobitel,
planned for the middle of the year, is needed to meet long-term market objectives and to exploit all
synergies in the area of electronic communications, IT and media. Only consolidated operators, who
cost-effectively draw on economies of scale and scope that arise from offering numerous services in a
single network, can survive in the long term.

The target net profit for the Telekom Slovenia Group in 2011 is EUR 28.1 million.




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              1.5      The Telekom Slovenia Group on the map of Europe




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          Annual Report 2010
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          Telekom Slovenije, d. d.


                             1.6     Organisation of the Telekom Slovenia Group

As at 31 December 2010 the Telekom Slovenia Group comprised the parent company Telekom
Slovenije, d. d., 14 direct subsidiaries, 10 indirect subsidiaries and one joint venture.




* Telekom Slovenije, d. d. increased the capital of the Macedonian company One in the total amount of EUR 40
million in November and December 2010. The final increase in capital was registered on 12 January 2011.


Changes in the composition of the Group in 2010 were as follows:

-   In January 2010 the subsidiary Primo Communications, d. o. o. took over its subsidiary Bindi
    Integrated Services JSC.

-   The Dutch company Telekom Slovenije Finance B.V. ceased operations in March following a fast-
    track liquidation procedure. The company was established for the purpose of issuing bonds that
    were subsequently issued directly by Telekom Slovenije, d. d. There was thus no reason for the
    company's continued existence.

-   Germanos Telecom, AD Skopje was renamed One to One, AD Skopje on 13 April 2010.

-   The Dutch subsidiary SIOL, B.V. began liquidation proceedings on 26 May 2010. For this reason,
    the company's name was changed to SIOL, B.V. in liquidation.

-   The Macedonian company One, AD Skopje was transformed into a limited liability company on 15
    October 2010. For this reason, the company's name was changed to One, d. o. o. e. l., Skopje.
    The name was subsequently changed to One, d. o. o., Skopje with the entry of a new shareholder.




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-   On 10 November 2010 the Macedonian company One, d. o. o., Skopje acquired a 16.62%
    participating interest in the Macedonian subsidiary On.net, d. o. o., Skopje from a minority
    shareholder.

-   By increasing the capital of the Macedonian company One, d. o. o., Skopje, Telekom Slovenije,
    d. d. acquired a 20.53% participating interest in the aforementioned company, while the
    participating interest of SIOL, B.V. was reduced to 79.47%.

-   The Croatian company Pogodak Tražilica, d. o .o., which is fully owned by the subsidiary Najdi,
    informacijske storitve, d. o. o., began liquidation proceedings on 27 December 2010. For this
    reason, the company's name was changed to Pogodak Tražilica, d. o. o. in liquidation.

-   On 30 December 2010 Telekom Slovenije, d. d. purchased Mobitel, d. d.'s 50% participating
    interest in Planet 9, d. o. o., thereby becoming the sole owner.




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         Telekom Slovenije, d. d.


                                    1.7   Report of the Supervisory Board

The Supervisory Board functioned during the financial year in the composition as elected at the 15th
General Meeting on 22 April 2009. Tomaž Berginc, MSc served as President, while Dr Tomaž Kalin
and Milan Richter served as Vice-Presidents. Other members of the Supervisory Board were Ciril
Kafol, MSc, Dr Jaroslav Berce, Dr Marko Hočevar, Dr Zvonko Kremljak, Branko Sparavec and Martin
Gorišek.

Work of the Supervisory Board
The Supervisory Board of Telekom Slovenije, d. d. held 14 ordinary sessions in 2010. No
correspondence sessions were held. The number of sessions reflects the extraordinarily complex
problems in operations in 2010. The majority of sessions were held at the company's registered office
while one was held in Pristina and another in Skopje. The Supervisory Board prudently and
responsibly monitored and supervised the operations of Telekom Slovenije, d. d. Its primary focus was
of the operations of the Telekom Slovenia Group as a whole, while it also monitored the operations of
individual Group companies.

The Supervisory Board assesses that the Management Board of Telekom Slovenije, d. d. provided
sufficient data, reports and information. Materials were received on time, so that members of the
Supervisory Board could prepare for and discuss individual items on the agenda.

The members of the Supervisory Board function independently.

The Supervisory Board comprises competent members who are experts in their fields. With their
experiences and familiarity of the company, employee representatives also bring a different view to the
motives and behaviour at the company.

The majority of members of the Supervisory Board attended all sessions. All members were present at
eight sessions. One member was absent from four session, while two members were absent from
three sessions. The majority of decisions were approved unanimously, reflecting the uniform view of
members with regard to problems and their resolution.

One of the most important decisions made by the Supervisory Board in 2010 was the creation and
appointment of Telekom Slovenije, d.d.'s new Management Board. The new President of the
Management Board, Ivica Kranjčević, was appointed in 2009 on the basis of public tender. His term of
office began when the term of office of the previous President of the Management Board, Bojan
Dremelj, MSc, expired on 13 March 2010. Dušan Mitič ended his term of office prematurely on 30 April
2010, while Dr Filip Ogris-Martič and Željko Puljić, MSc completed their four-year terms of office. The
term of office of Workers Director Darja Senica also expired in 2010. She was reappointed as member
of the Management Board and Workers Director. The Supervisory Board appointed the remaining
members of the Management Board: Zoran Vehovar, MSc and Marko Boštjančič on 1 May 2010, and
Dr Jožko Peterlin on 1 June 2010. The members of the Management Board were approved based on
the proposal of the Supervisory Board's Human Resources Committee and the President of the
Management Board. The new Management Board began functioning in its full composition on 1 June
2010 and immediately faced extensive and complex challenges. In the area of human resources, the
Supervisory Board approved the replacement of members of boards of directors and the managing
directors of subsidiaries.

The Supervisory Board monitored the operating results of the Telekom Slovenia Group. Since
assessments of operations and forecasts of results indicated deviations from the annual plan, the
Supervisory Board approved a revised plan for 2010 in the middle of the year and laid it upon the
Management Board to draft the Telekom Slovenia Group's strategic plan for the period until 2015,
which is expected to be adopted soon.

The Supervisory Board regularly monitored results, in terms of both costs and revenues, and
requested that the Management Board implement prompt measures. It constantly emphasised that
raising revenues in the short term is not possible, and that this alone will not lead to a significant
improvement in operations. Special attention was given to the results of subsidiaries abroad (primarily
to One, d. o. o. and Ipko, d. o. o.), as it was apparent at mid-year that they would not achieve their
business plans. The refinancing of loans and an increase in the capital of a Macedonian company

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were required. There were thus personnel changes and changes to business plans at the
aforementioned companies.

Owing to the failure to achieve business plans in previous years and in 2010, and due to amended
plans for the future, an assessment of Telekom Slovenije, d. d.'s financial investments in certain
subsidiaries was required at the end of 2010. Appraisals indicated the need to impair investments in
the total amount of EUR 211.2 million, which had a significant impact on operating results in 2010. The
Supervisory Board gave special attention to the inappropriate governance mechanisms of acquired
companies and the establishment of actual operational controls at these companies. Thus, legal
relations with minority shareholders, particularly at On.net, d. o. o., had to be put in order. Measures to
simplify the governance of these companies were also adopted.

Doubts arose again with regard to the purchase price of certain companies and their subsequent
governance. An audit of the purchases of Interseek, d. o. o., On.net, d. o. o. and Cosmofon (now One,
d. o. o.) was carried out in 2010 with the aim of clarifying circumstances and certain past business
decisions. The audit identified certain business decisions that can not be assessed as prudent. The
Supervisory Board insisted that individual cases be researched in depth and that legal proceedings
based on expert legal opinions be initiated against those responsible.

The Supervisory Board also continuously monitored certain investments, in particular in digital cable
TV in Macedonia, the construction of the regional (Balkan) fibre optic network, the construction and
utilisation of the fibre optic network in Slovenia and the upgrading of electrical devices at the
Cigaletova location.

Given that the majority of unfavourable trends in the operations of the Telekom Slovenia Group were
linked to markets outside of Slovenia, the Supervisory Board also closely monitored developments in
Slovenia and the efforts of the Management Board to maintain market shares in key segments, while
maintaining the profitability of operations.

In addition to audits of Telekom Slovenia Group companies' operations by the relevant auditors,
members of the Supervisory Board reviewed individual projects and adopted recommendations for the
Management Board to improve internal controls. Certain findings were the result of an additional legal
audit.

While monitoring the results of the Telekom Slovenia Group, it became clear that Telekom Slovenije,
d. d. required a new strategic business plan. In line with the competences of its members, the
Supervisory Board decided that the drafting of this plan would be monitored by one of its special
committees. The most important project in the scope of the Telekom Slovenia Group's strategic plan is
the restructuring of Group companies' operations, the essence of which is the merger of the fixed and
mobile operators, Telekom Slovenije, d. d. and Mobitel, d. d. The project's name is Orion. The
Supervisory Board monitors the project's process through a committee that also monitors the drafting
of the Group's strategy, as Orion is currently the most important project in the Group. The project aims
to identify synergies between the mobile and fixed operators, offer the market new convergent
services and optimise the costs of the Group, while merging two companies with different operational
cultures. The first results of the project should be evident with the formal legal merging of the
companies on 1 July 2011. The Supervisory Board has given the project its full support.

In the scope of monitoring the operations of the Telekom Slovenia Group, the Supervisory Board
requested that the Management Board amend the business plan and draft measures for the
implementation of a new business plan. What was perceived during the financial year was clearly
evident at the end of the year following the appraisal of investments abroad. The impairment of capital
investments and assets abroad, as well as some in Slovenia, was required. The company's current
liquidity was never threatened, nor was the repayment of its liabilities arising from bond issues. The
Supervisory Board will regularly monitor and exert its influence over the implementation of the
company's plans and new strategy, which will ensure that the company achieves expected results in
the coming years.

Work of Supervisory Board committees
The Supervisory Board's committees discussed important topics related to the Supervisory Board's
work and advised it in important matters. This contributed significantly to improving the work and

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         Telekom Slovenia Group
         Telekom Slovenije, d. d.


effectiveness of the Supervisory Board. The work of committees is described in detail in the section
Corporate governance statement in the Business Report section of the annual report.

Assessment of the work of the Management Board and Supervisory Board
The work of the Supervisory Board and its committees was carried out in 2010 in line with legal
provisions, the Corporate Governance Code and other recommendations of the Ljubljana Stock
Exchange. The Supervisory Board precisely and comprehensively verified and monitored the
governance of the company. At its sessions, the Supervisory Board worked with the Management
Board and its authorised representatives. It continuously assessed the work of the Management
Board, in particular when it discussed interim results from the company's operations. The
Management Board and Supervisory Board worked well at sessions, while the presidents of the
Management Board and Supervisory Board communicated regularly between sessions. The members
of the Supervisory Board continuously demonstrated their willingness for training and professional
development. They attended several training programmes as a group, while individual training was
also organised. Several external expert opinions were drafted for the Supervisory Board, primarily
regarding possible lawsuits and claims for damages due to poor past business decisions. The
Supervisory Board monitored possible conflicts of interest between its members and took a position in
one case.

Approval of the annual report and the proposed use of the distributable profit for 2010

The Supervisory Board thoroughly reviewed the annual report of Telekom Slovenije, d. d. and the
Telekom Slovenia Group for 2010 by the legally prescribed deadline. The Supervisory Board finds that
the Telekom Slovenia Group did not perform in line with expectation in 2010. Deep-rooted changes in
operations are required for the Telekom Slovenia Group to reach a level comparable with that of
similar European operators in terms of performance indicators. Projects were launched in 2010 aimed
at re-establishing the Telekom Slovenia Group as one of the most successful companies in Slovenia
and at ranking Telekom Slovenije, d. d. among other comparable operators. The Group's main
projects are the merger of Telekom Slovenije, d. d. and Mobitel, d. d. and the drafting of the Telekom
Slovenia Group's new strategy.

The Telekom Slovenia Group generated EUR 843.5 million in operating revenues in 2010. EBITDA,
adjusted for the effect of impairments, stood at EUR 247.2 million in 2010, or 92% of that achieved a
year earlier. Earnings before interest and taxes (EBIT) was negative in the amount of EUR 178.5
million due to the aforementioned impairments. Following the calculation of corporate income tax in
the amount of EUR 7.9 million, the Telekom Slovenia Group disclosed a net loss of EUR 210.3 million
in 2010.

The Supervisory Board was briefed on and discussed the audit report, in which the certified auditors of
Ernst & Young find that the financial statements, which are an integral part of the annual report,
present a true and fair picture of the financial position of the company and the Group, their financial
and operating results and changes in equity. The Supervisory Board had no comments regarding the
audit report. It likewise had no comments or reservations that would prevent the adoption of a decision
to approve the annual report and consolidated annual report.

The Supervisory Board finds that the annual report is a credible reflection of developments and a
comprehensive source of information regarding operations in 2010. The annual report of Telekom
Slovenije, d. d. and the consolidated annual report of the Telekom Slovenia Group, with the
accompanying audit report for 2010, were approved by the members of the Supervisory Board at its
meeting of 21 April 2011. We thus hereby formally approve the annual report in accordance with the
provisions of Article 282 of the ZGD-1.

                                                                                 Tomaž Berginc, MSc
                                        President of the Supervisory Board of Telekom Slovenije, d. d.




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         Telekom Slovenije, d. d.


                                    1.8   Corporate governance statement

Corporate governance at Telekom Slovenije, d. d. and the Telekom Slovenia Group is based on
upholding valid legislation and on the recommendations of Slovenia’s Corporate Governance
Code, and is modelled on international recommendations of best corporate governance
practices, such as the EU recommendations and the OECD principles of corporate governance.
Uniform principles of governance are applied at the Group's subsidiaries, in accordance with
the valid regulations of individual countries.

Corporate governance system

The parent company Telekom Slovenije, d. d. has a two-tier corporate governance system. The
Supervisory Board monitors and responds to the work of the Management Board, and carries out its
supervisory function in the scope of its competences. Members of the Management Board are
appointed and discharged by the Supervisory Board. The Management Board represents the
company and manages its transactions independently, on its own account. To that end, the
Management Board makes decisions that are in line with the company's strategic objectives and in the
interest of shareholders. In addition to valid legislation, the functioning of the Supervisory Board,
Management Board and General Meeting is set out in the rules of procedure of the Management
Board and Supervisory Board, and in Telekom Slovenije, d. d.'s Articles of Association. The
aforementioned documents are accessible at www.telekom.si in the Investor relations section.

General Meeting

Work of the General Meeting
The shareholders of Telekom Slovenije, d. d. met at the 17th General Meeting held on 1 July 2010.

A total of 5,258,387 shares or 80.83% of voting rights were represented.

Shareholders adopted the following resolutions:
- A resolution on amendments to Telekom Slovenije. d. d.'s Articles of Association, which primarily
   relate to the convening of the General Meeting, conditions for participation in the General Meeting,
   conditions for proposing resolutions and conditions for profit sharing by the Management Board.
- Shareholders approved the proposed use of the distributable profit for 2009.
- Following the decision that a vote of confidence as regards the members of the Supervisory Board
   be carried out separately, shareholders conferred official approval on the members of the
   Supervisory Board and shareholder representatives for the period 26 April to 31 December 2009.
   With a majority of 66.724% of votes, shareholders voted against the adoption of a resolution
   conferring official approval on the Management Board, members of the Supervisory Board and
   shareholder representatives for the period 1 January to 25 April 2009, and on employee
   representatives for the period 1 January to 31 December 2009.
- The audit firm Ernst & Young, d. o. o. was appointed to audit the financial statements of Telekom
   Slovenije, d. d. for the 2010 financial year.

Shareholders were also briefed on the Supervisory Board's report confirming the annual report for
2009, and on the rules regarding other rights of members of the Management Board pursuant to the
Act Governing the Earnings of Management Staff at Companies Under the Majority Ownership of the
Republic of Slovenia and Self-Governing Local Communities.

Three shareholders stated they would challenge resolution 4.1 on the use of distributable profit, while
one motion related to resolution 4.2 on the conferring of official approval on the Management Board
for the 2009 financial year. The aforementioned motions were not brought forth.

Exercise of shareholders’ rights
Telekom Slovenije, d. d. shareholders exercise their rights in company matters at the General
Meeting, which functions pursuant to the Companies Act (ZGD-1). The convening of the General
Meeting and other important matters related thereto are governed pursuant to valid legislation by the
Telekom Slovenije, d. d.'s Articles of Association, which are published at www.telekom.si in the
Investor relations section.


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          Telekom Slovenia Group
          Telekom Slovenije, d. d.


The corporate governance system of Telekom Slovenije, d. d. upholds the principle of equal treatment
of shareholders, and facilitates the consistent exercise of their legally defined rights. In announcing the
convening of the General Meeting correctly and in due time, the company facilitated the active
exercising of shareholders' rights.
Pursuant to the amended ZGD-1, last year the General Meeting adopted amendments 37 and 38 to
the company's Articles of Association, relating to the conditions and deadlines for convening the
General Meeting, the right to participate, the appointment of proxies and the submission of proposed
resolutions. The main changes were as follows:
- the possibility to appoint a proxy via electronic medium;
- the convening of the General Meeting must be published at least 30 days prior to General
    Meeting;
- the date published in the Official Gazette is deemed to be the official date of the meeting's
    convening;
- shareholders, whose holdings together represent one-twentieth of share capital, may request an
    additional item to be included on the agenda following the publication of the General Meeting's
    convening. The procedure for doing so is also described; and
-    shareholders may submit proposals in writing to each point on the agenda. The procedure for
    doing so is also prescribed.

Amendments to the Articles of Association are published in their entirety in the resolutions of the 17th
General Meeting, which are accessible at www.telekom.si in the Investor relations section, where all
materials from the General Meeting are also published. The convening of the General Meeting is also
published in the Official Gazette. Materials are accessible by shareholders at the website stated
above, and at the information offices at the company's registered office from the date of publication of
the convening of the General Meeting until the date of the meeting.
The company regularly publishes important information for shareholders on its website in the Investor
relations section and on the Ljubljana Stock Exchange's SEOnet system. The company also publishes
a TLSG newsletter four times a year.

More information regarding communications with investors may be found in the section
Communication in the Sustainable Development Report.

Supervisory Board

Work of the Supervisory Board
The Supervisory Board carried out its task of supervising the company's transactions objectively and
professionally, and was regularly briefed on the operations of the parent company and of the Telekom
Slovenia Group. It met at 14 sessions, at which it discussed the following important matters:
- the audit of investments in companies from previous years;
- the consolidation and restructuring of the Telekom Slovenia Group's operations;
- the approval of plans for the next period;
- cost control;
- the appointment of the Management Board; and
- the strengthening of cooperation between the Internal Audit Service and the Supervisory Board's
    Audit Committee.

Additional information regarding the work of the Supervisory Board is presented in the Report of the
Supervisory Board.

Composition of the Supervisory Board
The Supervisory Board comprises nine members, six of whom are shareholder representatives and
three of whom are employee representatives.
 The members of the Supervisory Board submitted a statement of compliance with criteria of
independence in accordance with the Corporate Governance Code.

The Supervisory Board comprised the following members as at 31 December 2010:




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         Telekom Slovenije, d. d.


Shareholder representatives:

1.      Tomaž Berginc, MSc (President)
        - holds a master’s degree in economics;
        - CEO of ETI Elektroelement d. d., Izlake;
        - president of the supervisory board of RC IRC Celje, d. o. o.
2.      Dr Tomaž Kalin (Vice-President)
        - holds a doctorate in engineering;
        - independent consultant.
3.      Dr Jaroslav Berce
        - holds a doctorate in science, social information technology;
        - employed at the University of Ljubljana’s Faculty of Social Sciences.
4.      Dr Marko Hočevar
        - employed at the University of Ljubljana’s Faculty of Economics;
        - member of the supervisory board of Elan.
5.      Ciril Kafol, MSc
        - holds a master’s degree in economics;
        - Managing Director of DARS.
6.      Dr Zvonko Kremljak
        - holds a doctorate in science;
        - employed at the Ministry of the Economy.

Employee representatives:

1.   Milan Richter (Vice-President)
       - electrical and electronic engineer,
       - employed in the network operation and infrastructure department at Telekom Slovenije,
           d. d.;
       - president of the SELEKS trade union;
       - president of the trade unions conference of Telekom Slovenije, d. d.;
       - member of the Works Council.
2.   Martin Gorišek
       - electronic engineer
       - head of the network maintenance centre and the provision of services in Celje, Telekom
           Slovenije, d. d.
       - member/president of the Works Council.
3.   Branko Sparavec
       - holds a degree in management;
       - head of the user technical support group at Telekom Slovenije, d. d.

The Supervisory Board functioned in the same composition for the entire year. The four-year term of
office of shareholder representatives ends on 26 April 2013, while that of employees representatives
ends on 13 November 2013.

Supervisory Board committees – composition and function
The Audit Committee met 12 times, primarily to discuss reports from the Internal Audit Service and
its annual work plan. It also verified the Telekom Slovenia Group's annual report.

The committee's members are:
       - Dr Marko Hočevar
       - Dr Jaroslav Berce
       - Dr Zvonko Kremljak
       - Branko Sparavec
       - Dr Sergeja Slapničar (external committee member)

Two sessions were also attended by the certified auditors of Ernst & Young, while two sessions were
attended by the company's lawyer (when the Audit Committee reviewed provisions and the risks
arising from lawsuits). Representatives of Telekom Slovenije, d. d.'s Internal Audit Service were
regularly invited to sessions. The Audit Committee initially worked with the auditors of PWC during the
audit of the company's strategic investments and possible damages incurred during the purchase

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thereof. This function was subsequently assumed by the Management Board. Special attention was
given to risk management and the regular monitoring of this area. The Audit Committee worked with
the external auditors of Ernst & Young during the audit of operations, and with P&S Capital, d. o. o.,
which reassessed the value of investments abroad. The committee verified risks arising from lawsuits
and the related provisions.

The Technical Committee met six times to discuss technical and IT matters, including the
construction of a regional fibre optic network.

Its composition was as follows:
        - Ciril Kafol, MSc
        - Dr Tomaž Kalin
        - Martin Gorišek

The committee reviewed the information systems scheme and the progress of IT system projects, as
well as the development of Telekom Slovenije, d. d.'s network and services. It was briefed on the
progress of construction of the fibre optic network and its capacity. It also monitored the planning
phase of the construction of the regional (Balkan) fibre optic network. Special attention was given to
the completion of the upgrading of electrical devices at Cigaletova 15. The committee also reviewed
individual purchases of technical equipment.

The Human Resource Committee met seven times to discuss candidates for members of the
company's Management Board and candidates for management positions at important subsidiaries. It
also discussed the Management Board's remuneration system.

Its composition was as follows:
        - Tomaž Berginc, MSc
        - Dr Tomaž Kalin
        - Milan Richter

The committee carried out all preparatory steps for the selection of new Management Board members
and issued preliminary opinions for approval by the Supervisory Board regarding the appointment of
new members of boards of directors and managing directors at subsidiaries. Following preliminary
discussions by the Human Resource Committee, the Supervisory Board approved the new
employment contracts of Management Board members, which were drafted in line with the new act in
this area. A remuneration system for members of the Management Board was also developed on the
basis of the aforementioned act.

In 2010 the Supervisory Board established a committee to monitor Telekom Slovenije's strategy
and the Orion project. The committee met eight times to discuss the progress and content of the
consolidation of companies within the Telekom Slovenia Group and the drafting of the company's
strategy.

Its composition was as follows:
        - Dr Jaroslav Berce
        - Dr Zvonko Kremljak
        - Milan Richter
        - Dr Bogomir Kovač (external committee member)

The committee initially focused on the business plan methodology, and was later included in the
overall process of drafting the document. The strategic business plan will be finalised in 2011. The
committee also followed the progress of preparations for and the implementation of the Orion project.

Remuneration of Supervisory Board members
In accordance with the government’s position on the payment of attendance fees and bonuses to
supervisory board members at companies under partial or total direct or indirect state ownership,
attendance fees were set in the following amounts:
        - EUR 275 per session for members of the Supervisory Board other than the President; and
        - EUR 357.50 per session for the President of the Supervisory Board.



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Under certain conditions, members of the Supervisory Board are also entitled to the reimbursement of
expenses related to their work on the Supervisory Board.

Details of the remuneration of the Supervisory Board are given in the Financial Report.

Management Board

Work of the Management Board

The Management Board of Telekom Slovenije, d. d. met at 16 regular sessions in its previous
composition and a mixed composition in 2010. In its new composition, the Management Board met
and took decisions at 36 regular and 9 correspondence sessions. In addition to business decisions
regarding the regular operations of the parent company and the Telekom Slovenia Group as a whole,
the Management Board, in its current composition, focused on preparing for and carrying out the
merger of Telekom Slovenije, d. d. and Mobitel, d. d. in the scope of the Orion project.

It also drafted the strategic development plan for the period 2011 to 2015, in which it set out the basic
development strategies for the future operations of the merged parent company and the Telekom
Slovenia Group. In 2011, in accordance with the recommendations of the Corporate Governance
Code, the Management Board will adopt a Governance Policy, as a commitment to continuously
improving the effectiveness of corporate governance of Group companies.

Composition of the Management Board
Telekom Slovenije, d. d. is managed by a five-member Management Board, whose four-year term of
office began in 2010. The Management Board comprised the following member as at 31 December
2010:

1.      Ivica Kranjčević (President)
        - holds a degree in electrical engineering;
        - has spent a significant part of his career working in the telecommunications sector,
            managing areas related to engineering, technology and informatics at the former PTT,
            Telekom Slovenije, d. d. and Mobitel, d. d.;
        - he began his term of office on 13 March 2010.

2.      Zoran Vehovar, MSc (Vice-President)
        - holds a master's degree and degree in electrical engineering;
        - has spent the last 14 years at Mobitel, d. d., managing various organisational units in the
           area of mobile communications;
        - is a frequent speaker at domestic and foreign professional meetings and conferences;
        - he began his term of office on 1 May 2010.

3.      Marko Boštjančič
        - holds a degree in law;
        - has worked his entire career in telecommunications;
        - he began his term of office on 1 May 2010.

4.      Dr Jožko Peterlin
        - holds a doctorate in economics;
        - has worked his entire career in the field of finance, and is an expert in risk management,
            lecturing at the faculty and professional meetings;
        - he is the president of the Slovenian Corporate Treasurers' Association, and is a member
            of two international treasurers' committees;
        - he began his term of office on 1 June 2010.

5.      Darja Senica (Workers Director)
        - holds a degree in economics;
        - worked in the areas of finance and marketing at PTT Celje and at Telekom's business unit
            in Celje. At Telekom Slovenije, she has participated in various projects, including the
            restructuring and reorganisation project, and in projects related to the wage system and
            collective agreement;

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         -      was president of the Works Council and a member of Telekom Slovenije's Supervisory
                Board;
         -      she began her third term of office on the Management Board on 8 April 2010.

The term of office of the President of the Management Board, Bojan Dremelj, MSc, expired on 13
March 2010, while the terms of office of members dr Filip Ogris-Martič and Željko Puljić, MSc expired
on 30 April 2010. The term of office of the Vice-President of the Management Board, Dušan Mitič, also
expired on 30 April 2010.

A comprehensive presentation of the Management Board is given at www.telekom.si in the
Organisation section.

Remuneration of the Management Board
The earnings of the Management Board are set out in members' employment contracts and are in line
with the Act Governing the Earnings of Management Staff at Companies Under the Majority
Ownership of the Republic of Slovenia and Self-Governing Local Communities (ZPPOGD). The
conditions for profit sharing by the Management Board are governed by the company's Articles of
Association. In accordance with a General Meeting resolution, the 45th amendment to the Telekom
Slovenije, d. d.'s Articles of Association was adopted, setting out the remuneration of the Management
Board and profit sharing. Under the amended Articles of Association, the Management Board may
share in profits, provided that the law so permits, if the company's return on equity exceeds 5%. The
total amount of remuneration of the Management Board may not exceed 2% of the amount earmarked
for the payment of dividends to shareholders.

The earnings of the Management Board in 2010 are presented in the Financial Report.

Management and governance of subsidiaries

The Management Board of the parent company actively monitored and, through membership on
supervisory boards and boards of directors, supervised the operations of Telekom Slovenia Group
subsidiaries in accordance with strategic guidelines and with the aim of achieving established
business objectives. The same standards of corporate governance that apply to the parent company
of the Telekom Slovenia Group are applied to the governance and management of the subsidiaries.


Composition of management and supervisory bodies at subsidiaries of the Telekom Slovenia
Group as at 31 December 2010

Slovenia
Mobitel, d. d.
Board of Directors: Ivica Kranjčević, President, Zoran Janko, Zoran Vehovar, MSc, Marko Boštjančič, Dr
Jožko Peterlin, Tjaša Škrilec and Branko Miklavčič
CEO: Zoran Janko
Notes: The company has a single-tier system of corporate governance.
Metod Zaplotnik was a member of the Board of Directors until 15 February 2010, while Klavdij Godnič was a member of the Board
of Directors and CEO until 28 February 2010. On 30 April 2010 Dr Filip Ogris-Martič and Željko Puljić, MSc were relieved of their
positions based on their resignations. Ivica Kranjčevič is a member of the Board of Directors since 12 February 2010, and President
since 1 March 2010. Zoran Vehovar, MSc is a member of the Board of Directors since 1 March 2010, while Zoran Janko is CEO
since the same date. Marko Boštjančič is a member of the Board of Directors since 1 May 2010, and Vice-President since 10 June
2010. Dr Jožko Peterlin is a member of the Board of Directors since 1 June 2010.

GVO, d. o. o.
Managing Director: Edo Škufca
Notes: Jožefa Guzej served as Managing Director until 28 February 2010.

Avtenta.si, d. o. o.
Managing Director: Iztok Klančnik
Iztok Klančnik was relieved of his position as Managing Director on 28 February 2011, and replaced by Vedran Krevatin on 1 March
2011.

Najdi, informacijske storitve, d. o. o.

                                                              20
            Annual Report 2010
            Telekom Slovenia Group
            Telekom Slovenije, d. d.




Managing Director: Bojana Sonnenwald Turk

Planet 9, d. o. o.
Managing Director: Rudolf Skobe


Other countries

Ipko Telecommunications, d. o. o.
Board of Directors: Ivica Kranjčević (President), Bujar Musa (Vice-President), Akan Ismaili, Klavdij Godnič
and Branko Babič
CEO: Branko Babič
Notes: Management and governance are realised in line with the relevant legislation in Kosovo.
As of 15 April 2010 Ivica Kranjčević is the President of the Board of Directors, replacing Dušan Mitič who was relieved of his
position on the same day. Branko Babič was relieved of his position as member of the Board of Directors and CEO on 1 February
2011, and replaced by Robert Erzin, MSc on the same day.

Aneks, d. o. o., Banja Luka
Managing Director: Igor Bohorč, MSc
Notes: Management and governance are realised in line with the relevant legislation in the Republic of Srpska (Bosnia and
Herzegovina).
Darko Simičević was a member of the Board of Directors until 5 February 2010, when he was relieved of his position and replaced
by Nebojša Antonijević, MSc.
As of 15 April 2010 Zoran Vehovar, MSc is a member of the Board of Directors, replacing Željko Puljić, MSc who was relieved of his
position on the same day.
All members of the Board of Directors, including President Zoran Vehovar, MSc, Boštjan Kralj, MSc and Nebojša Antonijević, MSc,
were relieved of their positions at the General Meeting of 16 July 2010. Their term of office ended when the aforementioned change
was registered on 6 August 2010.

Primo Communications, d. o. o.
Directors: Robert Erzin, MSc, Visar Dobroshi, Meta Zakrajšek and Barbara Kozarić
CEO: Visar Dobroshi
Notes: Management and governance are realised in line with the relevant legislation in Albania.
On 1 May 2010 Robert Erzin, MSc replaced Dušan Mitič, who was relieved of his position on the same day, as Managing Director.
On 27 July 2010 the company's General Meeting relieved Ylli Panariti, Bujar Musa and Boštjan Kralj, MSc from their positions
based on their resignations, and appointed Visar Dobroshi as CEO and Meta Zakrajšek and Barbara Kozarić as directors. Visar
Dobroshi and Robert Erzin, MSc have tendered their resignations. Visar Dobroshi will serve in his function until the end of March
2011, while Robert Erzin, MSc will serve in his function until the end of January 2011.

Gibtelecom Limited
Board of Directors: Joe Holliday (President), Tim Bristow, Dilip D. Tirathdas, Dr Jožko Peterlin, Zoran
Vehovar, MSc and Brigita Boh, MSc
CEO: Tim Bristow
Notes: Management and governance are realised in line with the relevant legislation in Gibraltar.
Ivica Kranjčević and Dr Filip Ogris-Martič were members of the Board of Directors until 20 May 2010, when they were replaced by
Dr Jožko Peterlin and Zoran Vehovar, MSc. Klavdij Godnič was replaced as member of the Board of Directors on 27 October 2010
by Brigita Boh, MSc.

SIOL, d. o. o., Croatia
Managing Director: Janez Marovt
Note: Management and governance are realised in line with the relevant legislation in Croatia.

On.net, d. o. o., Skopje
Managing Director: Klavdij Godnič
Procurator: Janez Marovt
Note: Management and governance are realised in line with the relevant legislation in Macedonia.
Predrag Čemerikić was Managing Director until 11 November 2010.
Dušan Mitič and Dr Mitja Štular were members of the Supervisory Board until 16 July 2010, when they were relieved and replaced
by Klavdij Godnič and Lea Benedejčič.
Aleksandar Trajkovski was a member of the Supervisory Board from 14 October 2010, when he replaced Vladimir Peševski who


                                                              21
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            Telekom Slovenia Group
            Telekom Slovenije, d. d.


resigned his position in 2009.
The entire Supervisory Board, comprising Klavdij Godnič, Lea Benedejčič and Aleksandar Trajkovski, was dismissed on 11
November 2010 owing to a change to the articles of association.

SIOL, B.V. in liquidation
Liquidator: Barbara Kozarić
Notes: Management and governance are realised in line with the relevant legislation in the Netherlands.
Boštjan Kralj, MSc and Darja Vrhunc were A directors, and Dr Filip Ogris-Martič and Dušan Mitič, B directors until 30 April 2010.
Tomaž Cirman was liquidator until 30 November 2010, and replaced by Barbara Kozarić, effective 1 December 2010.
The company is in liquidation since 26 May 2010.

One, d. o. o., Skopje
Directors: Klavdij Godnič and Dejan Kalinikov
Notes: Management and governance are realised in line with the relevant legislation in Macedonia.
Olivier Poncin and Dr Filip Ogris-Martič were members of the Board of Directors until 28 February 2010. Klavdij Godnič and Ivica
Kranjčević are members of the Board of Directors since 1 March 2010. Dušan Mitič was a member of the Board of Directors until 1
May 2010, when he was replaced by Branko Babič.
On 15 October 2010 the entire Board of Directors, comprising Klavdij Godnič, Dejan Kalinikov, Ivica Kranjčević, Branko Babič,
Boštjan Kralj, MSc and Procurator Janez Marovt, was dismissed and replaced Directors Klavdij Godnič and Dejan Kalinikov.
Dejan Kalinikov tendered his resignation on 17 January 2011 and was relieved of his position as Director by the General Meeting.
The company will have only one director owing to a change in its governance.

One to One, AD, Skopje
Board of Directors: Klemen Ramoveš (Executive Director); Tatjana Veljkovikj and Dejan Kalinikov (Non-
Executive Directors)
Notes: Management and governance are realised in line with the relevant legislation in Macedonia.
The company's name was Germanos Telecom, AD, Skopje until 13 April 2010.
ON 15 April 2010 Tatjana Veljkovikj replaced Dr Filip Ogris-Martič, who was relieved of his position on the same day, as member of
the Board of Directors. Igor Lokar was Procurator until 5 July 2010, when he was relieved of his position by the Board of Directors.
Boštjan Kralj, MSc was Executive Director until 9 August 2010, when he was relieved of his positions and replaced by Klemen
Ramoveš.
Dejan Kalinikov and Tatjana Veljkovikj tendered their resignations from their positions on the Board of Directors on 17 January
2011. Their were relieved by the General Meeting and replaced by Janez Marovt and Barbara Kozarić.

Digi Plus Multimedia Company Telecommunication Services Skopje, Ltd.
Managing Director: Janez Marovt
Notes: Management and governance are realised in line with the relevant legislation in Macedonia.
Predrag Čemerikić was the company's Managing Director until 30 March 2010.


Internal controls related to financial reporting

With respect to ensuring financial information that meets the criteria of the International Financial
Reporting Standards, the Group has established internal controls that mitigate the risks linked to
financial reporting.

Accounting controls ensure:
     - the credibility,
     - accuracy and
     - completeness
of financial data.

We provide for the regular professional training of employees, which ensures that they contribute high-
quality, accurate and timely financial information in their work. The core SAP information system plays
an important role in ensuring quality financial information.

Internal auditing
The Internal Audit Service comes under the organisational aegis of the Management Board secretariat
at Telekom Slovenije, d. d., and is directly answerable to the Management Board. It conducts internal
auditing for the entire Telekom Slovenia Group.

In its work, the Internal Audit Service abides by the standards for professional practice in internal
auditing, the code of professional ethics, legislation and other regulations. The scope and areas of


                                                              22
            Annual Report 2010
            Telekom Slovenia Group
            Telekom Slovenije, d. d.


regular audits are defined by the annual plan of work, which is compiled on the basis of risk
assessments. It is adopted by the Management Board each year, subject to the approval of the
Supervisory Board’s Audit Committee.

The Internal Audit Service verifies performance efficiency by assessing the functioning of internal
controls, by limiting risks in work procedures and by issuing recommendations for more efficient
conduct, thereby contributing to greater cost-effectiveness and better company performance.

The Internal Audit Service conducted 25 audits and issued a total of 151 recommendations relating to
the following areas of the Telekom Slovenia Group's operations:
    - corporate governance,
    - business process and internal controls,
    - procurement procedures,
    - investment projects, and
    - information security.

All reports were submitted to and discussed by companies' responsible management bodies, in
accordance with the valid Rules of Procedure for Internal Auditing at the Telekom Slovenia Group.
Audit reports for foreign companies were translated into English.

The Internal Audit Service reports on a half-yearly basis to the Management Board on its work and the
implementation of its recommendations. Its reports are also studied by the Audit Committee of the
Supervisory Board of Telekom Slovenije, d. d.

External auditing
At the 17th ordinary General Meeting of Telekom Slovenije, d. d. held on 1 July 2010, the audit firm
Ernst & Young, d. o. o., Ljubljana was appointed to audit the financial statements for the 2010 financial
year. Audit costs are disclosed in the Financial Report of Telekom Slovenije, d. d.

Statement of compliance with the Corporate Governance Code

Telekom Slovenije, d. d. hereby submits its statement of compliance with the Corporate Governance
Code, which was adopted on 8 December 2009 and entered into force on 1 January 2010 (hereinafter:
the Code). The Code is publicly accessible in Slovene and English on the website of the Ljubljana
Stock Exchange.

In accordance with the Recommendations on Corporate Reporting of 22 November 2010 issued by
the Ljubljana Stock Exchange, the statement relates to the previous financial year, namely from
January 2010 to 31 December 2010. There were no changes from the end of the accounting period to
the publication of this statement on 22 April 2011.

Certain recommendations of the Code were not relevant for the company during the period in
question. Consequently, the company was not in a breach of these recommendations, and they are
not listed below. The obligations binding on the company or its bodies for certain cases will be fulfilled
by the company if and when such cases occur. Otherwise, the company will explain any failure to
comply with the Code in the next statement.

----------------------------------------------------

The Management Board and the Supervisory Board assess that the company failed to comply with
certain recommendations of the Code, as explained below:

Chapter: CORPORATE GOVERNANCE FRAMEWORK

Recommendation 1: When the next amendments are made to the Articles of Association, the company
will also propose an amendment to include among the objectives that it pursues the long-term creation
of value for shareholders and the consideration of the social and environmental aspects of operations
with the aim of ensuring sustainable development. The company is nevertheless already pursuing
these objectives.



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         Telekom Slovenia Group
         Telekom Slovenije, d. d.


Recommendation 2 (2.1 and 2.2): The adoption of a corporate governance policy is a recommendation
introduced by the new Code. The company will strive to adopt a corporate governance policy by the
end of 2011.

Chapter: RELATIONSHIP BETWEEN THE COMPANY AND SHAREHOLDERS

Recommendation 4.2: The call for significant shareholders to publicly disclose their investment policy
in listed companies will be taken into account in the convening of the General Meeting in 2011.

Chapter: SUPERVISORY BOARD

Recommendation 6.3: This recommendation was not in force when the current Supervisory Board was
established. However, the Supervisory Board will strive to make firm commitments with respect to its
activities relating to the establishment and implementation of governance institutes at the company in
2011.

Recommendation 8.10: The Supervisory Board is obliged to comply with the Act Governing the
Earnings of Management Staff at Companies Under the Majority Ownership of the Republic of
Slovenia and Self-Governing Local Communities (ORZPPOGD4) in defining the objectives of
members of the Management Board and criteria for variable remuneration.

Recommendation 9 (9.1, 9.2 and 9.3): The Supervisory Board is expected to carry out a self-
assessment during the first half of 2011.

Recommendation 12 (12.1 and 12.2): The government resolution on recommendations for
representatives of the Republic of Slovenia on the supervisory bodies of companies under majority
state ownership was applied in determining the remuneration of members of the Supervisory Board
until the appointment of bodies by the Capital Assets Management Agency of the Republic of Slovenia
(AUKN). Other possible forms of remuneration, in line with the provisions of the Code and the AUKN,
will be proposed at the General Meeting in 2011.
Chapter: MANAGEMENT BOARD

Recommendation 16 (16.1 and 16.2): The company is obliged to comply with the Act Governing the
Earnings of Management Staff at Companies Under the Majority Ownership of the Republic of
Slovenia and Self-Governing Local Communities (ORZPPOGD4) in defining the system of
remuneration for the Management Board.

Chapter: TRANSPARENCY OF OPERATIONS

Recommendation 20: The company will strive to adopt a corporate communications strategy in 2011.
It has nevertheless defined a corporate communications strategy in the company's other acts.

Recommendation 20.2: The company complies in full with the rules of communication applying to
listed companies. To that end, it has also adopted the relevant documents, which all stakeholders
have been briefed on. In light of the anticipated organisational changes, the company is drawing up a
master communications strategy document, which it intends to adopt in 2011.
----------------------------------------------------

Telekom Slovenije, d. d. will continue to follow the recommendations of the Code in the future, and will
upgrade its corporate governance system accordingly.

Any deviation from the given statement of compliance with the Code will be published promptly by the
company.
       Ivica Kranjčević                                              Tomaž Berginc, MSc
       President of the Management Board              President of the Supervisory Board




                                                  24
          Annual Report 2010
          Telekom Slovenia Group
          Telekom Slovenije, d. d.


                                     1.9   Share trading and ownership structure

General information regarding Telekom Slovenije, d. d. shares as at 31 December 2010

Ticker symbol                                                TLSG
                                                             Ljubljana Stock Exchange,
Listing
                                                             prime market
Share capital (EUR)                                          272,720,664.33
Number of ordinary registered                 no-par-value
                                                             6,535,478
shares
Number of shares held in treasury                            30,000
Number of shareholders                                       12,676

Information about the movement of share prices and other information of importance to investors is
published on the website www.telekom.si in the Investor relations section.

Ownership structure and largest shareholders

There were no significant shifts in the ownership structure of Telekom Slovenije, d. d. Primarily
resident corporates and banks invested in TLSG shares. The most significant changes in ownership
were recorded by resident corporates, who increased their stake by 0.43 percentage points to 6.64%,
and by investment companies, who reduced their stake by the same amount to 2.76%.

As at 31 December 2010 there were 12,676 shareholders entered in the register of shareholders, a
decrease of 726 on the same day in 2009.

Ownership structure as at 31 December 2010


                                                                          52,54 % Republic of Sloven ia


                                                                          14,25 % SOD - state fun d


                                                                          10,25 % In divid ual sh areho lder


                                                                          6,64 % Domestic legal p erson s


                                                                          7,36 % KAD with PPS (state fun d)


                                                                          6,13 % Institucio nal investo rs


                                                                          2,37 % Foreig n leg al p erson s


                                                                          0,46 % Treasury shares




Changes in the ownership structure and number of shareholders
                                                                                                                 Ownership
                                                                         Ownership as at
                                                                                                                  as at 31
                          Name of shareholder                             31 December
                                                                                                               December 2009
                                                                           2010 in %
                                                                                                                    in %
Republic of Slovenia                                                                                 52.54               52.54
Slovenska odškodninska družba, d. d.                                                                 14.25               14.25
Individual shareholders (domestic and foreign)                                                       10.25               10.61
Resident corporates                                                                                   6.64                 6.21
Kapitalska družba, d. d.                                                                              5.59                 5.59
Investments funds and management companies                                                            2.76                 3.19
Foreign corporates                                                                                    2.37                 2.25
Banks                                                                                                 1.81                 1.63
Kapitalska družba, d. d. (PPS)                                                                        1.77                 1.77
Mutual and other funds                                                                                1.23                 1.20
Telekom Slovenije, d. d.                                                                              0.46                 0.46
Insurance companies                                                                                   0.17                 0.17
BPH                                                                                                   0.16                 0.13
Total                                                                                               100.00              100.00

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           Annual Report 2010
           Telekom Slovenia Group
           Telekom Slovenije, d. d.


Ten largest shareholders

There was no significant change in the company's ownership. As at 31 December 2010, the ten
largest shareholders held 79.99% of the company's share capital, the same as the previous year. In
2010 Intersvet, d. o. o. and Perspektiva FT, d. o. o. entered the ranks of the ten largest shareholders,
while Alpe Adria Privatbank AG and NLB, d. d. dropped off the list.

Comparison of the top ten shareholders in 2009 and 2010

                                                       %                                                      %
Shareholder as at 31 December 2010                              Shareholder as at 31 December 2009
Republic of Slovenia                                   52.54 Republic of Slovenia                            52.54
Slovenska odškodninska družba, d. d.                   14.25 Slovenska odškodninska družba, d. d.            14.25
Kapitalska družba, d. d.                                5.59 Kapitalska družba, d. d.                         5.59
NFD 1 delniški investicijski sklad, d. d.               2.36 NFD 1 delniški investicijski sklad, d. d.        2.37
Kapitalska družba, d. d. (PPS)                          1.77 Kapitalska družba, d. d. (PPS)                   1.77
Delniški vzajemni sklad Triglav steber 1                0.85 Delniški vzajemni sklad Triglav steber 1         0.85
Perspektiva FT, d. o. o.                                0,75 Poteza naložbe, d. o. o.                         0.70
Intersvet, d. o. o.                                     0.66 Alpe Adria Privatbank AG                         0.70
Hypo Bank, d. d.                                        0.64 Hypo Bank, d. d.                                 0.67
Poteza naložbe, d. o. o. (in bankruptcy)                0.58 NLB, d. d.                                       0.55
Total                                                  79.99 Total                                           79.99

Number of shares held by the Management Board and the Supervisory Board of Telekom
Slovenije, d. d.

The table below lists the members of the Management Board and Supervisory Board who held TLSG
shares as at 31 December 2010. Other members of the aforementioned bodies did not hold the
company's shares.

Trading in corporate shares by representatives of the company and reporting on such transactions are
governed at Telekom Slovenije, d. d. by the Rules Restricting Trading in Corporate Shares Based on
Inside Information.

Overview of shares held by the Management Board and the Supervisory Board of Telekom
Slovenije, d. d.
                                                                                    Number of
Name                                  Office                                                             % of equity
                                                                                      shares
Management Board
                                      Member of the Management Board and
Darja Senica                                                                                338              0.0052
                                      Workers Director
Supervisory Board
Dr Tomaž Kalin                        Vice-President of the Supervisory Board               100              0.0015
Martin Gorišek                        Member of the Supervisory Board                       125              0.0019
Milan Richter                         Vice-President of the Supervisory Board                 1              0.0000
Total                                                                                       564              0.0086

Share trading and key share-related financial data

TLSG shares primarily followed the movement in prices of blue-chip shares on the Ljubljana Stock
Exchange, which is represented by the SBI TOP. The share price fell 36.76% compared with the
prices at the beginning of the accounting period. The share price closed at EUR 86 on the last trading
day of December 2010.




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          Annual Report 2010
          Telekom Slovenia Group
          Telekom Slovenije, d. d.


Trading statistics for TLSG shares on the Ljubljana Stock Exchange in 2010

Standard price in EUR                                              2010                2009
High                                                                 137.03              177.69
Low                                                                   83.60              118.00
Average                                                              104.39              148.57
Volume in EUR thousand                                             2010                2009
Total volume for the year                            20,824.94       33,768.95
Highest daily volume                                  1,031.68        5,923.80
Lowest daily volume                                       0.79             2.62
Average                                                  82.97          134.54
* Note: With the migration of the Ljubljana Stock Exchange to the Xetra® international trading platform
on 6 December 2010, the official price became the standard price, which replaced the former unit
price.

Movement in the TLSG share price compared to the SBI TOP
             140                                                                                         1,050
             EUR

             130                         TLSG
                                                                                                         1,000

             120

                                                                                                         950
             110

                                          SBITOP
             100
                                                                                                         900

              90

                                                                                                         850
              80


              70                                                                                         800




                                                TLSG in EUR                   SBITOP



Key financial data relating to shares

                                                                              31 December         31 December
                                                                                     2010                2009
Market price (P) of one share on the last day of trading
of the year in EUR                                                                       86.00         135.00
                                    1
Book value (BV) of one share in EUR                                                      95.54         129.72
                                2
Earnings per share (EPS)                                                                -36.19           9.57
P/BV                                                                                      0.90           1.04
                                     3
Capital return per share in %                                                          -36.76%        14.41%
1
  The book value of one share is calculated as the ratio of the book value of Telekom Slovenije, d. d.’s
equity as at 31 December to the weighted average number of ordinary shares during the accounting
period.
2
  Earnings per share is calculated as the ratio of the Telekom Slovenia Group's net operating profit for
the accounting period to the weighted average number of ordinary shares during the accounting
period excluding treasury shares.
3
  The capital return per share is calculated as the ratio of the share price on the final trading day of the
period minus the share price on the first trading day of the period to the share price on the first trading
day of the period.



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         Telekom Slovenia Group
         Telekom Slovenije, d. d.


Dividend policy

The dividend policy of Telekom Slovenije, d. d. is development-oriented and geared towards
strengthening the company’s competitive market position. The dividend is defined in the company’s
Articles of Association as a percentage of the net profit, priority being given to securing funds for
investments in accordance with the development plan.

The General Meeting decides on the amount of gross dividend per share separately for each financial
year. A resolution was passed at the 17th General Meeting held on 1 July 2010 on the payment of
dividends in the gross amount of EUR 3 per share.

Treasury shares

The company held 30,000 treasury shares as at 31 December 2010, representing 0.46% of equity.
The number of treasury shares has remained unchanged since their acquisition in 2003.

Data and explanations related to the Mergers and Acquisitions Act

Telekom Slovenije, d. d. recorded the following situation as at 31 December 2010 in areas related to
mergers and acquisition legislation:

-   There were no significant changes compared with the previous year in the structure of Telekom
    Slovenije, d. d.'s share capital as stated in the subsection on ownership structure in this section.
-   All TLSG shares are freely transferable.
-   Telekom Slovenije, d. d. did not have securities providing special controlling rights, nor did it place
    limits on voting rights.
-   The company was not aware of any agreements between shareholders that might place any limits
    on the transfer of securities or voting rights.
-   Management has no powers to issue or purchase treasury shares.
-   The company's rules on the appointment and replacement of members of management bodies,
    and regarding changes to the Articles of Association and the powers of management are set out in
    its Articles of Association.

Shareholders with a significant direct or indirect holding of the company's securities (i.e. a qualifying
holding of 5% or more of voting rights) on 31 December 2010 were as follows:

-   Republic of Slovenia                          52.54%
-   Slovenska odškodninska družba, d. d.          14.25%
-   Kapitalska družba, d. d.                       5.59%


The company's financial calendar for 2011 is published in the SEOnet system and on the company's
website at www.telekom.si in the Investor relations section, where any changes to the financial
calendar will be published in 2011.

Communication with investors

The Group communicated with international investors, stock market analysts and other financial
publics at conferences, such as the International Investors' Conference organised by Raiffeisen
Zentrobank in Zuers, Austria in April 2010, and through a "roadshow" organised by the Vienna and
Ljubljana Stock Exchanges, in cooperation with Unicredit, London in October 2010. The Group
participated in all major Slovenian financial events, such as the Slovene Capital Markets Day held in
Ljubljana in May and December 2010.

It published a quarterly TLSG news letter and regularly reported business events on SEOnet. Telekom
Slovenije was the only company in Slovenia to organise and broadcast its General Meeting over the
internet. The publication Delničar (Shareholder) was issued to coincide with the General Meeting, and
a copy sent to all shareholders. As in previous years, the company was among the finalists for the
Portal award.



                                                    28
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          Telekom Slovenia Group
          Telekom Slovenije, d. d.


                    1.10 Significant achievements of the Telekom Slovenia Group

January
- Telekom Slovenije, d. d. and Mobitel, d. d. are both recognised as respected employers for 2009.
- Avtenta.si, d. o. o. receives status as an Exchange and OCS Service Provider, which facilitates
   the provision of "packaged services".

February
- Mobitel, d. d. is recognised by Cankarjev Dom as sponsor of the year for 2009.
- Aneks, d. o. o., Banja Luka presents the latest digital television service, "Blic TV".
- In its offer, the company introduces combined packages with higher data transfer rates, including
   the "3 in 1" triple play package (internet, telephony and television).
- The Macedonian company One, d. d., Skopje (now One, d. o. o.) offers a service to verify the
   volume of internet traffic.

March
- Telekom Slovenije, d. d. encourages users to migrate to SiOL TV via the campaign "The Time is
   Now for Digital".

April
- The socially responsible environmental campaign Eco-Quiz, whose main sponsor is Telekom
   Slovenije, d. d., receives the prestigious Gold Quill PR award.
- After one year, Avtenta.si, d. o .o. successfully carries out the first re-accreditation of the
   sihramba.eu archiving service, demonstrating for the second time that the service complies with all
   currently valid archiving legislation.

May
- Just five months after the global presentation of the first 3D TVs, Planet 9, d. o. o., together with
   Telekom Slovenije, d. d., facilitates the viewing of 3D content on a 3D TV by broadcasting live
   matches from the French Open tennis tournament.
- One, d. o. o. receives first prize in the category of corporate humanitarian activities among large
   and medium-sized companies for 2009, in a selection process organised by the Centre for
   Institutional Development (CIRA).

June
- Najdi, informacijske storitve, d. o. o. offers users new online dictionaries. With the addition of
   Spanish, French and Italian, users now have at their disposal 10 dictionaries in 5 languages.
- Telekom Slovenije, d. d. transitions to the computerised/electronic ordering of goods and services
   on 1 June, introducing nearly paperless operations.

July
- Tia, the interactive online assistant who helps users find answers to questions related to the
    company, is upgraded with user links to chat rooms and the remote helpdesk.
- Telekom Slovenije, d. d. hosts the Slovenian Prime Minister and the Minister of the Economy.
    They are briefed by the company on current topics within the Telekom Slovenia Group and on
    solutions to key challenges facing the Group. The meeting includes discussions focusing on the
    reorganisation of all Slovenian companies, which will lead to the merger of Telekom Slovenije,
    d. d. and Mobitel, d. d., on the legislative and regulatory framework, on difficulties arising from the
    default of alternative operators and on the Group's international operations in south-eastern
    Europe.
- Telekom Slovenije, d. d. introduces the new "Custom Office" service, which enhances the range of
    business packages.

August
- GVO, d. o. o. takes an important step in realising its strategic objectives abroad with the
   conclusion of its first such transaction. The initial team makes its way to Buštěhrad in the Czech
   Republic, where it will install a fibre optic cable connection for a solar power plant.




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-   Telekom Slovenije, d. d. launches SiOL BOX, a new TV communicator that brings several new
    features and functionalities, and represents a new user experience. With it, the company begins
    introducing the concept of "social television" under the SiOL brand.

September
- Telekom Slovenije, d. d., with partner company presents the new MiniMSAN product, which
   makes the final for this year's award from the prestigious InfoVision Awards broadband forum.

October
- At the Golden Drum international advertising festival, Mobitel, d. d. receives the prestigious Silver
   Drum award for the publication Letopis družbe Mobitel – Ogledalo uspeha (Mobitel Company
   Profile – Mirror of Success).
- Mobitel launches a new corporate advertising campaign, which brings together tradition, care for
   the environment, humanitarian activities and top-flight sport under the slogan, "You Are as Big as
   Your Heart".
- Through the sale of the SiOL BOX mascot Xobi, funds are raised for the Mali Princ (Little Prince)
   organisation.
- Najdi, informacijske storitve, d. o. o. presents the Najdi.si map with a new look and updated
   content. The free Najdi.si service also offer new functionalities, such as camera views, views of
   city passenger traffic routes and satellite images.

November
- Meetings between Telekom Slovenia Group employees, the Management Board of Telekom
   Slovenije, d. d., the CEO of Mobitel, d. d., the directors of organisational units of both companies
   and the directors of other Telekom Slovenije, d. d. subsidiaries are held throughout Slovenia. More
   than half of the Group's employees attend the eight meetings.
- Just six months after the first 3D TVs were presented in Slovenia, Telekom Slovenije, d. d. offers
   SiOL TV users 3D content on demand, which they can watch on a 3D-ready TV, together with
   special glasses.
- Telekom Slovenije, d. d. receives an award from the daily newspaper Finance for best annual
   report in sustainable development reporting.
- The doors open to seven so-called "demo-points", where users can test and subscribe to SiOL
   broadband services.
- In mid-November Telekom Slovenije, d. d. launches the new Trio 10M subscriber packages and
   offers HD channels to users on the copper-based network. Access to Twitter is introduced as a
   new SiOL BOX feature.
- Telekom Slovenije, d. d. offers its business partners the new Click to Call 080 solution in the scope
   of its toll-free call number service.

December
- At the beginning of December, Telekom Slovenije, d. d. introduces a new service, Secure Home,
   for the remote surveillance and security of apartments and small business premises.
- Mobitel, d. d. selects the winners of the M:Android competition, in which more than 100 developers
   submitted over 150 concepts for new applications for Android mobile phones. The competitions
   was held in cooperation with HTC.
- Avtenta.si, d. o. o.'s SAP Hosting status is successfully recertified. The audit was carried out by
   authorised experts from SAP AG from Waldorf, Germany.

Significant business events in 2010 are also published on the company's website at www.telekom.si.

                           1.11 Significant events after the balance sheet date

January
- The Serbian company Pogodak, d. o .o., Belgrade, which is fully owned by the subsidiary Najdi,
   informacijske storitve, d. o. o., begins liquidation proceedings on 11 December 2011. For this
   reason, the company's name is changed to Pogodak, d. o. o., Belgrade – in liquidation.




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 February
- Mobitel, d. d. and Microsoft organise the M:Windows Phone 7 competition for best Slovenian
    applications for mobile phones with the Windows Phone 7 operating system.
- At its regular session, the Supervisory Board of Telekom Slovenije, d. d. is briefed on the next
    steps in the merger of Mobitel, d. d. and Telekom Slovenije, d. d., which it approves unanimously.
- Telekom Slovenije, d. d. digitalises its cable TV service in line with current trends in fibre optic
    networks and cable systems.
- Coinciding with the European Data Protection Day, the subsidiary Avtenta.si, d. o. o. receives the
    ISO/IEC 27000 information security certificate, as recognition of its high level of personal data
    security.
- Telekom Slovenije, d. d. introduces the SiOL BOX S TV communicator, which offers an advanced
    digital TV experience and is a somewhat simpler version of the SiOL BOX.

March
- The 18th general meeting of Telekom Slovenije, d. d. is held on 24 March 2011 at the request of
   shareholders, who together represent 5.82% of the company's share capital.

April
- Planet 9, d. o. o. is merged with Najdi, informacijske tehnologije, d. o. o. The company's Managing
   Director is Rudolf Skobe.

                                      1.12 Risk management

The Telekom Slovenia Group comprehensively updated its risk management system last year.
The Group adopted a risk assessment and reporting methodology, and established a risk
management committee with the aim of ensuring a systematic and effective risk management
system. The use of the methodology was presented at workshops organised for the entire
Telekom Slovenia Group.

The primary objectives of the comprehensive and prompt identification of risks and their effective
management are as follows:
- to increase the likelihood of achieving the Group's strategic and business objectives;
- to respond more rapidly to internal and external changes;
- to improve cash management;
- to mitigate the impact of potential negative events; and
- to optimise the risk/return ratio.

The risk management system within the Telekom Slovenia Group is coordinated by the risk
management department, which constitutes part of Telekom Slovenije, d. d.'s finance department. The
risk management department keeps a register of risks, is responsible for the development of
methodologies and tools and warns of potential risks in individual areas and in business functions. It
also participates in the implementation of risk management processes by providing technical
assistance.

Identification of risks, risk management strategies and monitoring the implementation of
measures

Risks are identified during the drafting of the business plan and when revisions thereto are adopted.
They are also identified for every major business decision or project and for every significant change
on the market. Priorities are set and the most appropriate risk management method selected with
regard to the risk assessments performed and the weighing of costs and benefits. To that end, the
Group decides between strategies that include assuming risk, avoiding risk, transferring risk to a third
party and mitigating risk. Risks are mitigated by using various methods to protect the Group, such as
establishing internal controls, implementing scenarios to reduce risks to an acceptable level, through
transactions on the money market and by using derivatives, in particular interest-rate swaps (IRS) and
interest-rate caps.

Regular risk reporting is carried out at the end of every quarter, while the implementation of risk
management measures is monitored monthly. Risk owners, i.e. members of the Management Board,


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managing directors of Group companies, sector directors, heads of departments and other
organisational units and authorised experts, are responsible for the initial recognition and monitoring of
risks.

The risks faced by the Telekom Slovenia Group derive from the internal and external environments.
External risks include the most significant market and regulatory risks, while internal risks include the
risk of the inappropriate planning and execution of projects, the risk of inappropriate consolidation
processes, the risk of poor management of strategic investments abroad and employee-related risks.

Risks from the external environment

Market risks, the impact of the economic crisis and the competitive environment
The impact of the economic crisis is seen on the one hand in users, who have become more price-
sensitive and thus less profitable, and in operators, who are financially strapped and recording losses
due to past price wars, on the other hand. Financial difficulties and the threat of bankruptcy increase
the risk of default by operators.

Highly-competitive electronic communication markets give users a large selection of various offers
from numerous operators. The Telekom Slovenia Group faces the risk of adapting too slowly to new
business models when introducing new services and products.

The risk of losing full ownership of a user and the associated loss of revenue is a significant business
risk. It is of increasing importance to the user that the quality of service meets his or her expectations,
while it is significantly less important who provides that service. The Group manages risks by
communicating an image of a credible, trustworthy partner who brings the user sufficient added value.
In addition, the Group continuously creates new packages of integrated solutions and services
(mobile, fixed and IT) for residential and business users. Through its superior quality of services and
by providing comprehensive support and customer care, the Group will further exploit opportunities for
"cross-selling " and "upselling".

Regulatory risks: over-regulation in Slovenia and insufficient regulation on the markets of
south-eastern Europe
The fixed and mobile telecommunications markets in Slovenia are already over-regulated, while the
regulation of fibre optic connections and broadband access is planned. The regulatory body could
further tighten operating conditions due to a change to the future market position of the merged
company. The regulatory body imposed the majority of measures with the aim of increasing
competitiveness and establishing alternative operators on the market, which drives down the market
share of the Telekom Slovenia Group. Additional regulation would increase the risk of a further decline
in market share in the future.

To mitigate regulatory risks in Slovenia, the Group will do more than follow regulatory body's
requirements; it will also actively participate in market analysis processes prior to the imposition of
measures, and lobby the Competition Protection Office and APEK with the aim of helping to shape
regulatory changes. The Group will exhaust all available legal remedies in the event inappropriate and
disproportionate measures are introduced.

In contrast, the markets in Kosovo and Macedonia are subject to insufficient regulation, or no
regulatory measures are implemented. The lack of regulation could result in the abuse of the dominant
position held by operators on these markets. Irrational regulation, such as the abrogation of
asymmetry without legal grounds, represents an additional risk. In addition to adverse regulatory
conditions in Macedonia, there is also the risk of highly unfavourable political conditions for foreign
investments.

Risks from the internal environment

Risks related to the planning and execution of projects and the consolidation of processes
The restructuring of Group companies' operations is a response to changing market conditions and
the basis for more efficient control of operating costs, the provision of integrated services to users and
the implementation of policies adopted in the Group's strategic business plan until 2015. Significant
changes in the organisational structure could result in bottlenecks or the slowed functioning of

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business processes. Thus, there is a risk that insufficient attention is given to current sales activities
and that customer service is neglected. For the effective consolidation of systems and processes that
support existing operations and new business strategies, processes must be catalogued,
administrators defined and optimisation activities immediately implemented.
The optimisation of processes and the control of costs are of particular importance during the current
economic crisis. In certain segments, such a strategy could be in contrast to the Group's efforts to
increase, or at least maintain, the number of users. The reduction of costs must not, therefore, affect
customers’ satisfaction.

Risk of poor management of strategic investments abroad
The Group will focus on improving the exploitation of synergies to mitigate the risk of the ineffective
operations of companies abroad. This requires the thorough restructuring of foreign companies'
operations. Consolidation will be carried out primarily on the network and in the area of support, and to
a lesser degree in sales and marketing. Attention must be given to information security legislation
when consolidating information systems at the international level.

Employee-related risks
The process of merging companies within the Group will result in numerous changes that could meet
opposition owing to the fear of uncertainty and the desire to maintain the status quo. Also tied to the
merger is the risk of future performance, which derives in part from differences in organisational
cultures and in part from insufficient knowledge of associated companies. We have also identified
insufficiently transparent competences and responsibilities. Employee-related risks will be managed by
monitoring and motivating key perspective personnel, through the regular provision of information, and
by setting priorities and delegating.

Significant risks by individual area and market

Significant risks, to which the Group assesses that it will be exposed to in the future as well, are
presented below. These risks are broken down into three groups: business, financial and operational.
The list and assessment of risks was expanded to include the mobile communications market in 2010.
The Group also identified and assessed significant risks in Macedonia and Kosovo.

Risks for the fixed telecommunications market

Business risks

Business risks are linked to the successful implementation of the Telekom Slovenia Group's strategy,
the ability to ensure the generation of operating revenues in the short and long term, and to
maintaining the value of assets and the Group's reputation.

IDENTIFIED BUSINESS RISKS
Risk                                    Method of management
                                         - A proactive sales approach, the development of different
                                            business models (leasing models for equipment, equipment
Risk of changes to                          co-financing, an integrated turnkey offer, an additional range
macroeconomic conditions                    of services with business partners within the Group and with
affecting operations in key                 external partners, etc.).
markets                                  - Consistent monitoring of economic trends and actively
                                            adapting the range of products and services to new
                                            conditions.
                                         -   Active participation in market analyses before the
                                            imposition of measures, alerting authorities of possible
                                            irregularities and monitoring regulatory measures.
                                         - Monitoring market development and conditions on other EU
                                            markets.
Risk of regulatory pressures
                                         - Actively briefing the relevant EU institutions and exhausting
                                            all available legal remedies with regard to disputed
                                            regulatory decisions.
                                         - Ensuring compliance with internal acts and legislation in all
                                            processes.

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                                    -   Active market presence, continuous development of new
                                        products, services and content, and a shift to convergent
                                        services and the optimisation of the existing range of
                                        products and services.
                                    -   Searching for new markets and market approaches,
                                        continuous concern for the quality of services and
                                        customers and a range of additional benefits.
Risk of the migration of users to
                                    -   Preparation and in-depth market research, more detailed
other operators
                                        market segmentation and the adaptation of sales activities
                                        to a specific segment.
                                    -   Proactive approach to subscribers with regard to notification
                                        of changes to the range of products and services and
                                        prices, and benefits and advantages.
                                    -   Aggressive presentation of the Group's competitive
                                        advantages, its loyalty programme and other benefits.
                                    -   Restructuring of the operations of foreign companies.
Risk of poor management of
                                    -   Improved exploitation of synergies, and consolidation in the
strategic investments abroad
                                        areas of the network and support.
Risk of regulation of call
                                    -   Replace of numbering (under the responsibility of Ipko,
termination to numbering
                                        d. o. o.).
Ipko, d. o. o.
                                    -   Planning and verifying the economic efficiency of
                                        investments.
Investment risk
                                    -   Continuous improvement of the quality of preparations,
                                        execution, activation and monitoring of investments.
                                    -   Restructuring of the range of products and services,
                                        defining a pricing strategy and exploiting the
Risk of a general drop in retail        comprehensiveness of the range of products and services
and wholesale fixed and mobile          for the expansion of operations.
telephony price levels (VoIP)       -   Focused and guided transition from traditional to IP
                                        services, and increasing productivity and streamlining
                                        business processes.
                                    -   Open, proactive, regular and transparent communication,
                                        personal contacts, meetings and gatherings with journalists
Risk of communication noise or
                                        and editors where information can be obtained.
misunderstandings in relations
                                    -   Complying       with legislation and stock             exchange
with the media, the internal,
                                        communication standards.
general and financial publics and
                                    -   Verifying the understanding of information and the
other institutions
                                        application of the "right of correction or reply" in accordance
                                        with the Media Act.
                                    -   Monitoring key market trends, regulations and the
                                        operations of other operators; motivating employees to
                                        provide innovative ideas and improvements, timely
                                        response to customers' needs and shortening the time from
                                        idea to realisation; integrated and universal management of
                                        projects to launch new services; mandatory use of tested
                                        and validated solutions and devices.
                                    -   Defining and managing business processes and IT system
Risk of introducing new services
                                        support for new products.
and products
                                    -   Intensive monitoring of the quality of services and the
                                        appropriateness of processes immediately following their
                                        introduction, and prompt measures to address identified
                                        deficiencies.
                                    -   Actively searching for reliable potential subscribers;
                                        concluding agreements via pilot installations; ordering of
                                        equipment with regard to actual market needs; striving for
                                        integrated solutions.
                                    -   Precisely defined strategy that is in line with national
Risks associated with date
                                        policies; inclusion on various councils at the national level;
services
                                        political lobbying; researching of best practices.

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                                               -    Integrated solutions: inclusion of key partners and their
                                                    experts; establishment of a pilot programme through a
                                                    public-private partnership.
                                               -    Measures to increase employee satisfaction and exhaustive
                                                    provision of information, particularly in light of coming
Employee-related risks
                                                    changes (Orion).
                                               -    Consistent implementation of internal restructuring.
                                               -    Active defence before the courts and the contesting of
                                                    lawsuits, striving for out-of-court settlements of disputes and
Legal risks linked to lawsuits and                  consulting with internal and external legal experts to avoid
legislation                                         further lawsuits in sensitive business decisions.
                                               -    Influencing legislative solutions through cooperation in the
                                                    legislative process, by issuing expert proposals.
Risk of limiting the provision of              -    Monitoring of operators' payments and requesting collateral
wholesale services by sample                        for liabilities.
offers owing to payment                        -    Introduction of limits on the supply of wholesale services in
indiscipline                                        accordance with RUO, RIO, BRO, etc.



BUSINESS RISK CHART
Significance*                                                                   2008      2009          2010
Risk of changes to macroeconomic conditions affecting
operations in key markets
Risk of regulatory pressures
Risk of the migration of users to other operators
Risks related to expansion to new markets
Risk of poor management of strategic investments abroad
Risk of regulation of call termination to numbering (Ipko)
Investment risk
Risk of a general drop in retail and wholesale fixed and
mobile telephony price levels (VoIP)
Risk of communication noise or misunderstandings in
relations with the media, the internal, general and financial
publics and other institutions
Risk of introducing new services and products
Risks associated with date services
Employee-related risks
Legal risks linked to lawsuits and legislation
Risk of limiting the provision of wholesale services by
sample offers owing to payment indiscipline
* Effect x probability

Legend:
green – low risk; yellow – medium risk; red – high risk; white – no risk identified.

Financial risks

The groups of risks presented below have been identified in the financial risk management policy.
Detailed information about these risks is provided in the Financial Report of the Telekom Slovenia
Group.

IDENTIFIED FINANCIAL RISKS
Risk                                         Method of management
                                               -   Liquidity risk measures: system for planning and
                                                   managing cash flows (daily monitoring, with three-month
Liquidity risk and solvency risk
                                                   forecasts), approved short-term credit lines at domestic
                                                   banks, introduction of criteria for monitoring and planning


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                                                      cash flows at other Group companies, short-term financing
                                                      within the Group and the use of a cash-pooling method.
                                                 - Long-term solvency risk measures: maintaining stable
                                                      components of equity.
                                                 - Introduction of quantitative measures and bases for the
                                                      ongoing (quarterly) assessment and evaluation of solvency.
                                                      – Monitoring on the basis of a time series:
                                               a) liquidity ratios: - short-term, accelerated and quick ratios,
                                               b) working capital management indicators: accounts receivable
                                               turnover, ratio of working capital to sales revenue,
                                               c) ratio of net debt to EBITDA and ratio of EBIT to finance costs
                                               for interest.
                                                 - Introduction of an automated process in the CRM for
                                                      measures in the area of sales in connection with credit risk.
                                                 - Introduction of the monitoring of daily shifts in a subscriber's
                                                      traffic with regard to average usage and informing
                                                      subscribers of increased usage and the implementation of
Subscriber credit risk
                                                      specific measures.
                                                 - Comprehensive and accurate subscriber data that includes
                                                      a subscriber's tax number.
                                                 - Coding of customers in the CRM (one code for one
                                                      customer).
                                                 - Accelerated collection of outstanding receivables and the
                                                      introduction of bank guarantees or other collateral
Operator credit risk
                                                      instruments.
                                                 - Conclusion of agreements on the repayment of debt.
                                                 - Monitoring of financial markets, the use of interest-rate
                                                      hedging instruments for 28% of loans and the contractual
                                                      option to swap a variable interest rate for a fixed interest
                                                      rate.
Interest-rate risk
                                                 - In addition to the comprehensive assessment of the target
                                                      level of the hedged interest-rate position, a target proportion
                                                      of loans with a fixed interest rate and loans secured by
                                                      derivatives.
                                                 - The use of appropriate financial instruments.
Currency risk                                    - Assessment regarding the use of appropriate financial
                                                      instruments in the event of exposure to currency risk rises.
Risk of amendments                  to   tax     - Monitoring of tax legislation, studying the consequences of
legislation                                           financial decisions in advance.

FINANCIAL RISK CHART
Significance*                                                                  2008         2009          2010
Liquidity risk and solvency risk
Subscriber credit risk
Operator credit risk
Interest-rate risk
Currency risk
Risk of amendments to tax legislation
* Effect x probability

Operational risks

Operational risks are linked to the functioning, security and abuse of existing ICT networks and the
planning and implementation of new ICT networks, services and devices, and to the effectiveness of
processes.




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IDENTIFIED OPERATIONAL RISKS
Risk                              Method of management
                                   - Updating of the business continuity plan. Instructions were
                                      adopted for the duty service in the event of a security
                                      incident and instructions regarding the reporting and
                                      classification of security incidents.
                                   - Linking of the emergency management plan with disaster
Risks associated with the             recovery plans for individual systems that support operations
functioning and security of ICT       and the provision of services.
networks and services              - Introduction of annual testing of the business continuity plan
                                      by individual sectors and responsible persons.
                                   - Enhancement of the ICT network and elements for
                                      increasing resistance to possible network failures.
                                   - Establishment of bi-level maintenance of the IP contact
                                      centre and regular preventive inspections.
                                   - Preventive maintenance and the replacement of critical
                                      elements, acquisition of additional back-up equipment from
                                      equipment that has been removed.
                                   -   Introduction of new technological solutions and upgrading of
Network and technology                the network, taking into account real disposable resources.
obsolescence risk                  -   The clearance of more complex faults requires a higher
                                      level of expertise of maintenance personnel and more time
                                      to clear faults. The Group improves the current situation by
                                      drafting individual proposals for upgrading the existing
                                      network.
                                   - Use and upgrading of systems to prevent fraud.
                                   - Upgrading of technical security systems in facilities where
                                      increased security risks have been identified, and the
Risk of fraud
                                      regular maintenance of technical security systems.
                                   - The aim is to ensure more coordinated functioning in this
                                      area between individuals responsible for work processes.
Risks associated with planning     - Introduction of a service-oriented architecture (SOA) and the
and developing ICT technologies       redundancy of network elements.
Risks associated with the          - The definition of risks and methods for managing, as an
execution and quality of projects     integral part of the start-up plan of every new project.
                                   - Introduction of contemporary approaches and standards,
Risks associated with process         precise monitoring of process efficiency, and the correction
efficiency                            of processes and the merging of functions within the Group,
                                      as necessary.
                                   - Regular implementation of all measures for the maintenance
                                      of formalised quality and environmental management
                                      systems; emphasis on the implementation of internal audit,
                                      on corrective and preventive actions, and on external
                                      auditing.
                                   - Systematic approach to continous improvement in the last
Risks associated with quality         year of the significantly upgraded KRI/KPI system as the
and environmental management          basis for performance management.
                                   - The project to improve the situation in the area of IT support
                                      for reporting at Telekom Slovenije, d. d.
                                   - Replacement of all contracted partners for whom the Group
                                      has identified not-fulfilling the contract provisions.
                                      Strengthening of the relationship with the primary
                                      comprehensive waste management service provider.
Risk of damage/destruction of
property – direct damage (e.g.     - Risk is transferred to an insurance company through
natural disasters, fire and           insurance coverage of the relevant amount.
earthquakes)




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                                      -   Introduction of an additional system of internal controls and
                                          the implementation of redundant technological solutions to
                                          ensure the continuous charging of services, optimisation of
                                          revenue processes from realisation to payment, and the
                                          introduction of information support with respect to managing
                                          revenue-loss, fraud and credit-risk.
Revenue-loss risk in "switch to
                                      -   The organisation of an expanded operational group for RA
bill" processes
                                          (Revenue Assurance) is also planned, including the formal
                                          definition of duties, competences and responsibilities, as
                                          well as the organisation of an RA committee.
                                      -   Comprehensive control and management of data regarding
                                          the network and integration with IT work flows as the basis
                                          for introducing new IT support for the charging of services.

OPERATIONAL RISK CHART
Significance*                                                     2008         2009         2010
Risks associated with the functioning and security of ICT
networks and services
Network and technology obsolescence risk
Risk of fraud
Risks associated with planning and developing ICT
technologies
Risks associated with the execution and quality of projects
Risks associated with process efficiency
Risks associated with quality assurance and environmental
management
Risk of damage/destruction of property – direct damage (e.g.
natural disasters, fire and earthquakes)
Revenue-loss risk in "switch to bill" processes
* Effect x probability

Risks for the mobile telecommunications market
Business risks

Identified business risks
Risk                                 Method of management
Risk       of     changes       to
macroeconomic           conditions    -   Adapting the range of products and services to new
affecting operations in key               conditions.
markets
                                      -   Fast-track drafting of materials for the Competition
Risk of regulatory pressures              Protection Office.
                                      -   Strengthened cooperation with the APEK.
                                      -   Active market presence, striving to keep the range of
                                          services and devices current and aggressive market
Risk of the migration of users to
                                          communication.
other operators
                                      -   Active recruitment of customers from other operators,
                                          particularly those who have left Mobitel in recent years.
                                      -   Participation of other sectors (e.g. procurement and
                                          controlling), in addition to the director of the technology
                                          sector, in the processes of procurement, cost control and
Investment risk
                                          negotiations.
                                      -   Exploitation of the Group's synergies, where possible (e.g.
                                          Ipko and One).
                                      -   Extensive simulations of the impact of new pricing models
Risk of a general drop in retail          and changes to existing price models on the company's
and wholesale fixed and mobile            revenues.
telephony price levels (VoIP)         -   An analysis is being prepared of possible changes to retail
                                          pricing models, with the aim of increasing revenues.

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                                      -   All complex matters are communicated comprehensively
Risk of communication noise or
                                          using various communication tools. The quality of
misunderstandings in relations
                                          information receipt is monitored and additional information
with the media, the internal,
                                          activities implemented if communication noise arises or if
general and financial publics and
                                          there is suspicion that the risk of communication noise
other institutions
                                          exists.
                                      -   Prior to the introduction of new services and pricing models,
                                          it is necessary to verify to what extent they would be
Risk of introducing new services          accepted by the market.
and products                          -   The development of services is oriented to services
                                          requiring lower maintenance costs. At the same time,
                                          existing services are actively justified.
Risk of the departure of key          -   The systematic monitoring and treatment of key personnel
personnel                                 is part of the company's business policy.
Risk     of   obsolescence     or
                                      -   Active concern for employee training through planning for
insufficient      expertise    of
                                          every organisational unit and employee.
employees
Risk related to the suspension of     -   Soft approach to encouraging employees to retire, resulting
employment                                in new employment opportunities.
                                      -   Compliance with the law, and the effectiveness and
                                          preventive nature of legal assessments of business
Legal risks linked to lawsuits and
                                          decisions that could result in legal risks.
legislation
                                      -    Influencing legislative solutions through cooperation in the
                                          legislative process, by issuing expert proposals.
Business risk chart
Significance*                                                                                2010
Risk of changes to macroeconomic conditions affecting operations in key markets
Risk of regulatory pressures
Risk of the migration of users to other operators
Investment risk
Risk of a general drop in retail and wholesale fixed and mobile telephony price levels
(VoIP)
Risk of communication noise or misunderstandings in relations with the media, the
internal, general and financial publics and other institutions
Risk of introducing new services and products
Risk of the departure of key personnel
Risk of obsolescence or insufficient expertise of employees
Risk related to the suspension of employment
Legal risks linked to lawsuits and legislation
* Effect x probability

Financial risks

Identified financial risks
Risk                                 Method of management
                                      - Daily, monthly and annual cash-flow plans.
Liquidity risk and solvency risk
                                      - Ensuring the appropriate level of working capital.
                                      - Well-established procedures for assessing the credit ratings
                                          of new customers.
Subscriber credit risk                - Well-established collection procedures, monitoring the
                                          balance and level of unpaid receivables.
                                      - Ongoing filing of motions for execution.
                                      - Collateral: sureties, bills of exchange, bank guarantees.
Operator credit risk
                                      - Individual agreements on the repayment of debt.
Interest-rate risk                    - Interest-rate risk hedged by interest-rate collars.
                                      - No risk management measures have been adopted, as the
Currency risk
                                          company assesses this risk as low.



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         Annual Report 2010
         Telekom Slovenia Group
         Telekom Slovenije, d. d.


Financial risk chart
Significance*                                                                                  2010
Liquidity risk and solvency risk
Subscriber credit risk
Operator credit risk
Interest-rate risk
Currency risk


Operational risks
Identified operational risks
Risk                                  Method of management
                                       - Redundancy must be ensured between internal and external
Dependence on external partners
                                           resources, particularly in the provision of IT support.
Impact of external projects            -   Realisation of the planned exploitation of all IT resources.
                                       -   Well-ordered premises with secure access, backup power
Ensuring the availability of the IT
                                           supply, and the redundant set-up of servers and disk
infrastructure
                                           systems.
Ensuring the availability of
                                      Redundant set-up of servers, and data security and archiving.
e-communications
Ensuring IT infrastructure             -   Systematic use and amending of passwords – centralised
security                                   administration.
                                       -   Business continuity plan (BCP) and disaster recovery plan
Ensuring data availability
                                           (DRP)
                                       -   Functioning of the Service Desk according to ITIL
Provision of user support                  recommendations, outsourcing of printer and work station
                                           administration.
                                       -   Continuous investment in the modernisation of the network,
Network and technology
                                           which has been slowed due to problems of main suppliers
obsolescence risk
                                           and CAPEX limitations.
                                       -   Project prioritisation.
                                       -   Project portfolio management.
                                       -   Quality preparation of projects.
Risks associated with the              -   Control of implementation, the use of resources and the
execution and quality of projects          quality of project outputs at several levels, using several
                                           methods.
                                       -   Timely identification of projects encountering difficulties and
                                           the drafting of appropriate measures for their rectification.
                                       -   Several projects are being implemented with customers to
Risks associated with process              update work procedures (e-pen, computerisation and
efficiency                                 automation of forms, e-archiving), the aim of which is to
                                           speed up subscriber-related procedures and reduce costs.
Risks associated with quality
and environmental management
(problems associated with              -   Participation in the EMS forum, through PR and cooperation
possible radiation and the                 with local communities.
resulting acquisition of new sites
for base stations)
Risk of damage/destruction of
                                       -   Implementation of a business continuity plan and a business
property – direct damage (e.g.
                                           decision on how to ensure a highly available network, even
natural disasters, fire and
                                           in emergencies; insurance of assets.
earthquakes)




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         Telekom Slovenije, d. d.


Operational risk chart
Significance*                                                                                 2010
Dependence on external partners
Impact of external projects
Ensuring the availability of the IT infrastructure
Ensuring the availability of e-communications
Ensuring IT infrastructure security
Ensuring data availability
Provision of user support
Network and technology obsolescence risk
Risks associated with the execution and quality of projects
Risks associated with process efficiency
Risks associated with quality and environmental management (problems associated
with possible radiation and the resulting acquisition of new sites for base stations)
Risk of damage/destruction of property – direct damage (e.g. natural disasters, fire
and earthquakes)
* Effect x probability


Significant risks in Macedonia

The following significant risks remain high in Macedonia, even after the implementation of measures
for their management:
- the risk of the migration of users to other operators owing to the aggressive approach of the
     competition;
- the risk of lower revenues owing to the deteriorating economic situation, resulting in declining
     purchasing power, and due to the unfinished merger of On.net and One and the BOOM project;
- the risk of regulatory pressures – the amendment and adoption of rules that are contrary to the
     interests of the company;
- the risk of rising costs owing to the illegal functioning of base stations (e.g. licences, lobbying,
     etc.), which is caused by changing construction legislation in Macedonia;
- the risk of negative publicity with respect to the Group and company in the local media; and
- the risk of fraud.

Significant risks in Kosovo

Significant operating risks in Kosovo include:
- the risk of the migration of users to other operators;
- the risk of lower revenues owing to the deteriorating economic situation and the declining
    purchasing power of the population; drop in transfers from abroad;
- the risk of a poor response from users to the introduction of new packages;
- operator credit risk;
- the risk of fraud and
- the risk of terrorist acts and vandalism.




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             Annual Report 2010
             Telekom Slovenia Group
             Telekom Slovenije, d. d.


                 2 BUSINESS REPORT OF THE TELEKOM SLOVENIA GROUP

                              2.1        Financial results of the Telekom Slovenia Group



                                        2.1.1   Key financial performance indicators


                                                                  2009/31 December
                                                                                      2010/31 December   Index
                      in EUR million/%                                  2009
                                                                                            2010         10/09
                                                                      adjusted
Operating revenues                                                            856.1              843.5      99
EBITDA*                                                                       267.8              247.1      92
EBITDA margin                                                                31.3%              29.3%       94
EBIT                                                                           70.2             -178.5       -
Return on sales: ROS (EBIT/net sales revenue)                                 8.3%                neg.       -
Net profit                                                                     29.5             -210.3       -
Assets                                                                      1,925.5            1,658.2      86
Equity                                                                      1,001.6              807.8      81
Equity ratio                                                                 52.0%              48.7%       94
Net financial debt                                                            590.2              503.4      85
NFD/EBITDA*                                                                     2.2                2.1      94
Investment in property, plant and equipment (CAPEX)                           184.8              113.6      61
EBITDA - CAPEX                                                                 83.0              130.5     157
Ratio of (EBITDA-CAPEX) to EBITDA (cash margin)                         31.0%                   53.5%      172
* EBITDA – earnings before interest, taxes, depreciation and amortisation

The comparative period is adjusted to the change in accounting policy. An explanation is given in the
Financial Report.

Income statement analysis

Operating revenues of the Telekom Slovenia Group totalled EUR 843.5 million, down 1.5% on 2009
owing to lower other operating revenues. Net sales revenue totalled EUR 839.3 million, down 1% on
the previous year.

The Group's operating expenses exceeded EUR 1 billion, at EUR 1,026.5 million, up 30% on the
previous year. Among the other operating revenues totalling EUR 254.5 million (compared with EUR
30.9 million the previous year the most increase were due to impairments of financial investments.
Costs of services in the amount EUR 331.6 million (down 4%) represent the majority of operating
expenses, followed by amortisation and depreciation totalling EUR 214.5, an increase of 8%.

EBITDA, adjusted for the effect of impairments, stood at EUR 247.2 million in 2010, or 92% of that
achieved a year earlier. Earnings before interest and taxes (EBIT) was negative in the amount of
EUR 178.5 million due to the aforementioned impairments. Impairments amounted to EUR 211.2
million, meaning EBIT would have stood at EUR 33.7 million, excluding the effect of impairment.

The Group generated finance income of EUR 4.3 million and finance costs of EUR 28.2 million,
resulting in a net financial loss of EUR 23.9 million, an improvement of EUR 3 million on 2009.

Following the calculation of corporate income tax in the amount of EUR 7.9 million, the Telekom
Slovenia Group disclosed a net loss of EUR 210.3 million in 2010.




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Analysis of the balance sheet as at 31 December 2010 and the cash flow statement

The Telekom Slovenia Group's total assets stood at EUR 1,658.3 million, down 14% on the end of
2009. This was primarily the result of a decrease in intangible assets owing to impairments in the
amount of EUR 189.1 million, while impairments of property, plant and equipment amounted to EUR
98.3 million.

The proportion of non-current assets was down 3.2 percentage points to stand at 82.9% of the
company's total assets. Non-current assets were down 17% on the previous year in terms of value.

Current assets totalled EUR 283.8 million. The proportion of total assets accounted for by current
assets was up 3.2 percentage points, primarily owing to an increase in cash and cash equivalents of
EUR 25.5 million and an increase in current financial investments of EUR 12.8 million. Operating and
other receivables and inventories were up compared with the balance at the end of 2009.

Equity and reserves in the amount of EUR 807.8 million represent 48.7% of total assets, and were
down 19% on the end of 2009.

Non-current liabilities in the amount of EUR 500.5 million represent 30.2% of total assets and were
down 20% on the balance at the end of 2009, primarily owing to a decrease in long-term loans in the
amount of EUR 123,5 million.

The Telekom Slovenia Group operated with a positive cash flow in 2010, more than doubling the cash
and cash equivalents on its accounts compared with the balance at the beginning of the year. Net
cash flows from operating activities totalled EUR 264.2 million, and were more than enough to cover
the negative cash flow from financing activities of EUR 98.5 million and from investing activities in the
amount of EUR 140.1. The Group did not require additional borrowing in 2010. Net financial debt was
thus down EUR 86.8 million or 15%.

Segment reporting

Pursuant to IFRS 8 – Operating Segments, which requires the disclosure of operations by segments,
the Group defines operating segments by types of services (e.g. fixed and mobile telephony and other
services) and geographical regions (e.g. Slovenia and foreign markets), which are defined by the
registered office where an activity is performed, in accordance with the internal reporting needs of
management.

                               2.2   Financial management and performance

The Group consistently completed the underlying task of the financial function by ensuring the
current and long-term solvency of the Telekom Slovenia Group as a whole. The solvency of
Group companies was ensured on the basis of effective cash management, precise cash flow
planning and short-term financing within the Group. Short-term credit lines at domestic banks
facilitated a high level of financial flexibility to bridge unforeseen cash shortfalls.

Once again in 2010, the basis of the financial function was ensuring the current and long-term
solvency of the Telekom Slovenia Group as a whole. The implementation of financial policy and the
definition of key strategies for all Group companies is the responsibility of the parent company,
Telekom Slovenije, d. d. The latter balances the level of borrowing of all Group companies and the
related liquidity and solvency for the coordinated control over financial flows and the management of
the Telekom Slovenia Group's financial risks. Standard guidelines facilitate the coordinated functioning
of all Group companies, while taking into account the particularities of individual national
environments.

The solvency of Group companies is ensured on the basis of effective cash management, precise
cash flow planning and short-term financing within the Group. Short-term credit lines at domestic
banks facilitate a high level of financial flexibility to bridge unforeseen cash shortfalls.




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Equity structure and liabilities from financing

The ratio of equity to total liabilities of the Telekom Slovenia Group stood at 0.95 at the end of 2010,
compared with 1.08 at the end of 2009. The change in the equity structure derives primarily from a
decrease in the value of equity as the result of the impairment of assets. The Group's equity was down
19.3% in 2010.

Total financial liabilities of the Group stood at EUR 585.9 million at the end of 2010, representing
35.3% of total assets. Bank loans accounted for 43.8% or EUR 256.7 million of financial liabilities.
Financial liabilities were down EUR 54.3 million or 17.5% in 2010 owing to the repayment of loans
raised.

Structure of equity and liabilities.                                  Net financial debt

   100%
    90%
    80%
                               48.0%                    51.3%
    70%
    60%
    50%
    40%
    30%                       52.0%                      48.7%
    20%
    10%
     0%
                      2009                       2010

                     Equity            Liabilities




Maturity of sources of financing

Ratio of current to non-current financial liabilities

                                     100%
                                                           14.1%                   18.9%
                                      90%
                                      80%
                                      70%
                                      60%
                                      50%
                                                           85.9%                   81.1%
                                      40%
                                      30%
                                      20%
                                      10%
                                       0%
                                                     2009                   2010
                                                     Current liabilities
                                                     Non-current liabilities




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          Telekom Slovenia Group
          Telekom Slovenije, d. d.


In addition to the decrease recorded in 2010, there was also a change in the maturity breakdown of
financial liabilities. Compared to 2009, current liabilities as a proportion of total financial liabilities were
up primarily at the expense of a large portion of non-current financial liabilities that will mature in 2011.

Securing sources of financing

Securing sources of financing for Telekom Slovenia Group companies at banks and within the Group
is coordinated by the parent company. The parent company is responsible for financing the strategic
investments of other companies. In other cases, subsidiaries raise loans themselves with the prior
consent and the coordination of lending terms by the parent company. In this manner, all Group
companies achieve reasonably favourable financing terms, which apply to the entire Telekom Slovenia
Group.

The Group did not require additional borrowing in 2010.

Given that the parent company is responsible for securing financial sources for the strategic
investments of subsidiaries, the breakdown of mutual financing within the Group is very important. The
amount of loans granted is linked to the investment activity of individual subsidiaries, while the size of
loans received depends on the liquidity surpluses of these companies. The parent company's
financing of subsidiaries represented 86.6% of total mutual financing, while subsidiaries' financing of
the parent company accounted for 14.4%.

Breakdown of mutual financing as at 31 December 2010
Other loans are raised with a contractual option to swap a variable interest rate for a fixed interest rate.
                                                  14.4%




                                                                                                         85.6%


                                                                Loans to subsidaries
                                                                Loans from subsidaries



Borrowing costs

The weighted mark-up on the variable portion of the interest rate on all loans stood at 53 basis points
at the end of the year. The Group used derivatives to hedge its interest-rate exposure for 41.8% of
loans. Other loans are raised with a contractual option to swap a variable interest rate for a fixed
interest rate.

The ratio of variable to fixed or hedged financial liabilities of the Group

                                     100%
                                     90%
                                     80%                                                                  41.8%
                                                                50.0%
                                     70%
                                     60%
                                     50%
                                     40%
                                     30%                                                                  58.2%
                                                                    50.0%
                                     20%
                                     10%
                                      0%
                                                         2009                                     2010

                                            Hedge of fixed liabilities      Variable liabilites




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Credit rating review
The international ratings agency Moody’s Investors Service published a new report in December 2010
in which it confirmed the existing long-term credit risk rating at "Baa1". The Rating Outlook remained
negative.

Risk management

The primary focus of the Group's financial risk management was on liquidity and solvency risk and on
interest-rate and credit risk. The majority of activities in this regard were performed by the parent
company. A detailed description of the financial risk management process is found in the Risk
Management section.

Financial investments

The majority of Group's financial investments were carried out by Telekom Slovenije, d. d.

Non-current financial investments

Non-current financial investments, primarily in the form of financial investments in subsidiaries,
financial investments in shares and participating interests and loans to subsidiaries, represent a
significant asset item of Telekom Slovenije, d. d.

Investment activities were characterised in 2010 by the optimisation and consolidation of operations
on the markets of south-eastern Europe, where no significant investments were made. The only
transactions made were the purchase of a 29.36% participating interest in Ipko Telecommunications,
d. o. o. from minority shareholders in the amount of EUR 32.18 million, and an increase in the capital
of One, d. o. o., Skopje in the amount of EUR 40 million, by which Telekom Slovenije, d. d.'s became a
25.62% owner.

Investments in shares and participating interests primarily comprise shares in Slovenian banks, with
which the company cooperates, and in Zavarovalnica Triglav, d. d. However, these participating
interests do not exceed a 1.6% ownership stake in an individual company.

                                          2.3   Investments

The Telekom Slovenia Group earmarked EUR 113.6 million for the construction, modernisation and
development of networks and services. Of the aforementioned amount, 70% was earmarked for
companies in Slovenia and EUR 32.9 million for companies in south-eastern Europe.

Structure of investments by company


                                                                                              Index
                      in EUR thousand                       Y 2009             Y 2010
                                                                                              10/09

SLOVENIA                                                         121,498             80,723      66
Telekom Slovenije, d. d.                                          70,003             43,234      62
Mobitel, d. d.                                                    40,775             22,929      56
Other companies in Slovenia                                       10,720             14,560     136
SOUTH-EASTERN EUROPE                                              63,278             32,852      52
Ipko Telecommunications, d. o. o.                                 29,610              9,093      31
Companies in Macedonia                                            25,365             17,199      68
Other companies in south-eastern Europe                            8,303              6,560      79
Telekom Slovenia Group                                           184,776            113,575      61




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                             2.4      Business environment and trends in the sector

                                        2.4.1     Macroeconomic environment

           1
Slovenia

According to IMAD calculations, economic growth will reach 0.9% in Slovenia in 2010. There was a
perceptible increase in economic activity in the second quarter of 2010 for the first time since the
outbreak of the crisis. Stimuli for the strengthening of economic activity come primarily from the
international environment. Foreign demand has strengthened. Problems in the domestic environment,
in particular in construction and related activities, represent the obstacle to more rapid economic
growth. The global economic recovery accelerated sharply in the first half of the year, while economic
activity slowed during the second half of the year, in line with expectations.

According to an IMAD estimate, domestic consumption will be 0.5% lower in 2010 compared with the
previous year. The reasons lie primarily in the construction sector, limited access to sources of
financing, payment indiscipline and conditions on the labour market, which is characterised by a
declining number of employed person. That decline, however, slowed in 2010, such that the fall in the
number of employed persons will be 2.3 percentage points lower on average compared with 2009.
The decline in employment is expected to slow further in 2011, while an improvement is expected in
2012. Domestic consumption is thus expected to recover over the next two years, which could have a
positive effect on sales of Telekom Slovenia Group's services.

In the context of a recovery in domestic consumption and relatively strong foreign demand, economic
growth is forecast at 2.5% in 2011 and 3.1% in 2012. Improving conditions on the labour market and in
construction and related activities will have the greatest impact on economic growth. The improving
situation will also be stimulated by renewed growth in private consumption and investment spending.

South-eastern Europe

The markets of south-eastern Europe are economically less developed and thus have the potential for
                                                              2
future economic growth. Among emerging European markets, Kosovo achieves the highest growth.
Its per capita GDP, however, is the lowest in the region. GDP growth of 4.6% and 5.9% is forecast for
                             3
2010 and 2011, respectively . The economic crisis has had a moderate impact on Kosovo. Following a
decline in 2009, imports were up in 2010, while transfers from abroad, an important source of private
                                     4
sector financing, also strengthened.
                                                                                                            5
Economic growth of 1.2% and 3% in 2010 and 2011, respectively, is forecast for Macedonia .
                                                                                                   6
Following a 2% drop in 2009, domestic consumption was up 0.1% during the first half of 2010 .
                                                                                                 7
According to IMF forecasts, the Macedonian economy is expected to recover significantly in 2011, in
part owing to an increase in domestic consumption. This also represents an opportunity for growth for
One.

                                          2.4.2     Trends in the ICT sector

Major global development trends in the ICT sector are linked to:
- an increase in transfer speed to the end user;
- the provision of broadband access to all households;

1
  Sources: Autumn Forecast of Economic Trends in 2010, September 2010 and Economic Mirror, February 2011,
Institute of Macroeconomic Analysis and Development, Ljubljana (IMAD).
2
  The International Monetary Fund (IMF) classifies Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Serbia,
Turkey, Poland, Romania, Hungary, Bulgaria, Croatia, Lithuania, Latvia and Estonia in the group of emerging
European markets.
3
  Sources: International Monetary Fund (IMF), World Economic Outlook, October 2010.
4
  Source: IMF Country Report No. 10/245 http://www.imf.org/external/pubs/ft/scr/2010/cr10245.pdf.
5
  Source: International Monetary Fund (IMF), World Economic Outlook, October 2010.
6
  Source: Republic of Macedonia, Ministry of Finance, Quarterly Economic Report – Q2/2010.
7
  Source: IMF Country Report No. 11/42 http://www.imf.org/external/pubs/ft/scr/2011/cr1142.pdf.

                                                           47
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-   the makeover of telecommunication offers in response to "over-the-top" (OTT) providers; and
-   a shift in the migration to "All IP" from the fixed network to include the mobile network and new
    IPTV trends.

The ICT sector has seen major shifts in recent years. Operators are attempting to standardise control
of their networks. At the same time, they must open their markets for the development of new services
by external developers. The key technological trend that facilitates this is All IP connectivity to the user
terminal, and to a mobile terminal in the future. To that end, a data package transfer that operators can
charge for is sufficient for users. The latter, however, have no control over content or how it is
charged. Therefore, the business transformation of existing telecommunication operators is
unavoidable. There are two likely scenarios: operators will become merely bit pipe providers, or they
will transform themselves into new operators who will provide services with added value and
successfully exploit a targeted marketing model, similar to OTT and internet service providers.
                                                                  8
Following a year characterised by the crisis in 2009, the EITO has noted a strengthening of the global
ICT market, and forecasts growth of 1.9% in 2010. The main drivers of growth will be China, India and
                                                                                              9
Brazil, while the stabilisation of the market is forecast for the EU. The European Commission deems
the ICT sector one of the most important drivers of development of the European Economy.
Technological advances and investment in this sector contribute to the increased efficiency of other
sectors.

The key trends characterising and affecting the telecommunications market in Europe and Slovenia
are as follows:
- the increasing saturation of and slowing growth on the broadband access market;
- growth in IPTV, which offers users a new experience in home entertainment;
- the rapid development of fibre optic connections, which facilitate high speeds and new multimedia
    services;
- growth in mobile broadband access, which is forecast to be the highest in western Europe;
- the decline in traditional telephony (which is being replaced by VoIP), with an increasing frequency
    of calls from the mobile network and a decline in calls from the fixed network; and
- prevailing demand for packages of services and the development of packages of convergent
    services.

Development of the ICT market in Slovenia and south-eastern Europe

Slovenian ICT market

The Slovenian ICT market is comparable with developed European markets in terms of technological
development, as it offers all of the latest telecommunication services. It is also comparable in terms of
sector and competition-related regulations. Market competition is exceptionally fierce, both in terms of
the number of operators and pricing. At 23.6%, Slovenia is just below the average European
broadband access penetration rate of 25.6% (situation in July 2010).

Development of broadband services
In line with European and Global trends, the development of broadband services last year in Slovenia
was focused primarily on the development of pay-TV multimedia services. This trend, which brings a
competitive advantage to telecommunication operators over cable operators, will continue in the
future. Thus, similar to other EU countries, growth in fixed broadband connections is slowing, and
stood at 5% in 2010, nearly one half of the 9% growth recorded in 2009.

Growth in the IPTV market

8
  Source: EITO (European Information Technology Observatory): Newsletter November 2009, ICT market is set to
stabilise in the EU in 2010; New data and insights on international ICT markets, March 2010, International ICT
markets, March 2010.
9
  Source: Investment in digital economy holds key to Europe's future prosperity, European Commission Report,
May 2010
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1221&format=HTML&aged=0&language=SL&gui
Language=en.




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At 29%, Slovenia ranks second among European countries in terms of IPTV penetration. By
continuously upgrading its range of TV programmes and multimedia content, Telekom Slovenije, d. d.
is dictating the tempo of growth of the Slovenian IPTV market. In step with global trends, the company
launched SiOL BOX on the market in autumn 2010. The latter offers users new TV functionalities, and
represents the integration of the internet and TV set, which is one of the key trends in the
contemporary development of TV content.

Fibre optic connections
The development of IPTV and additional services requires a greater bandwidth, and an optimal fibre
optic infrastructure to achieve that. Slovenia is among the global leaders in terms of fibre optic access
penetration (FTTx), ranking ninth according to the latest figures. The number of fibre to the home
(FTTH) connections continued to rise last year, with 16% growth achieved on the market. At the end of
the year, fibre optic connections accounted for 16% of all broadband connections.
                                       10
Mobile broadband access
At 2.3%, broadband access via USB modems and cards which, owing to comparable speeds, can
replace fixed broadband access, Slovenia lags behind the European average of 6.1%. At the
European level, mobile broadband access achieves the highest growth (of 30% from July 2009 to July
2010), while this trend is expected to continue. The key factor in this growth are new platforms and the
pricing policies of operators, which are increasingly competitive with respect to fixed access.

Mobitel was one of the first in Europe to introduce the latest HSPA technology, thus increasing the
capacity and speed of the mobile internet, which is comparable with fixed broadband access. With the
latest technology and a range of affordable data packages, the company is striving to achieve
increased growth in mobile broadband access in Slovenia as well.

Fixed and mobile telephony
The trend of users migrating from traditional telephony to VoIP continued in the fixed telephony
segment. Likewise, the number of calls from the mobile network has continued to increase compared
with calls from fixed locations. According to SORS figures, there were 821,000 fixed telephony
connections at the end of the third quarter, 38% of which were VoIP. SORS figures also indicated that
calls from mobile networks accounted for 74% of all telephone traffic in the third quarter of 2010, up 3
percentage points on the same period the previous year. Mobile telephony penetration was also up, to
stand at 103.5% in the fourth quarter, an increase of 0.9 percentage points on the previous year
(Source: APEK, 4Q 2010, SORS 3Q 2010)

Continuing market trend of package sales of services
Demand for various broadband packages, in particular triple play packages that include internet, IPTV
and VoIP services, is growing sharply. Packages of services are more affordable for users and a
simpler solution for operations owing to a single invoice. Quad play packages that include mobile
telephony are also increasing in popularity in Slovenia. Their number more than tripled in 2010, from
1,715 at the end of 2009 to 5,825 at the end of 2010 (Source: APEK, Q4 2010). Mobitel's quad play
package combines a Mobitel mobile telephone number and SiOL broadband services. Triple play and
double play packages are also available.

ICT markets in south-eastern Europe:

The telecommunications markets of south-eastern Europe are among the least developed, but have
developed rapidly in recent years. Telekom Slovenia Group companies have contributed to that fact
with the development of networks and services. The broadband access market is growing in both
Kosovo and Macedonia, where 43% of households or 12% of the population had broadband access at
the end of the third quarter. The telecommunications market in Macedonia currently accounts for 7%
of GDP, or nearly 4 percentage points above the EU average.

Broadband household penetration in the countries of south-eastern Europe, where the Telekom
Slovenia Group holds investments, is relatively low compared with the 23% penetration rate in
Slovenia, representing an opportunity for further growth. The number of mobile phone users per capita
is also lower than in Slovenia.

10
     European Commission, Report COCOM10-29, November 2010.

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           rate in %
              120                                                                                   113
                             103
              100                                                                    95
                                                  85
               80                                                    73

               60
                        41
               40
                                      23     25
                                                                                21             11
               20                                                                         11
                                                        8      4            6                             4
                0
                          Slovenia                BiH              Kosovo       Macedonia       Albania
                                           Fixed telefony Mobilte telefony Broad band access
Development of the telecommunications market in countries of south-eastern Europe in 2010

One unit is equal to the number of connections per 100 inhabitants.

Sources: Enlargement Countries Monitoring Report IV - December 2010; APEK and own per capita calculations
for Slovenia. The figures for fixed telephony penetration are for March 2010, as that is when APEK began to show
a lower number of fixed telephony connections owing to a change in the VoIP definition.

  2.4.3    Regulation of the electronic communications market and the competition protection

Regulation of electronic communications

Slovenia

Among the most important developments is the regulation of fibre optic networks. The APEK became
one of the first European regulatory bodies to begin such regulation. This new form of regulation will
govern access to Telekom Slovenije, d. d.'s fibre optic network and unbundled local loops on the
network. The proposed regulation entails obligations that no other EU regulatory body has introduced
to date. The affect of these obligations could be a decrease in the company's revenues. The proposal
does not include recommendations from the European Commission to promote investment in third
generation networks. The Group will therefore strive for regulatory solutions that are in line with
European guidelines and practice.

The APEK is expected to issue a decision on relevant markets 4 and 5 (unbundled loop and
broadband access) in the first quarter of 2011, by which it would regulate both the copper-based and
fibre optic networks. A new decision on market 1 (fixed access), on which it will include and thus
regulate VoIP, can be also be expected. With regard to mobile networks, the APEK is expected to re-
analyse market 15 (call forwarding), where Mobitel is one of the few regulated operators on European
markets.

The Telekom Slovenia Group strives to anticipate regulatory changes and responds to them actively.
The most significant regulatory developments were as follows:
- The Administrative Court ruled in favour of all four of the Group's appeals against APEK decisions
   related to the securing of receivables. The APEK halted supervisory proceedings following the
   publication of new RIO, RUO, BRO and RALO sample offers. The decisions related to the retail
   market, network interconnection, the unbundled loop, broadband access and access parts of
   leased lines.
- Following Telekom Slovenije, d. d.'s submission of the calculation of prices, the APEK carried out
   its own calculation for relevant markets 2 and 3 (network interconnection) and issued a temporary


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    decision enforcing its calculation. It also initiated supervisory proceedings, which have not yet
    been concluded.
-   Following the APEK's publication of the analysis of markets 4 and 5 (unbundled loop and
    broadband access) which expands the definition of markets to the fibre optic network, the Group
    submitted its comments, on the basis of which the analysis was amended in the section relating to
    pricing measures.
-   On market 7 (inter-operator market), new lower prices for call termination in mobile networks
    entered into force on 1 January 2010, in line with the APEK's decision. Disagreements arose with
    certain operators with respect to the charging and price of network interconnection services.
    Those disagreements are being resolved through the appropriate legal channels.
-   There were no regulatory developments on market 15 – access to and call-forwarding from public
    mobile telephone networks (inter-operator market). The Group is facing problems with payments
    by operators, which are being resolved through permanent measures for the payment of
    receivables.

Telekom Slovenije, d. d. received a decision from the Administrative Court of the Republic of Slovenia
in November by which the court ruled in favour of Telekom Slovenije, d. d. and reversed the APEK's
decision. According to the latter, the APEK ordered Telekom to provide operators, who access its
network via bitstreaming, conditions that would enable them to offer broadband services via
connections without PSTN or ISDN services, under the same circumstances and conditions that
Telekom provides itself. Under the same decision, the APEK ordered Telekom Slovenije, d. d. to
appropriately amend and introduce a sample offer for broadband access with bitstream services within
15 days.

South-eastern Europe

The regulatory environment remains weak in the countries of south-eastern Europe (particularly in
Kosovo), or favours leading operators, who remain under majority state ownership.

In Macedonia, regulated markets are defined in accordance with the European directive on relevant
markets. As an independent supervisory body, the Electronic Communications Agency (AEK) currently
carries out market analyses of the majority of relevant markets. The operator One is defined as just
one of two operators with significant market power on market 16, call termination in mobile networks.

The following significant regulatory changes occurred last year:
- public debate began on the status of public services;
- the drafting of a final document for the "bottom-up LRIC" model for calculating fees in the fixed and
   mobile networks;
- the drafting of a final market analysis document for markets 8, 9 and 10; and
- a public debate on the review of significant markets.

On 30 September 2010 the ART in Kosovo adopted the Decree on the Registration of Prepaid Mobile
Phone Users. Pursuant to the aforementioned decision, mobile operators must register all prepaid
users between 1 December 2010 and 28 February 2011. The decree will bring greater transparency
and a more realistic picture of the market, and will help Ipko, d. o. o. analyse the portfolio of prepaid
mobile users, and later segment and differentiate those users.

The ART issued a decision in 2010 that binds mobile operators to conclude an agreement with the
Kosovo police force. The ART imposed a fine on Ipko, d. o. o., which refused to sign an agreement
owing to discrepancies with the telecommunications law and the law governing criminal proceedings.

Following a decree by the IMC, cable operators in Kosovo are obliged to transmit on their cable
platforms (must-carry obligation), without any damages whatsoever, all local television stations holding
an IMC licence to use radio frequencies. Coverage depends on local conditions. Ipko, d. o. o. objected
to this obligation from the outset, and reached an agreement on compensation for broadcasting with
several television stations. There has been a recent trend of complaints by local television stations
against the IMC and a refusal to pay any fee whatsoever for broadcasting. The other problems is
technical in nature, as Ipko, d. o. o. does not have the technical capacity to broadcast local television
stations at the local level, and was therefore forced to broadcast nationally, which resulted in higher
costs. The problem with the IMC decree has not yet been resolved. The decree is expected to be

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amended in the first four months of 2011 with regard to the broadcasting obligation, and will set out
the method and obligation to pay costs.
Significant regulatory-related activities of the subsidiary Ipko include:
- with regard to network interconnection, the company waived price asymmetry, which was in force
    for three years to protect Ipko as a new operator, owing to the conclusion of an agreement on new
    prices;
- the company filed an appeal with the ART owing to illegal call termination (SIM to SIM connection)
    by the new operator, MVNO; and
- the company strove to conclude an agreement on network interconnection of premium (value-
    added) numbers.

Significant proceedings against Telekom Slovenia Group companies before the Competition
Protection Office


Significant proceedings against the parent company

-   proceedings to determine the alleged abuse of a dominant position on the inter-operator market
    for unbundled local loop and sub-loop access for the purpose of providing broadband and voice
    services, which was initiated ex officio by the Competition Protection Office through decision no.
    306-96/2008 of 4 February 2009;
-   proceedings to determine the abuse of a dominant position on the relevant markets for call
    termination and call forwarding and access to the fixed location public telephone network, on the
    relevant broadband access bitstream market, on the relevant unbundled local loop and sub-loop
    access market and the broadband access market, which was initiated ex officio by the Competition
    Protection Office through decision no. 306-6/2009 of 24 April 2009;
-   proceedings of the Competition Protection Office no. 306-22/2010-5 initiated ex officio on the basis
    of a referral by T2, d. o. o. (we received the decision on the initiation of proceedings on 11 August
    2010). The company is accused of breaching Article 9 of the ZPOmk-1 and Article 102 of the
    Treaty on the Functioning of the European Union due to the likelihood that Telekom Slovenije,
    d. d. abused its alleged dominant position on the inter-operator market for unbundled local loop
    and sub-loop access for the purpose of providing broadband services to end users, and thus
    unjustifiably and in a non-transparent manner rejected inquiries by other operators providing
    broadband services for unbundled local loop access on the market, inappropriately and in an
    unreasonable amount of time rectified technical faults on the network, and thus denied other
    operators access to the network infrastructure or set unfair and inequitable conditions to put them
    in a negative competitive position; and
-   proceedings by the Competition Protection Office no. 306-75/2008-4, initiated ex officio by a
    decision of 8 September 2008, to determine the alleged abuse of a dominant position on the inter-
    operator market for broadband bitstream access.

Significant proceedings against subsidiaries

-   The Competition Protection Office at 19.03.2010 initiated proceedings against Mobitel, d. d. to
    determine an alleged breach of Article 9 of the ZPOmK-1 and Article 82 of the EC Treaty. The
    Office assessed that it is likely that Mobitel, d. d. abused its dominant position on the inter-operator
    call termination market via the public telephone network, and thus restricted call termination via
    network interconnection in Mobitel's network for other operators, except for its parent company
    Telekom Slovenije, d. d.




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                                               2.5      Sales and marketing

                                                  2.5.1    Market position

Slovenian market

The Telekom Slovenia Group's market shares in Slovenia were down slightly on the previous year.
Price pressures from alternative operators represent a significant factor in Telekom Slovenije, d. d.'s
declining market share. As a good manager, the company cannot and will not follow alternative
operators owing to regulatory restrictions. The number of users in the VoIP and IPTV segment is rising
in line with expectations. The market shares of Telekom Slovenia Group companies still exceed those
of other leading European operators with respect to alternative service providers.

Telekom Slovenia Group market shares by service in the fourth quarter of 2010

                Telekom Slovenije                                                       other operators
                                      fixed broadband
                                           access                                        IP TV

                                                                                 60%
 43,1 Market Share                          43%                                              60,2 % Market Share
 Annual change - 2,8 perc. points                                                            Annual change - perc. points

 211.665 connections                                       57%                               119.539 connections
 Annual change 0 %                                                     40%                   Annual change + 9 %




                                                          57%
  42,7% Market Share                                                                             54,7 % Market Share
  Annual change -5,3 perc. points                                    45%
                                                                                                 Letna sprememba - 1,6 perc. points
                                                                                    55%
  171.717 connections                                                                            1.161.236 connections
  Annual change + 19 %                         43%
                                                                                                 Annual change - 2 %

                                        VoIP                                 mobile telephony

                                                                                       Mobitel


* The graph for VoIP includes both the number of VoIP services and the number of IP Centrex connections.
Sources: Report for the 4th quarter of 2010, APEK, Telekom Slovenia Group, own calculations.
Note: There is a more significant deviation from previous periods for VoIP, as the APEK amended figures for 2009
related to IP telephony, both in terms of market shares and the number of connections on the market.

Fixed telephony market
Owing to a dominant market share and growing IP telephony, on the Slovenian market, as elsewhere
in Europe and around the world, traditional telephony is being most affected by the takeover of its
market share by alternative operators. Telekom Slovenije, d. d.'s market share of fixed telephony is
77%, meaning the company covers nearly 500 thousand Slovenian households with traditional
telephony and SiOL telephony. Telekom Slovenije, d. d.'s market share declined by 5.9 percentage
points in year-on-year terms.

Fixed broadband access
In the context of generally lower growth, Telekom Slovenije, d. d. continues to hold the leading
position on the market, with a 43.1% share of fixed broadband access. The number of connections
remained at the 2009 level. For the first time since entering the market, T-2, d. o. o. recorded a drop in
its share of the fixed broadband access market in the first quarter of 2010, its market share then
continuing to fall until the end of the year. Tušmobil's market share has fallen constantly since the
middle of 2007.


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A total of 58% of broadband users access the internet using xDSL technology, down 1.4 percentage
points on the previous quarter. The proportion of xDSL access is declining due to the migration of
users to fibre optic connections and cable access, which rose throughout 2010, with currently nearly
one quarter of broadband users using this form of access.

The rising proportion of FTTH technology is also contributing to higher internet user access speeds.
Thus, nearly one quarter of users have a speed of 10M or higher, of which FTTH accounts for 70%.
Telekom Slovenije, d. d. had slightly more than 30,000 FTH connection users at the end of the year,
an increase of 28% in year-on-year terms. It is also evident from market shares that T-2, d. o. o.'s
share of the fibre optic market has fallen since the beginning of 2009, while that of Telekom Slovenije,
d. d. has risen over the same period.

IPTV market
Telekom Slovenije, d. d. maintains a dominant, 60% share of the IPTV market. The number of pay-TV
connections remains stable, with a rising proportion of IPTV and satellite TV. IPTV represent the
fastest growing market among broadband services. That growth, however, has already slowed slightly.
The market grew by 97% in 2008, by 31% in 2009, and 12% in 2010, with Telekom Slovenije, d. d.
accounting for more than half (58%) of total growth in IPTV connections in 2009 and 47% in 2010.

Mobile telephony
The Group has maintained its leading position on the mobile telephony market. Improving results can
be primarily attributed to a more competitive offer of package services and their more effective
marketing. Prices stabilised last year, following adverse price pressures in 2009. Operators and
service providers are aware that the existing level of prices hinders the quality construction of
networks and the development of services. Therefore, nearly all operators opted to raise prices.

Multimedia content and publishing
                                                                                  11
Najdi.si and siol.net remain two of the most frequently visited Slovenian websites . The Group is the
only provider of 1188 information services and the universal Slovenian telephone directory (white
pages) in Slovenia. The online telephone directory is frequently-visited, while calls to 1188 are
declining, similar to elsewhere in the world.

The Group remains competitive in the business directory segment with the new online product Firma.si
(yellow pages), where it recorded more than 67,000 visits in December 2010. The online advertising
service, ADpartner, remains the advertising network with the greatest reach in Slovenia.

Markets of south-eastern Europe

On the growing Macedonian market, One, d. o. o. had an estimated 14.3% share of the broadband
access market (down 1.1 percentage points on the previous year), making it the second largest
operator. Household broadband penetration has risen to 44%. The Group's estimated share of the
mobile telephony market was 26.7% at the end of 2010, down 0.9 percentage points on 2009. One,
d. o. o. and On.net, d. o. o. are increasing their shares of the fixed telephony market, primarily in the
residential user segment. That share was up 0.8 percentage points on the previous year, to an
estimated 14.9%.

In Kosovo in December 2009, Ipko, d. o. o. transitioned to a new system for charging services and
introduced a new, 90-day active subscriber definition that is in line with the Telekom Slovenia Group's
standards. Therefore, market shares for last year are not comparable with those from previous years.

Ipko, d. o. o. remains the leading internet service provider, with an estimated market share of 45% at
the end of the third quarter. There were 397,000 active, primarily prepaid, mobile telephone users at
the end of the year. The company's market share at the end of the third quarter was 29%. In addition
to the price comparability of the leading mobile operator, the decline in the company's market share
was driven by the entry of a new operator. Ipko, d. o. o. held a 6% share of the fixed telephone market
at the end of the third quarter.



11
     Source: MOSS, December 2010.

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                                         2.5.2   Brand Management

Telekom Slovenia Group companies manage a rich portfolio of brands. Many of them are considered
the most respected and recognised in their segments. The Telekom Slovenije, SiOL and Mobitel
brands are among the most respected in Slovenia, and once again received the titles of Trustedbrand
and Superbrand in 2010.

Since Telekom Slovenije is known among business users as a good, stable, technologically sound and
trustworthy company, the Group continues to use the corporate Telekom Slovenije brand for the
portfolio of business services. The SiOL brand also represents the Group on the residential user
market. A special group is responsible for the brand management project in the scope of the Telekom
Slovenije and Mobitel merger (Orion project).

The brand policies of subsidiaries in south-eastern Europe are based on uniformity and the long-term
introduction of a uniform Telekom Slovenia Group corporate brand. Company brands represent both
corporate and service/product brands, making it possible to communicate more clearly and effectively,
to optimise investment in brands and to promote their recognition. In this way, the Group strengthened
the Ipko brand in Kosovo, the One and Boom TV brands in Macedonia and the Primo brand in
Albania.



                Brand                                               Product/service

                                                                    - Telephony (SiOL,       - Subscriber
                                                                    PSTN and ISDN)           information
                                                                    - SiOL internet          - SiOL Secure Home
Residential                                                         (FTTH, xDSL)             - TV (SiOL TV, SiOL
users                                                               - Packet services        BOX, CATV)
                                                                    - Multimedia portals     - Value added
                                                                    - F/M connections        services
                                                                    - Slovenian              (Smart Number, Click
                                                                    telephone directory      to Call service, 090
                                                                    - web browser            service)



                                                                    - Centrex (IP and        - TV (SiOL TV, SiOL
                                                                    traditional)             BOX, CATV)
                                                                    - IP Centrex             - Custom Office
Business                                                            - VPN                    - Value added
users                                                               - Leased lines           services
                                                                    - SiOL internet          (Smart Number, Click
                                                                    (FTTH, xDSL)             to Call service, 090
                                                                    - Telephony (PSTN        service)
                                                                    and ISDN)                - Single business
                                                                    - Business triple play   network
                                                                    - Security (internet)    - Business directory
                                                                                             and web browser
                                                                                             - Construction and
                                                                                             maintenance of the
                                                                                             network


                                                                    - Network                - Internet access
                                                                    interconnection          - Bandwidth
Operators                                                           - Local loop             - International
                                                                    unbundling (LLU)         operator
                                                                    co-locations               services
                                                                    - ADSL - operator
                                                                    - WRL




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Brands and services of companies in south-eastern Europe

Country/company        Brand                        Services
Albania - Primo        Primo                       -   Internet
                                                   -   Fixed telephony
                                                   -   Operator selection
                                                   -   Bandwidth leasing
                                                   -   Network interconnection
                                                   -   Online roaming
                                                   -   Website design
                                                   -   Email solutions
                                                   -   Domain registration
Bosnia         and                                 -   Internet
Herzegovina                                        -   Fixed telephony – VoIP
Aneks                                              -   Operator selection/pre-selection


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                                         -   Bandwidth leasing
                                         -   Network interconnection
                                         -   Cable TV
                                         -   Convergent services – packages of
                                             services
                                         -   Online roaming
                                         -   Website design
                                         -   Email solutions
                                         -   Domain registration
                                         -   Integrated solutions
                                         -   Software development/programming
Kosovo - Ipko                            -   Mobile telephony – GSM
                                         -   SMS, MMS, WAP, VMS
                                         -   Mobile data transfer – GPRS/EDGE
                                         -   Internet
                                         -   Fixed telephony – VoIP
                                         -   Bandwidth leasing
                                         -   Network interconnection
                                         -   Digital cable TV
                                         -   Convergent services – packages of
                                             services
                                         -   Web portal – news and entertainment
                                         -   Email solutions


Macedonia:
On.net
One                                      -   Fixed telephony
                                         -   Mobile telephony – GSM, UMTS
                                         -   SMS, MMS, WAP, VMS
                                         -   Mobile       data      transfer      –
                                             GPRS/EDGE/UMTS/HSDPA
                                         -   Internet
                                         -   Fixed telephony – PSTN, VoIP
                                         -   Bandwidth leasing
                                         -   Network interconnection

                                         -   Mobile portal (WAP)
                                         -   Live TV – mobile TV
                                         -   News and entertainment
                                         -   FunDial – ring tones




                                         -   Digital video broadcasting (DVB-T)




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                                      2.5.3    Sales and marketing

Telekom Slovenia Group's turnover in numbers

Broadband connections
The number of the Telekom Sloveniae Group’s broadband connections on the end user market was
up 11,972 on 2009, with more than 333,000 connections as at 31 December 2010.

                                                                                                    Index
                  Retail connections as at                     31. 12. 2009     31. 12. 2010         10/
                                                                                                      09
Slovenia                                                            211,025            211,665           100
Bosnia and Herzegovina – Republic of Srpska                          12,549             15,958           127
Macedonia                                                            34,435             35,987           105
Kosovo                                                               59,434             64,861           109
Albania                                                               3,799              4,743           125
Total SE Europe                                                     110,217            121,549           110
Total Telekom Slovenia Group                                        321,242            333,214           104
The number of connections is in line with the standard method for counting connections at the Telekom Slovenia
Group level.

Fixed voice and mobile telephony connections
The number of Telekom Slovenia Group mobile and fixed telephony connections was down 6% on
2009. The fall was offset by a rise in the number of mobile connections in Macedonia and fixed
connections in south-eastern Europe.
                                                                                      Index
               Number of connections as at            31. 12. 2009    31. 12. 2010     10/
                                                                                        09
Slovenia – mobile telephony                               1,183,277       1,161,236         98
Slovenia – fixed telephony                                  572,059         522,393         91
SE Europe – mobile telephony                                955,283         858,266         90
  - Macedonia (One)                                         423,553         461,038        109
  - Kosovo (Ipko)                                           531,730         397,228         75
SE Europe – fixed telephony                                  59,883           62,233       104
Total Telekom Slovenia Group                              2,770,502       2,604,128         94
The number of connections is in line with the standard method for counting connections at the Telekom Slovenia
Group level.

Slovenia
Fixed telephony services
The trend of a declining number of fixed voice telephony connections among end users as a result of
the transition to mobile and broadband connections has slowed. At the end of the year, the number of
fixed connections was down 9% on the balance at the end of 2009. Outgoing traffic, which was down
18% in the residential user segment and 16% in the business user segment, is also declining. The
proportion of VoIP traffic of all end users is rising steadily, reaching 15% at the end of the year, up 4
percentage points on the previous year when it stood at 11%.

Average revenue per line and user in the fixed network (ARPU) remained at the level recorded the
previous year in the residential user segment, while average revenue per line and per user was down
3% and 6%, respectively, in the business user segment. In addition to the drop in traffic, the reason for
this movement was a change in subscription fees for basic PSTN, PRS and ISDN connections, and
cheaper calls to mobile networks. Last year's change in the settlement period to one minute, when the
Group simultaneously lowered the prices of calls to all Slovenian mobile networks, had a positive
impact.

The Group introduced the possibility of transferring numbers for all subscribers, which can be carried
out within an area code and has a positive impact on customer satisfaction. The range of traditional


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telephony services was also simplified and is thus more transparent. To increase the loyalty of
traditional telephony subscribers, the company developed a DVB-T equipment package that includes
a TV set and built in or stand-alone DVB-T receiver.

Mobile services
A total of 1,285,530 subscribers used Mobitel's network at the end of 2010, which is 3% more than
planned. In line with plans, the number of broadband connections with a voice telephony connection
was increased. This is the result of the technological upgrading of the network with the most state-of-
the-art HSPA+ technology, which supports high speeds and the effectiveness of marketing activities.

In addition to the aforementioned technology, which the Group was among the first in Europe to
introduce, we also launched several new services and technological developments on the market.
Users were thus offered the latest dimensions of mobile service use. New developments included the
following:
- Mobile TV service, NeoWLAN (connection to the publicly accessible wireless network) and
     Integral (we offered mobile email management to the users of the majority of "Connected"
     packages);
-     the following were included in the range of mobile phones: the latest BlackBerry Storm 2 smart
     phones and mobile phones using the Android platform, such at the Sony Ericsson X10, HTC
     Desire and the highest capacity Samsung Galaxy S and Samsung Galaxy Tab;
- the microSIM card for use in iPads, Nokia Messaging service and a new version of the
     M:Namiznik (M:Desktop) service;
- the local development of Android applications was promoted via contests for local developers
     and computer science and IT students;
- the Communicator service, which facilitates calls, the sending of SMS and MMS and video calls
     by linking mobile phones with fixed VoIP telephones and computers; and
- the upgrading of subscriber packages, adapted to the habits of the majority of users, and many
     other services.

Broadband services
Through targeted sales activities, the Group increased the number of subscribers by 0.3% to 211,665
at the end of the year on a highly competitive market and in the current adverse economic conditions.
New features in the range of SiOL products and services were aimed primarily at improving the
profitability of services, enhancing the portfolio of broadband services, and at maintaining existing and
attracting new subscribers.

The main new features in SiOL services for residential services were as follows:
- SiOL BOX, a new service that provides the user a completely new experience of watching and
   using the TV, and represents a real home interactive centre;
- enhancement of the loyalty programme (products on instalment and subscriber fee discounts);
- benefits in the scope of free services during the promotional period – TV programme schedule and
   free films in the SiOL video store; and
- Secure Home, a remote surveillance and security service for apartments and small business
   premises using broadband access. The Group was the first to enter the residential user market in
   Slovenia with this type of service.
New services for business users:
- Single Business Network, a service that combines the services of Telekom Slovenije and
   Mobitel, and facilitates the integration of fixed broadband and mobile services within a company;
   and
- Custom Office, a service developed in cooperation by Telekom Slovenije and Avtenta.si that
   allows companies to use computer equipment and software, and ensures a high level of data
   security, constant maintenance and the upgrading of equipment.

The service was launched in conjunction with comprehensive communication activities. For SiOL
BOX, these activities included a live interactive SiOL BOX cubical in Ljubljana and Maribor, where
SiOL BOX could be tested, as well as online activities and activities on social networks.

Wholesale (inter-operator segment)
The Group recorded a 6% increase in revenues compared with 2009 on the inter-operator market. The
highest growth (of 29%) was recorded in the quad play segment and in fully unbundled access, while

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the sharpest decline was recorded in sales of in shared access in network interconnection with
operators.

With regard to broadband access, the Group recorded the highest growth in sales of fully unbundled
access (up 7%) and quad play sales. Sales of broadband operator access were down 31% owing to
the gradual saturation of the Slovenian market. With sales of connections without traditional voice
telephony coming to the fore, the sales structure is changing in favour of fully unbundled access and
independent WS xDSL.

Revenues in the co-location services segment exceeded those generated in 2009. The reason
behind this growth was the fact that the Group did not accrue revenues from co-locations in 2009,
while they were taken into account in revenues in 2010.

Call termination in the Telekom Slovenije network accounts for the highest proportion of revenues from
network interconnection, which were down 17% on the previous year.

Revenues from international operator services were down 6% on 2009. This can primarily be
attributed to a sharp fall in prices of international traffic terminated in mobile networks and a decrease
in incoming international traffic. Growth continues to be recorded in revenues from international transit
traffic, international internet access leasing and the leasing of international operators lines.

The number of call minutes in inter-operator traffic was up 5% in the traditional inter-operator
services segment in the fixed and mobile network. The high growth in traffic from network
interconnection with domestic fixed telephony operators is the result of the developing market and the
migration of subscribers to new operators.

Revenues from operator bandwidth leasing were down 7% on the previous year. The drop in
revenues is primarily the result of the optimisation of leased lines of major operators.

The Group has recorded a considerable amount of unpaid overdue receivables owing to the payment
indiscipline of operators. Domestically, such receivables totalled EUR 15.8 million at the end of 2010,
92% of which are related to the operator T-2, d. o. o. Impairments of EUR 13.5 million were created as
a consequence. Internationally, the Group recorded unpaid liabilities in the amount of EUR 2.2 million
at the end of the year. Agreements on instalment repayment were concluded for a portion of the
aforementioned amount.

New conditions regarding the use of appropriate financial instruments as collateral for liabilities were
coordinated with the APEK and introduced in basic agreements with the aim of reducing bad claims
and protecting the Group's interests. With the consent of the competent body, the provision of
individual services may now be limited in the event of default of failure to provide payment collateral. In
September 2010 the Group submitted a motion to initiate bankruptcy proceedings against T-2, d. o. o.,
which have yet to begin because T-2, d. o. o. submitted a motion for compulsory settlement in early
2011. The Group has also accelerated the collection of outstanding receivables from international
operators. Collections from major debtors are handled individually, occasionally with the assistance of
foreign lawyers.
Systems integration
Avtenta.si, d. o. o. continued with its planned strategy to increase its market share outside the
Telekom Slovenia Group in the area of systems integration. The decline in activity at Slovenian
companies was reflected in Avtenta.si's revenues, which were down on the previous year in line with
expectations.

Regular sales activities were supported by numerous marketing events aimed at raising recognition of
the company's solutions on the Slovenian market. The company's training centre, which was
recognised this year as the best Microsoft training centre in Slovenia, remains one of the most
recognisable elements of Avtenta.si, d. o. o.'s range of services

Multimedia content and publishing
The area of multimedia content and publishing includes Najdi's internet advertising and call centre
services, and the convergent content and services provided by Planet 9, d. o. o. for IPTV, mobile
phones and personal computers.

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The Slovenian internet advertising market is currently facing a downturn, along with the recession and
the competitively low prices of advertisements on social networks.

Planet 9, d. o. o. primarily sells services to service providers for end users within and outside the
Telekom Slovenia Group. It also markets services to lessors of advertising space and media
agencies. The company's revenues were up 12% in 2010, primarily owing to increased sales of
advertising space. Its most important marketing activities included the upgrading of subscriber content
and new IPTV, video and internet TV services, with a great deal of emphasis on the development of
content for SiOL BOX and the development of new online and mobile services (in particular interactive
SMS games).

Construction and maintenance of the network
GVO, d. o. o. is responsible for the construction and maintenance of the network. In accordance with
the strategy to increase its share of services provided outside the Telekom Slovenia Group, the
company generated just 49% of its net sales revenues at Group companies last year. Revenues
generated on the market were up more than 50% on 2009.

The market where the company focuses on attracting new business has seen a sharp drop in demand
for construction services. GVO successfully submitted bids in several public tenders issued by
municipalities for the construction, management and maintenance of broadband networks. However,
agreements will only be signed if municipalities are successful in the tender issued by the competent
ministry. The company also attracts business in the area of electrical construction and machine works,
where it was frequently successful last year.

South-eastern Europe

In Kosovo, Ipko, d. o. o. faces significant price pressures from the competition, which its has
responded to by lowering prices and introducing new products that include various benefits. Lower
prices resulted in lower sales revenue compared with the previous year. Sales have also slowed due
to the loss of the main mobile phone distributor and the signing of an agreement with a new distributor
in the middle of the year. For this reason, it was not possible to purchase Ipko SIM cards or prepaid
mobile phone cards in a large area of Kosovo for some time. There was notable growth in revenues
from TV services, despite intense price competition. Sales rose in particular following the presentation
of a new attractive package offer of digital TV programmes.

Ipko, d. o. o. had 397,000 active mobile phone users (90-day definition) at the end of the year,
representing a decrease on the end of 2009. The reasons lie in the comparable prices offered by the
main operator and in the entry of a new mobile operator with even more affordable prices, which has a
significant impact on a market with weak purchasing power and thus price-sensitive users.

The main new services offered included:
- a new, price-competitive prepaid mobile telephone package, and
- a new package offer of Ipko digital TV programmes that was created in cooperation with DigitAlb
    and tailored to the wishes of users (e.g. live sporting events and a family package).
Macedonian companies generate the majority of their revenues from mobile telephony, followed by
network interconnection, roaming and internet services.

The decline in revenues compared with 2009 was the result of several factors. One, d. o. o. was
forced to respond to price slashing initiated by the competition, resulting in declining revenues. The
global recession also had a more significant impact than expected.

Revenues from mobile telephony were down compared with 2009. The reasons include promotional
offers and lower prices, which helped the company increase the number of mobile connections
compared with 2009, but drove down average revenue per line. Lower prices on the prepaid user
market had an even greater effect of declining revenues, as the average number of prepaid users
declined overall, despite renewed growth in the second half of the year.

The churn rate on the subscriber market stabilised, but remains quite high on the prepaid user market
owing to fierce price competition.

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One, d. o. o. was active on the market with various promotions and new packages, aimed at
customers with both high and low purchasing power. In addition to its standard mobile services, the
company introduced various options to purchase additional, fixed quantities of minutes, data and text
messages. It introduced the One Zona service that provides customers cheaper international calls to
selected countries. Blackberry services for business users were launched on the market during the
first quarter, while updated packages were introduced in the middle of the year.

Through cross-selling during the year in the mobile and fixed segments, One, d. o. o. significantly
increased the number of customers who use more than one service (e.g. duo and trio packages),
primarily in different combinations with Boom TV. The option to receive three TV interfaces with one
subscription was introduced at the beginning of the year for Boom TV. The programme scheme was
updated in December, with the addition of Albanian-language programmes and the SportKlub and
SportKlub+ programmes.

Aneks, d. o. o. is an important market player in Bosnia and Herzegovina in the international call
forwarding segment. It also has a solid base of residential users. In 2010 the company expanded the
provision of services from the Republic of Srpska to several larger cities across Bosnia and
Herzegovina, which has facilitated growth in the number of connections and services.

Aneks, d. o. o. provides analogue cable TV, internet and fixed telephony services, and began offering
digital TV in 2010. Growth in the number of digital TV and fixed telephony (VoIP) users was achieved
through successful public relations and marketing campaigns.

In Albania, Primo, d. o. o. provides internet access services, broadband connections and fixed
telephony via its own network and leased lines. Services are provided to end users (residential and
business users) and other operators. The company's revenues were down compared with 2009,
primarily on account of a drop in revenues from international call termination and broadband internet
access. There was a notable drop in international inter-network traffic in September due to the entry
into force of the regulatory body's decision on the regulation of the related prices. The decrease in the
number of fixed telephony customers is the result of the termination of agreements with non-paying
customers, aggressive price cutting by one of the company's main competitors and the migration to
mobile telephony.

                               2.5.4   Development of services and the network

Development of services

The global spread of Web 2.0 technology is increasingly evident in the ICT service segment. Telekom
Slovenije, d. d. is developing new services to that end, and facilitating their use on new platforms. Last
year the company continued to introduce open platforms that facilitate the more rapid, simpler and
cheaper development of new services. Such platforms may also be used by external programmers for
the development of new applications.


First services on an open platform for business users
Following the establishment of the first open platform for commercial telephony services more than a
year ago, the first service, called Monitor, was developed on the aforementioned platform. The service
facilitates the real-time monitoring of calls by IP Centrex users, and is in use today at hotels. The
company also developed a completely new prepaid telephony IP service via this platform, which will
be implemented as a turnkey service and available to new users.

Two new open platforms established
An entirely new platform was introduced last year that will facilitate calls via a web browser without
terminal equipment and expand the range of 080 call services.

A media platform to support value-added services and video/voice applications based on VoXML
technologies was also purchased. This platform represents a very powerful tool for the development of
new services, and thus the generation of additional revenues. The first customer was included on the


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platform in February, while the number of customers continued to grow during the year. The company
is also drafting procedures to migrate existing services to this platform. Operating expenses will be
reduced and customers provided additional services by consolidating network elements.

New services for business users
Several new services were developed and introduced for business users. These include:
- the validation and verification of the IP DECT system, which facilitates wireless fixed
   communication using IP technology, was completed and the first users integrated;
- a solution was developed for two banks for the transfer of payment transaction via IP protocols,
   while the solutions is being upgraded for other banks; and
- the new products, Single Business Network and Business Access were introduced in the IT
   services segment.

Expansion of development
The development of services also focuses on other areas. One of those areas is security, where the
Group offers advanced services for more demanding, primarily business users. The SiOL Secure
Home service, which facilitates residential security via IP connections, was offered to a wide group of
users. The Group is preparing to launch the first telemedicine services.

Advances in the development of mobile services
Project activities relating to mobile services and launched at the end of 2009 continued. These include
the upgrading of the Planet mobile portal, ECDS and OCMP. Emphasis is placed on the development
of system elements (e.g. a central directory and archive, standard user profiles, a video platform, etc.)
and on the further opening of Mobitel's network to external service providers via M:vrata (M:Portal)
and M:vstopnica (M:Tickets), etc. The company's activities included:
- the upgrading of the mobile TV service;
- the upgrading of the Ericsson ECDS video streaming platform, and the optimisation and
    enhancement of the www.m-medij.si website with video content; and
- the development of a mobile portal for Gibtelecom, to which new content will be added in the
    future in cooperation with Planet 9.

Network development and management

Fixed network

Ensuring a highly accessible network, as the basis for high-quality ICT services, is of strategic
importance to the Telekom Slovenia Group. The following objectives are pursued in network
development:
- ensuring the rational use of network resources;
- improving responsiveness and the success rate of fault clearance;
- optimising operating costs,
- improving process and network management;
- building a high-capacity, modular and flexible network of the future; and
- active participation in the development and introduction of new services.


Network resources
Telekom Slovenije's activities in the area of network resources follow the trend of a continuing decline
in traditional PSTN and ISDN connections and growth in broadband services, VoIP and the proportion
of services provided via the fibre optic network (FTTH).

The decline in PSTN and ISDN connection points has been followed dynamically through the
optimisation of units when network resources are freed up. Through interventions, the Group has
reduced the utilisation of connection points, the former by 6.3% and the latter by 7%. In contrast, the
Group has increased the number of xDSL and FTTH broadband access connection points and
increased the utilisation of the broadband network.

The project to secure critical network elements on the IP/MPLS network and service servers
continued, thus increasing their availability and flexibility. The number of connection points on the VoIP



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network is rising continuously, with 182,283 active connections in the business and residential user
segments at the end of 2010.

Backbone network
All elements of the backbone network in the core and at international connections ensure the reliable,
stable and secure functioning of services. It is defined as a "carrier grade" network, the definition that
applies to extremely reliable and well-tested systems.

Development of the new IP/MPLS network
The migration of business and residential users to the new IP/MPLS network was completed in all
regions last year. The IP/MPLS network is a modern, intelligent and secure transmission network that
is less complex and provides all services on a single platform. A Service Delivery PoP was established
in Ljubljana, through which all Telekom Slovenije, d. d. services are directed on the IP/MPLS network.
A second Service Delivery PoP will be established in Maribor in 2011.

Traffic management processes are being improved with the aim of further improving the functioning of
the network, optimising the network and reducing investment costs. Last year in cooperation with the
Jožef Stefan Institute, the Group developed a simulation model of a new aggregate network with which
the distribution of content and servers along the network can be expected. On this basis, investment in
network elements and connections was optimised. The Group intends to continue simulations in the
network by introducing a more precise network model, which will be made possible by the even better
simulation of traffic flows.

In the future, the Group intends to expand the backbone network, which is based on DWDM and
IP/MPLS technologies, to subsidiaries in south-eastern Europe and establish PoPs in Sarajevo,
Priština, Skopje and Tirana. This will facilitate the standardised provision of services within the
Telekom Slovenia Group and the possibility of integrating back-office OSS and BSS systems. Expert
reports have been drafted for access solutions to locations. An estimate has been prepared of the
investment required to establish the network and a tender executed for the supply of DWDM
equipment for the backbone network. An M320 router was installed at a location in Skopje in the
scope of this project.

Other network improvements

The project to optimise the network has continued. Several activities have been carried out in the
scope of the project to ensure the optimal exploitation and utilisation of network elements and
resources. A project was kicked off to introduce the IPv6 protocol, the successor to the IPv4 protocol.
The former provides the IP addresses of computers and network devices. A great deal of attention is
given to weighing possible scenarios for introducing the new protocol in the network. Technical
solutions for broadband access are being developed in the BrihtaLab in cooperation with CPE
equipment manufacturers.

Access network

Development activities in the access network were primarily aimed at resolving bottlenecks in the
broadband access network. To that end, the new MiniMSAN technical solution was developed
together with partner company. The functioning of the solution was tested in the BrihtaLab, and a
working group established for the MiniMSAN product launch. A temporary licence was received for the
A44 product, following the testing of the connectivity of other operators' modems and the stability of
the product's functioning.

Other broadband network development activities worthy of note include:
- a demonstration broadcast of the 3D TV signal and the introduction of new SiOL services;
- the continuation of the QuE functionality project on modems in cooperation with the Faculty of
   Electrical Engineering in Ljubljana;
- the development of a new technical solution for the dynamic construction of the fibre optic network
   with the aim of improving the processes involved in the construction of the FTTH fibre optic
   network and improving its utilisation;
- a draft Telekom Slovenije NGA strategy, technical solutions and commercial offer were prepared
   in the area of next generation access (NGA) networks that use optical fibre; and

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-   instructions were drafted for the introduction of SiOL BOX and scenarios distributed for its
    integration with different types of modems.

Control and support systems
Effective support systems are necessary to manage everyday control processes, and to manage and
maintain the telecommunications network and services. They ensure the smooth inclusion and
clearance of faults in services, which are becoming increasingly complex with the implementation of
new technologies.
Control and support systems were upgraded and developed as follows:
- new CRM2 systems (customer relationship management systems) were transferred to full
    production. These systems will provide better support for processes and shorten the time required
    to carry out to out activities;
- in the implementation of the GIS Network Engineer system (solutions for managing the
    telecommunications network);
- in the management of equipment at the premises of broadband service users (CPE); and
- various developments to improve the functionality of systems.

Technology verification and validation
In 2010, 116 authorisations were issued to connect to electronic telecommunications equipment in
Telekom Slovenije, d. d.'s network. At the BrihtaLab, the Group organised 24 presentations of
equipment for external experts and internal presentations. The greatest emphasis was placed on
monitoring the functioning of the IPTV system and testing equipment for different broadband services.
With regard to triple play, the Group continued managing the inter-sector group, the objective of which
is to raise the quality of these services.

Development of the fixed network at subsidiaries
In Kosovo, Ipko, d. o. o. continued to expand the underground network to the broadband HFC
network, while the implementation of uninterrupted power supply systems in the network is under way.
The US DOCSIS standard was replaced by the European standard with the aim of increasing
capacity. This will facilitate an increase in "downstream" capacity.

An important project was launched to introduce a wireless IP backbone network with the aim of
redesigning the aggregation of all wireless capacities in a common infrastructure that will use existing
capacities and facilitate future construction.

Mobile network

The development of Mobitel's network, in terms of setting up new base stations, has slowed. The
development of various traffic optimisation and control mechanisms continued for the optimal
exploitation of network resources. At the end of the year, there were 893 functioning GSM base
stations in the 900 MHz frequency band and 97 base stations in the 1800 MHz frequency band. The
UMTS network comprised 715 functioning base stations, of which 229 were upgraded with HSPA+
technology, which facilitates very high data transfer speeds.

Cooperation within the Telekom Slovenia Group in the development of networks was strengthened,
most intensively with regard to facilitating the functioning of Ipko's network in Kosovo. Cooperation
with the Macedonian operator One and with the parent company Telekom Slovenije is increasingly
closer in the areas of facilitating international connections, transmission systems and business
solutions. The implementation of a control signalisation system with One was successfully completed,
which is part of efforts to standardise systems and improve procurement synergies.




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       2.5.5      Financial results from the operations of Telekom Slovenia Group companies

Telekom Slovenije, d. d.

Telekom Slovenije, d. d. generated operating revenues of EUR 382.5 million in 2010, down 4% on
the previous year.

Operating expenses totalled EUR 380.8 million, and were at the level recorded in 2009. The
streamlining of operations resulted in lower costs in all areas where this was possible. On the other
hand, other operating expenses rose to EUR 23.0 million owing to the creation of adjustments to
receivables, which had a negative effect on EBIT. It should also be noted that the risk of further write-
offs of receivables remains high in 2011 due to default by alternative operators.

EBITDA (earnings before interest, taxes, depreciation and amortisation) was down 14% compared
with 2009, at EUR 88.1 million.

Earnings before interest and taxes (EBIT) stood at EUR 1.7 million in 2010.

Telekom Slovenije, d. d. recorded a net loss of EUR 235.4 million in 2010, primarily owing to the
impairment of financial investments: finance costs totalled EUR 296.0 million in 2010, compared with
EUR 28.5 million in 2009.

Key performance indicators

                                                                                                         Index
                             in EUR thousand                              2009*            2010
                                                                                                         10/09
Operating revenues                                                          398,464         382,531           96
    Net sales revenues                                                      396,490         381,168           96
    Other operating revenues                                                   1,974           1,363          69
OPEX (operating expenses before depreciation/amortisation)                  295,847         294,443          100
EBITDA                                                                      102,617           88,088          86
Depreciation/amortisation                                                    83,229           86,390         104
EBIT (operating income)                                                      19,388            1,698             9
Net finance income                                                           44,698         -237,390             -
Corporate income tax, including deferred taxes                                 1,855              -280           -
Net profit/loss                                                              62,231         -235,412             -
EBITDA margin                                                                 25.8%           23.0%           89
Operating margin                                                             15.6%              neg.            -
* The comparative period is adjusted to the change in accounting policy. An explanation is given in the Financial
Report.


Mobitel, d. d.

Mobitel, d. d. generated EUR 392.2 million in operating revenues in 2010, down 4% on 2009, but 2%
higher than planned. The company remains focused on maintaining its subscriber base. The result of
marketing campaigns was a 1% increase in the subscriber base compared to the previous year.
Operating expenses were down 4% as the result of the optimisation of operations. The problem of
write-offs of receivables from other operators should also be noted at Mobitel. These had a direct
negative effect on the company's results in the amount of EUR 6.2 million. Despite the aforementioned
write-offs, the company exceeded planned EBITDA, which reached EUR 120.3 million, by 3%. Net
profit amounted to EUR 37.4 million.




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Key performance indicators

                                                                                                Index
                             in EUR thousand                         2009          2010
                                                                                                10/09
Operating revenues                                                    410,202        392,213         96
    Net sales revenues                                                407,598        390,747         96
    Other operating revenues                                            2,604          1,466         56
OPEX (operating expenses before depreciation/amortisation)            282,862        271,928         96
EBITDA                                                                127,340        120,285         94
Depreciation/amortisation                                              73,882         72,260         98
EBIT (operating income)                                                53,458         48,025         90
Net finance income                                                      -1,013         -1,080       107
Corporate income tax, including deferred taxes                         11,292          9,593         85
Net profit/loss                                                        41,153         37,352         91
EBITDA margin                                                           31.0%          30.7%         99
Operating margin                                                        10.0%           9.5%         95


Other Slovenian companies

Najdi, informacijske storitve, d. o. o.
The Najdi Group generated EUR 14.1 million in operating revenues in 2010, down on the previous
year. The reasons lie primarily in a decline in the number of clicks on advertisements on the najdi.si
website and the general economic situation, as companies reduce their marketing budgets, which
generate more then half of Najdi's revenues. EBIT was negative in the amount of EUR 5.1 million, in
part due to other operating expenses (of EUR 7.0 million), which include impairments of intangible
assets, investments in companies in Croatia and Serbia and the write-off of investments in intangible
assets from previous years.

Planet 9, d. o. o.
The company generated EUR 31.4 million in operating revenues, up 11% on 2009. EBIT amounted to
EUR 724 thousand.

Avtenta.si, d. o. o.
The company continued with its planned strategy to increase its market share outside the Telekom
Slovenia Group. Sales activities in previous years and the building of long-term relationships with
customers have facilitated the achievement of established objectives, despite the slowing of
developments on the IT market. Operating expenses were up owing to higher costs of goods sold,
while costs associated with subcontractors were also up. EBIT was negative in the amount of EUR
870 thousand.

GVO, d. o. o.
The company generated EUR 33.9 million in operating revenues, 36% of which was generated directly
on the market, an increase of 47% on 2009. The company achieved its objective to increase the
proportion of services on the market and expanded its core activity of building networks for the
Telekom Slovenia Group's subsidiaries. EBIT amounted to EUR 7.3 million. The improvement in EBIT
(from EUR 1.8 million in 2009 to EUR 7.3 million in 2010) is, in addition to the prudent organisation of
work and market approach, the result of the transfer of costs of the construction of the private section
of open broadband networks incurred last year to investments under construction.


Soline, d. o. o.
In line with expectations, operating revenues in the amount of EUR 3.4 million were lower than those
generated in 2009 (in part owing to lower grants and subsidies), but higher than planned. Visits by
tourists to the Sečovlje Saltpans Regional Park were up 3% on the previous year. Contributing most to

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revenues were the claim for the reimbursement of funds from the EKRP project, an increase in the
company's share of the domestic market and the strengthening of cooperation with partners on the
US, Japanese and German (EU) markets. The company ended the year with a net profit of EUR 199
thousand.


Other companies in south-eastern Europe:

Kosovo
Ipko, d. o. o. generated operating revenues of EUR 65.8 million, up nearly 5% on 2009. EBIT was
negative in the amount of EUR 13.4 million, primarily due to the impairment of assets and receivables,
while EBITDA of EUR 6,1 million was achieved.

Revenues from mobile telephony were down in the end-user segment. This was the result of a decline
in the number of mobile connections and a price war in the prepaid segment, and due to the financial
crisis and a decline in transfers from expatriates, which increased the price sensitivity of users.

Macedonia
Companies in Macedonia generated a total of EUR 72.5 million in operating revenues, up 34% on
2009, when One and One to One joined the Telekom Slovenia Group in mid-year.

Revenues from mobile services were down primarily due to numerous benefits (including traffic) that
One was forced to introduce owing to pressure from the competition. These benefits resulted in an
increase in the number of mobile connections and traffic, but not to an increase in revenues.

One, d. o. o. is the second largest operator on the Macedonian market. The companies were
"cleaned" of unreasonable items, thus establishing a healthy basis for future operations. The
combined EBIT of Macedonian companies was negative in the amount of EUR 21.8 million, while
EBITDA of EUR 4.2 million was achieved.

Bosnia and Herzegovina
Aneks, d. o. o. generated operating revenues of EUR 13.7 million, up 3% on 2009, and is pursuing an
increase in the number of connections and end-user services. EBITDA stood at EUR 2.0 million,
double the EBITDA generated in 2009.

Albania
The operating revenues of Primo, d. o. o. were down on 2009 at EUR 5.0 million, owing to new
regulatory requirements in the area of transit traffic. In September and November, the regulatory body
rescinded the sample offer for network interconnection (RIO) for mobile operators, who then raised
prices charged to Albanian operators to the level of international prices. This was followed by a
significant cut in prices, resulting in negative EBIT and EBITDA.




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                                     3 SUSTAINABILITY REPORT

The Telekom Slovenia Group enhanced its sustainable development orientation in 2010 with a
document in which it confirmed its commitment to the principles of sustainable development
and set out its environmental policy. Sustainable development is one of Group's core
guidelines, on which it will build its strategic development in the period 2011 to 2015.

RESPONSIBLE ENVIRONMENTAL MANAGEMENT TAKING INTO ACCOUNT THE PRINCIPLES
OF SUSTAINABLE DEVELOPMENT

Dear Shareholders,

The Telekom Slovenia Group is the leading provider of ICT services in Slovenia. It develops and
introduces fixed and mobile telephony services, services in the areas of internet connections, content
and IPTV, and systems integration services. Group employees are committed to the principles of
sustainable development in their work. Special attention is given to responsible environmental
management.


The Group develops and carries out activities aimed at protecting the environment and preserving
natural resources wherever it is present. The Group methodically reduces its impacts on the
environment and living space. The use of resources and energy and costs are regularly monitored.
The Group sets itself and achieves environmentally friendly strategies and targets that are balanced
against the particularities of the Group's operations and development. It is focused on the constant
improvement of its environmental protection activities. The Group's own best environmental practices
and examples from other European operators included in the industry association, ETNO, are
transferred to other Group companies.

The Group takes into account globally recognised environmental development guidelines in the
development of its services. It consistently monitors and complies with the requirements of the
Slovenian and EU legal frameworks. It also monitors and complies with other normative and ethical
requirements linked to the environmental aspects of ICT services and operations. The Group is
involved in technical initiatives aimed at the objective communication of scientific positions regarding
the effects of its activities on the environment. It is also actively involved in fulfilling the environmental
commitments of the European Union and the Group's other stakeholders.

The Group actively includes its employees, suppliers, external contractors and business partners in
the process of sustainable development. It spreads the knowledge and culture of social responsibility
among employees through training programmes. The Group's objectives and activities are proactively
communicated at all levels of the company and to all interested parties. It monitors their initiatives and
questions, and responds in a constructive manner. The Group also provides its users the opportunity
to practice responsible environmental management. With the help of its electronic services, the Group
can significantly reduce our carbon footprint, in both business and private lives. Together with its
employees, the Group contributes to implementing the core principle of sustainable development:
providing future generations a quality of communications, life and the environment comparable to the
one we enjoy today.

Ljubljana, November 2010




                                                          Ivica Kranjčević
                                                          President of the Management Board, Telekom
                                                          Slovenije, d. d.




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                     3.1      Responsible management of sustainable development

Sustainable development objectives

Area                                Long-term objectives and strategies       Achieved in 2010
Employees                           Fulfillment of mandatory objectives       The objective to improve
                                    (customer satisfaction, control costs)    customer      satisfaction was
                                    established in line with management by    exceeded by 10%.
                                    objectives, with an emphasis on           The objective to control costs
                                    customer satisfaction.                    was assessed with regard to
                                                                              the achievement of planned
                                                                              costs. The majority of sectors
                                                                              did not exceed planned costs.
Employees                           Introduce measures adopted in line with   All activities were carried out
                                    the Family-Friendly company certificate   according to plan.
                                    by 2011.
Social environment                  Link participation in sponsorships and    Achieved result of synergies in
                                    donations to multimedia services and      key sponsorship areas (e.g.
                                    the multimedia platform, and develop      sports and culture).
                                    synergies within the Group.
Natural environment                 Responsible      usage    of    natural   Several         environmental
                                    resources, in particular reducing the     objectives were achieved or
                                    use of energy, emissions and other        progress made towards their
                                    environmental impacts, and the support    achievement (for more details,
                                    of activities to preserve the natural     see the table Overview of key
                                    environment and biodiversity.             environmental   targets   and
                                                                              objectives).
Users                               Increase customer satisfaction            The objective was achieved
                                                                              (110%).

Presentation and reporting on sustainable development

Organisational profile
In addition to the parent company, with its registered office in Ljubljana, the Telekom Slovenia Group
comprised 14 subsidiaries and 10 indirect subsidiaries in Slovenia, Macedonia, Kosovo, Croatia,
Bosnia and Herzegovina, Albania and Gibraltar as at 31 December 2010. The organisation of the
Telekom Slovenia Group is presented in the section of the 2010 annual report bearing the same
name, where year-on-year changes in the Group's organisation are reported. The annual report is
published at www.telekom.si and includes data regarding the ownership structure, markets and
financial figures, as well as information regarding brands, products and services.

The parent company defines, guides and supervises the implementation of sustainable development
policies, and is responsible for the enforcement of these policies at the Group's subsidiaries.

The contact for information regarding the Sustainable Development Report is the Public Relations
Department (pr@telekom.si).

Reporting characteristics, scope and limitations
The Telekom Slovenia Group and Telekom Slovenije, d. d. report yearly on progress in the area of
sustainable development for the previous calendar year.

The Sustainable Development Report for 2010 was drafted on the basis of data collected using a
standard questionnaire. Significant indicators and content reported by the Group are based on Global
Reporting Initiative guidelines (GRI G3 – Sustainability Reporting Guidelines), and derive from existing
sustainability objectives and relate to the key impacts of the activities of the parent company and the
Telekom Slovenia Group. Coordination of content was overseen by a team of experts from various
fields, responsible for the drafting of the annual report and sustainability report.




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Sustainable development reporting is carried out at the Telekom Slovenia Group level and at the level
of the parent company. Standard reporting guidelines have not yet been introduced across the Group.
Progress was made in 2010 with the introduction of environmental bookkeeping at companies in
south-eastern Europe.

Corporate governance and obligations

Corporate governance
Telekom Slovenije, d. d., the parent company of the Telekom Slovenia Group, is governed by a five-
member Management Board and a nine-member Supervisory Board, comprising six shareholder
representatives and three employee representatives. The corporate governance of the company is
based on the relevant legislation, the provisions of the parent company's Articles of Association and
the on rules of procedure of the Management Board and Supervisory Board. The aforementioned
documents are published on the company's website at www.telekom.si in the Investor relations
section. Additional information regarding corporate governance may be found in the Corporate
Governance Statement section of the Telekom Slovenia Group's 2010 annual report.

Minor shareholders may address the Supervisory Board with their proposals and suggestions via the
email address for contact with investors. There were no suggestions received in 2010. A Works
Council, with three employee representatives appointed to the Supervisory Board, functions at
Telekom Slovenije, d. d. Employees are briefed on the functioning of the Works Council and employee
representatives by internal communication channels, while employees may address members of the
Works Council directly.

Commitments to external initiatives and membership in associations
Telekom Slovenia Group companies are involved in the following social, environmental and economic
initiatives:
- the Family-Friendly company certificate (Telekom Slovenije, d. d. and Mobitel, d. d.),
- Sinergija (network of socio-commercial benefit – Telekom Slovenije, d. d.),
- signatories of the European Framework for Safer Mobile Use by Young Teenagers and Children
     (Mobitel, d. d.),
- United Nations Association of Slovenia for Sustainable Development (Mobitel, d. d.)
- support of activities for safer internet use – SAFE.SI (Telekom Slovenije, d. d. and Najdi.si,
     d. o. o.), and
- in 2010 the siol.net website, together with five Slovenian websites, signed a code for the regulation
     of hate speech on websites.

Membership in professional associations:
- Telekom Slovenije, d. d. is a member of the European Telecommunications Network Operators'
  Association (ETNO),
- Telekom Slovenije, d. d. and Mobitel, d. d. are founding members and supporters of Forum EMS
  (www.forum-ems.si), which provides education, links and objective information regarding
  electromagnetic radiation in Slovenia.

Telekom Slovenije is also a member of the following associations:
- SIST – Slovenian Institute for Standardisation,
- Institute for Labour Relations and Social Security,
- INIS – Institute for Non-Ionising Radiation,
- FTTH Council,
- Home Gateway Initiative,
- Broadband Forum, and
- TeleManagement Forum.
The majority of Telekom Slovenia Group companies are members of chambers of commerce and
economic associations in the countries in which they are established.

Inclusion of stakeholders
The existence of a mutual impact of a relationship that links the Group's activities and interests with
the interests of stakeholder groups forms the basis for cooperation with those groups.




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The key stakeholders included in the Group's activities are users, employees, local and wider
communities, government institutions and regulatory bodies, shareholders and potential investors,
suppliers, the media, educational institutions and other interest groups.

Communication with stakeholders
The Management Board, sector directors, individual expert staff, and the public relations department
are responsible for the productive, effective, clear and transparent communication with individual
stakeholder groups. Special attention is given to the following stakeholder groups when
communicating significant business decisions, developments in operations and developments in the
areas of services and products:
- private (residential) and business users,
- employees,
- the media,
- investors, and
- other influential publics (e.g. the government and regulatory bodies).

Additional information regarding communications with users, employees and investors is given in the
sections Responsibility for users and Responsible human resource management in the Sustainable
Development Report and in the section Share trading in the Business Report section of the annual
report.

Communication with the media
The Group ensures regular and proactive communication with the media, using a wide range of tools.
In addition to regular quarterly press conferences, at which the media is presented interim reports on
operations, the Group also organises press conferences for other significant occasions and various
meetings with journalists. The Group also communicates with the media via online content.
Information is published regularly on the company's website at www.telekom.si in the Investors
relations section. The Group also communicates regularly with the media via social networks.

Telekom Slovenia Group companies organised more than 15 press conferences and other meetings,
and issued more than 100 press releases. There were more than 10,000 releases in the media, while
the number of electronic releases, particularly over the internet, is also rising. Trends indicate that the
general media reports more about subsidiaries, while media covering the economy report about the
parent company.

The Group communicated with the media primarily regarding the following:
- the Group’s operations,
- new services, content and sales promotions,
- developments in the network and the construction of the infrastructure,
- progress of the Orion project,
- organisational and personnel changes and legal matters, and
- the operations of subsidiaries, particularly in south-eastern Europe.

Communication with influential publics
The Group communicated regularly with key influential publics with regard to regulatory and legislative
matters, and regarding the settling of relationships with other ICT operators. Influential publics include
government institutions of the Republic of Slovenia as majority owner, the competent ministries,
regulatory bodies and the Competition Protection Office.

Recognitions and awards
Telekom Slovenia Group companies received the following recognitions and awards in 2010:
- award for best sustainability report for 2010, in the competition for best annual report sponsored
    by the daily newspaper Finance,
- the SiOL, Telekom Slovenije, and Mobitel brands received the titles Trusted Brand 2010 and
    Superbrand,
- One, d. o. o. received first prize in the category of corporate humanitarian activities among large
    and medium-sized companies for 2009, in a selection process organised by the Centre for
    Institutional Development (CIRA),
- the socially responsible environmental campaign Eco-Quiz received the international Gold Quill
    award,

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-   at the Golden Drum international advertising festival, Mobitel, d. d. received the prestigious Silver
    Drum award for the publication Letopis družbe Mobitel – Ogledalo uspeha (Mobitel Company
    Profile – Mirror of Success),
-   the e-publication SiOL TVoj was included on the short list for the international Digital Magazine
    Award,
-   the new MiniMSAN product made the final for this year's award from the prestigious InfoVision
    Awards broadband forum,
-   One, d. o. o. received awards in two categories at the Macedonian national contest recognising
    achievement in the area of corporate social responsibility, and
-   to mark the 20th anniversary of the hotline for children and adolescents, the Slovenian Friends of
    Youth Association publicly thanked Telekom Slovenije for its financial support over the years of
    this important communication channel for children and adolescents.

Economic effects

With the development and introduction of telecommunication services, Telekom Slovenia Group
companies make a significant contribution to the economic development of the countries in which they
operate via employment, construction of the infrastructure, investments in the wider community,
through suppliers and by contributing to state budgets. In 2010 Group companies:
- provided 4,841 jobs in seven European countries;
- earmarked EUR 162.5 million for employees' wages;
- earmarked EUR 4.4 million for sponsorships and donations in the countries where they operate;
- paid dividends of EUR 19.5 million (around one-quarter of which was paid to minor shareholders)
    to the parent company's 13,177 shareholders, meaning a gross dividend per share of EUR 3;
- generated EUR 843.5 million in operating revenues; and
- earmarked EUR 113.6 million for investments in the construction, modernisation and development
    of telecommunications networks (of which EUR 32.9 million was invested in the networks of
    emerging markets in south-eastern Europe).

See the Business Report of the Telekom Slovenia Group for additional information regarding the
Telekom Slovenia Group's financial results.

                             3.2    Responsible human resource management

The Telekom Slovenia Group places special emphasis on activities to create a user-oriented
environment that facilitates quality services and the satisfaction of both users and employees.
To that end, the Group increased the proportion of employees included in training programmes
to more than 90%. It has continued to standardise human resource systems and transfer best
practice between companies.

Last year was characterised by organisational changes with the aim of streamlining operations,
increasing the efficiency of processes and transferring certain activities to Telekom Slovenia Group
companies. The latter involves eliminating processes with similar content, which is crucial due to the
streamlining of operations, market changes and competitive operators. The aforementioned changes
also affected human resource activities.

The area of human resources was included during the first half of the year in the preparation of the
Orion project, "Restructuring of the Operations of Telekom Slovenia Group Companies", an important
part of which is the merger of Telekom Slovenije, d. d. and Mobitel, d. d. The restructuring of
operations is a response to changing market conditions and the basis for more efficient control of
operating costs, the provision of integrated services to users and the implementation of policies
adopted in the Group's strategic business plan. The restructuring will be carried out in line with the
project plan.
                             3.2.1 Commitment to non-discrimination

The Telekom Slovenia Group respects legal standards and prohibits any direct or indirect
discrimination in employment, everyday activities, education and the development of each employee
within its companies. The Group ensures that no company employs child or forced labour.



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                                                  3.2.2    Employee structure

There were 4,841 employees in the Telekom Slovenia Group at the end of the year. Their number was
down 6% overall, and by 4% in Slovenia and 11% in south-eastern Europe.
The reasons for the declining number of employees lie primarily in departures due to business
reasons, retirements, the termination of temporary employment contracts, etc. The reduction in the
number employees at companies in south-eastern Europe was mainly driven by the consolidation of
activities of companies in Macedonia and Kosovo. New hires were made primarily of key experts and
temporary employees.

The majority of employees at Telekom Slovenia Group companies in Slovenia are employed under
collective agreements, while employees on individual contracts represent a small proportion.

Employment structure by company in the Telekom Slovenia Group

                                                                                                                       Change in
                     Situation as at:                                  31.12.2009             31.12.2010
                                                                                                                         2010
SLOVENIA                                                                          3,773                        3,620        -153
 Telekom Slovenije                                                                1,877                        1,741        -136
 Mobitel                                                                          1,054                        1,031         -23
Other Slovenian companies                                                           842                          848           6
SOUTH-EASTERN EUROPE                                                              1,372                        1,221        -151
Kosovo – Ipko, d. o. o.*                                                            539                          471         -68
Companies in Macedonia                                                              635                          556         -79
Other companies in SE Europe                                                        198                          194          -4
Telekom Slovenia Group                                                            5,145                        4,841        -304
Note:
A total of 70 persons on expatriate contracts were included among Ipko Group (Ipko and Media Works)
employees in 2009. Therefore, the reduction in the number of employees in 2010 does not reflect the actual
situation, but is the result of amending the methodology of recording the number of regular employees within the
Telekom Slovenia Group.

                                     3.2.3       Educational structure of employees

The proportion of employees with education levels VI and VII was up again on the previous year, from
52.4% to 53.7%. The increase was largely the result of the hiring of highly-qualified staff and the
completion of higher levels of education by existing employees. The proportion of employees with an
education level of V or lower continues to decline, by 1.1 percentage points in the last year. The
number of employees by individual education level, in particular those with level IV and V, is lower
owing to the decline in the total number of employees.

Educational structure of Telekom Slovenia Group employees

                           1.800

                           1.600

                           1.400

                           1.200

                           1.000

                             800

                             600

                             400

                             200

                               0
                                       I. - IV. deegre     V. deegre      VI. deegre       VII. - IX. deegre

                                                    2007        2008       2009           2010




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                                                                                                                                              3.2.4                                           Employment of disabled persons

At the end of the year there were 135 disabled persons of various disability levels working in the
Group, an increase of 7% on the previous year. In line with its policy to actively facilitate the
employment of disable persons, Group companies in Slovenia once again exceeded the legally
prescribed quota for disabled employees of 2% for the telecommunications sector and 3% for the
construction sector. Telekom Slovenije, d. d., GVO, d. o. o. and Avtenta.si, d. o. o. were thus entitled
to compensation in the amount of 25% of the minimum monthly wage for each disabled employee
above the prescribed quota.

                                                  3.2.5                                              Organisational climate and employee satisfaction and culture

Organisational climate

Organisational climate was measured at the Group level for the second consecutive year. A
comparison of results for the Group from 2010 with those of 2009 indicates a drop in the average
assessment of the organisational climate by 0.08 points, from 3.56 in 2009 to 3.48. The results can be
prescribed primarily to intensive organisational changes in Group companies which, as expected,
affect employees and to the general crisis conditions in the external environment. The gap between
the results was lowest with regard to employee satisfaction (-0.03 points), and highest in professional
training and education (-0.12 points) and in career development (-0.13). The Group's results are
notably higher in all categories than the average of Slovenian companies included in the SiOK survey.


Employee satisfaction

There was no significant change in the assessment of employee satisfaction compared with the
previous year, the average assessment having stood at 3.63 in 2009 compared with 3.60 in 2010.
Satisfaction with direct superiors was up slightly, while satisfaction with training and advancement
opportunities was down.

Employee satisfaction in the Telekom Slovenia Group in 2010

                                                                                                                                                             Group Telekom 2010 - Job Satisfaction
                                                                 0,132




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         0,5
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  0,054
                                                                                                                                                                                                                                                                                                                                                                                      -0,011
                                                                                                                   -0,016
                   -0,025




                                                                                                                                                                                                                                                                                                                                                                                                                                                    -0,048
                                                                                                                                                                                                                                                                               -0,052
                                                                                                                                                                     -0,079




                                                                                                                                                                                                             -0,085




                                                                                                                                                                                                                                                                                                                            -0,114




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         -0,123


       5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 0


       4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 -0,5


       3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 -1


       2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 -1,5


       1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 -2
                                                  4,125




                                                                                                     3,952




                                                                                                                                                     3,884




                                                                                                                                                                                              3,841




                                                                                                                                                                                                                                                        3,835




                                                                                                                                                                                                                                                                                                           3,748




                                                                                                                                                                                                                                                                                                                                                                        3,346




                                                                                                                                                                                                                                                                                                                                                                                                                                     3,389




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   3,422




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             3,174




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 2,877
            4,15




                                                          3,82




                                                                                                                                                              3,92




                                                                                                                                                                                                      3,92




                                                                                                                                                                                                                                                                                                                     3,46




                                                                                                                                                                                                                                                                                                                                                                                                                                             3,47




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           3,12
                                                                                                             3,9




                                                                                                                                                                                                                                                                3,8




                                                                                                                                                                                                                                                                                                                                                                                3,4




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     3




       0                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 -2,5
                   Satisfaction with co-workers




                                                                                                                                                                                                                                                                                                                                                                                                                                                    Satisfaction with management
                                                                                                                                                                                                                                                                  Satisfaction with working conditions (equipment,
                                                                 Satisfaction with direct superior




                                                                                                                                                                                                             Satisfaction with job stability security
                                                                                                                                                                     Satisfaction with work




                                                                                                                                                                                                                                                                                                                            Satisfaction with education possibilities




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Satisfaction with salary




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Satisfaction with promotional chances
                                                                                                                   Satisfaction with work schedule




                                                                                                                                                                                                                                                                                                                                                                                      Satisfaction with status in the organization
                                                                                                                                                                                                                                                                                     rooms,...)




                                                             Group Telekom 2009                                                                                                                                                  Group Telekom 2010                                                                                                                                                                                    Group Telekom 2009 / 2010




Organisational culture

The organisational culture was measured for the first time in 2010, with the aim of identifying
similarities and differences in the current and desired employee cultures in Slovenian companies
comprising the Telekom Slovenia Group. The results of measurements indicate that current
organisational cultures are rather harmonised, which represents a good guide for planning
organisational changes and the merger of companies.


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Annual appraisal interviews

In line with the management by objective system, the Group used annual appraisal interviews to
assess the achievement of objectives and job performance, approve the advancement of employees
and set objectives for 2011. Annual appraisal interviews, including an assessment of competences
and behaviour, were carried out at Telekom Slovenije, d. d., GVO, d. o. o., Najdi, informacijske
storitve, d. o. o., Avtenta.si, d. o. o., Ipko Telecommunications, d. o. o., Aneks, d. o. o. and in part at
One, d. o. o.

                                     3.2.6   Employee training and development

The Telekom Slovenia Group sees knowledge as the key competitive advantage of a contemporary
learning organisation, which becomes the basis of success and includes the building and transfer of
knowledge in practice. The Group gives a great deal of importance to knowledge within the Group,
which derives from experiences and hidden practices (tacit and implied knowledge). As a
contemporary learning organisation, the Group introduces learning processes, creates a treasury of
knowledge, ensures interaction between the individual, the team and the company, and transfers its
practices to its business partners.

Funds earmarked for training and education were down in line with the decrease in the number of
employees. The number of training hours within the Group was down 13%, although the number of
hours per employee (28.2) was at the level recorded the previous year.

The Group continued to promote internal training, which was up 15.7%, bringing additional savings.
The Group actively updated the internal training system, which is particularly well-developed at
Slovenian companies, as follows:
- more than half of training events were carried out with the help of internal experts;
- Mobitel, d. d. and Telekom Slovenije, d. d. continued with their own e-courses, carried out for
    employees of both companies; and
- as lecturers and moderators, the Group's experts actively participated in the most important
    professional meetings and conferences in Slovenia and abroad.

Indicators that illustrate the intensity of training are regularly monitored and analysed. The training
inclusion rate was up 16.3 percentage points, meaning that 92% of employees were included in some
form of training compared with 75.6% the previous year. International workshops were organised
within the Group regarding the network, where experts met and exchanged knowledge. The ratio of
training in Slovenia to training abroad rose slightly compared to the previous year in favour of
Slovenia.


Key figures regarding employee training within the Telekom Slovenia Group

                                                                     2009        2010        Change in 2010
Number of training participants                                         3,889      3,758                  -131
Number of training hours                                              145,236    113,056               -32,180
Direct training costs, in EUR thousand                                  4,151      3,010               -1,141
Number of employees as at 31 December                                   5,145      4,891                 - 304
                                                                                                          16.3
Proportion of employees included in training                           75.6%      91.9%
                                                                                             percentage points
Number of training hours per employee                                    28.2           28                 -0.6

Structure of training by type

The structure of training areas at the Group level changed slightly. Primarily at subsidiaries, greater
emphasis was placed on management (the proportion having increased from 7.6% in 2009 to 10.9%
in 2010) and on foreign languages (up from 2.8% in 2009 to 25.6% in 2010), while the proportion of
ICT training was down (from 28% in 2009 to 18%).



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Structure of training by type in %
                                                                               Other trainings
                                                                                  12,0%
                                                  Business communication and                            Telecommunication
                                        Economics            skills                                        technologies
                                          1,1%               4,4%                                             18,0%


                                 Legislation
                                   1,6%


                           Energetics and engineering
                                     0,7%




                                     Security and health at work                                                       Sales
                                               14,3%                                                                   19,3%




                                   Foreign languages
                                         4,0%



                                                    Communication                                Information science
                                                                                   Management
                                                       4,0%                                            9,6%
                                                                                     10,9%




Key and perspective personnel

A great deal of emphasis was again placed on the development of key and perspective personnel,
including the drafting of individual employee development plans. The potential of employees was
tested at Mobitel, d. d. and Najdi, informacijske storitve, d. o. o., followed by the drafting of an action
plan and the execution of individual training programmes. Telekom Slovenije, d. d. held workshops
with directors and perspective employees.

The Group continued to employ a system of talent management and employee succession that
facilitates greater recognition and human resource mobility, the retention of the most skilled personnel
and increased efficiency, thus contributing indirectly to improved financial results. Some perspective
candidates assumed management functions in 2010, indicating that the Group set the correct
objectives in this area.

On-the-job studies, scholarships, apprenticeships and the recruitment of new personnel

Despite the active reduction of costs in all areas, the Group supports employees in their pursuit of
education at various schools and faculties in line with the needs of individual companies. A total of 139
persons concluded on-the-job study agreements in 2010, down 28% on the previous year.

Pupils and students completed their compulsory job training at Group companies, where this was in
the interest of the individual company. Mentors assisted in the effective introduction of apprentices to
the company's work environment and organisational culture.

Motivation of employees

The variable portion of wages, which is dependent on achieving planned business objectives,
represents an important element of the material motivation of employees. The Group also pays
voluntary supplementary pension insurance for the employees of Slovenian companies.

The most important form of non-material motivation is ensuring constant employee satisfaction. In
addition to a suitable work environment, preventive medicine and medical examinations, this includes
other forms of non-material motivation such as the education and training of employees' own choice,
foreign language courses and visits to trade fairs.

The employees of all companies within the Group are rewarded according to the applicable collective
agreement and internal acts. The Group promotes collective and individual remuneration, which is
linked to the achievement of business objectives. Collective remuneration includes the payment of
year-end and Christmas bonuses, while individual remuneration is dependent on the achievement of
personal objectives and is paid in various forms (e.g. work performance bonuses, awards and
advancement).



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Professional library

The Telekom Slovenia Group's professional library comprises more than 10,000 books from the fields
of telecommunications, information technology, economics, law, management and other sciences.
More than 100 domestic and foreign magazines are available to the employees of all companies. In
2010 the library fund received 171 books, 295 periodicals and standards and 111 units of e-material.
Materials for internal trainings are continuously accessible on the intranet library.

Cooperation with research institutions

Employee training also entails the Telekom Slovenia Group's cooperation with various research
institutions with the aim of achieving the best results in the development of new services, content and
business practices. The most important forms of cooperation include Telekom Slovenije, d. d.'s
cooperation with the Faculty of Engineering at the University of Ljubljana and with the internationally
recognised Jožef Štefan Institute in the field of post-graduate studies.

Mobitel employs four young researchers completing their doctorate degrees at various faculties in the
scope of the young researchers project.

                                       3.2.7   Managing innovation

Promoting innovation has been integrated into the parent company's management by objective
process, in which innovativeness and initiative are assessed, in addition to the achievement of
personal objectives. Employees may submit useful proposals, and technical and other improvements
through the Brihta portal. A total of 46 proposals were accepted in 2010, 22 more than the previous
year. Of these, 25 were useful proposals that received practical awards, while 21 technical and other
improvements resulted in monetary awards.

                            3.2.8   Cooperation with employee representatives

The process of restructuring the operations of Telekom Slovenia Group companies in the scope of the
Orion project requires closer cooperation between representatives of the Works Council and trade
unions. Both workers' bodies were actively included in this process. Cooperation between the
employer and employees and social dialogue were carried out in accordance with the established
principles of agreement and consultation. Employee representatives were provided regular and timely
information in accordance with the applicable legislation.

Employee and trade union representatives actively participated in agreements regarding employment
rights, in the organisational structure and in amendments to acts in line with their responsibilities for
employees. In addition to exercising standard legal rights, trade unions also took interest in the social
aspect of employees' lives.

         3.2.9    Responsibility for employees and related groups outside the workplace

The Telekom Slovenia Group pays special attention to the lives of employees and their children and
pensioners. Group companies were active in the following areas:
- sporting and social events, and pre-new year and jubilee meeting were organised;
- pensioners' clubs of Telekom Slovenije, d. d. and other interest groups were supported;
- gifts were given to the preschool children of employees and to minors and the school children of
   deceased employees, with some companies awarding scholarships;
- solidarity assistance was paid in special social and health situations;
- recreational activities were organised for employees by leasing various sporting facilities;
- the parent company earmarked grants in the form of sponsorship and donations via tender for the
   leisure-time activities of employees;
- at the urging of the company, employees were included in various socially responsible charity
   projects, such as the "Let's Clean Slovenia in One Day" campaign; and
- the Group facilitated discounts for the purchase of tickets for certain cultural events, for admission
   to the House of Experiments and free admission to certain museums.


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                                         3.2.10 Health and safety at work

To ensure health and safety at work, which is one of main tasks of all Telekom Slovenia Group
companies, the Group organised several theoretical and practical safety at work training events.
Special attention was given to measures regarding recurring workplace injuries, fire safety, work at
heights and to the training of staff responsible for evacuation. All workers attending training were
tested on their knowledge of risks and legally prescribed measures for safe work.

In addition, the Group also:
- measured environmental conditions and lighting in the work environment for all locations where
    deemed necessary; and
- companies that received funds for exceeding the quota of disabled employees earmarked those
    funds for improving working conditions for disabled persons, for their education, for preventive
    medicine and for preventing disability.

Personal protective equipment

Annual inspections of personal protective equipment are also carried out to ensure safety at work,
while the use of equipment is supervised, particularly during inspections of teams of field workers.
Worn out personal protective equipment was regularly identified and replaced as necessary.
Fire safety
Fire safety training in an integral part of safety at work training, and is aimed at preventing such
accidents. Group companies were successful in this area, as no fires were reported. Regular
preventive activities were carried out and fire rules drafted. Fire extinguishers and hydrant networks
were inspected and serviced, and other fire safety measures implemented.

Healthcare
In addition to legally prescribed preventive and periodic medical examinations, activities in the area of
healthcare were aimed at further measures to maintain the health of employees.

Vaccinations against tick-borne meningoencephalitis for employees working in forests were organised,
while a wider group of employees were included in a flu vaccination campaign. A certain number of
employees from some companies were sent to spas for an active medical leave. A series of articles
were run in the in-house magazine to raise awareness regarding healthcare. Mobitel, d. d. enhanced
its active care for the health of employees with the help of the Naše zdravje (Our Health) website,
which provides employees multifaceted information regarding healthcare.

The parent company continued to monitor the overall state of employee health using an anonymous
analysis following the completion of periodic medical examinations.

Workplace injuries
A total of 62 injuries were reported last year at Telekom Slovenia Group companies, 29 of which
occurred at work and 12 of which were work-related. Some 21 employees were injured on their way to
work. The most frequent injuries were the result of traffic accidents and falls due to carelessness.
Work time lost was down 18% owing to the significant decline in the number of injuries. Work time lost
totalled 10,758 hours or 21.9 days per injury.

                                    3.2.11 Family-Friendly company certificate

Telekom Slovenije, d. d. and Mobitel, d. d. both hold a Family-Friendly company certificate. Measures
adopted in the scope of the basic Family-Friendly company certificate were successfully implemented
at both companies last year. This was confirmed by the audit committee of the Ekvilib Institute
following the completion of the assessment period.

Major activities in the scope Family-Friendly company certificate included the following:
- first graders received yellow scarves and symbolic SiOL notebooks;
- a drawing contest, featuring Xobi, was organised for employees' children, with the best drawings
   appearing on a calendar;



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-   employees' children created drawings, with call centres they visited as the theme. The drawing
    were displayed in business premises; and
-   holiday workshops were organised at Mobitel, d. d. for employees' children.

Measures were aimed at improving human resource management in terms of the work-family life
balance. A positive attitude towards the Family-Friendly company certificate is also seen in the high
proportion of exploitation of certain benefits and in positive assessments from the SiOK organisational
climate measurement that relate to the Family-Friendly company certificate.

                                      3.2.12 Communication with employees

Effective and proactive communication with employees is crucial for the success of the restructuring of
operations in the scope of the Orion project. Communication activities within the Group thus focused
on this area.

In addition to informing employees about all significant developments at the company via the in-house
magazine Škrjanček, the eskupaj e-journal and the intranet, the Group also actively communicated via
the special Orion intranet sub-site, where employees are regularly informed about events at the
management level and in specific project groups. The opportunity to pose questions was also
provided, with spontaneous answers given. Collective meetings with employees at individual locations
were organised, where employees were presented the expected effects and objectives of the merger,
and new strategies. Employees were also briefed on the result of organisational climate and
satisfaction measurements.

Under the slogan, "Merging the Best", the Group enhanced employees' trust in the merger process,
which represents a new future, brings change and makes the Group stronger and more successful as
one. Employees were invited to participate in a contest to select the name of the newly merged
company. A total of 206 proposals were received and reviewed by a special commission.

Through a special communication campaign, employees were encouraged to participate in the "Let's
Clean Slovenia" project and received a symbolic T-shirt for their participation.

                                             3.3   Social responsibility

Despite the adverse economic conditions, the Telekom Slovenia Group solidified its active role
in various socially significant activities. Prudent selection and the optimisation of long-term
cooperation have made it possible to support a larger number of partners and projects than in
the previous year. The Group focused its marketing activities on ensuring effective
competition.

Areas of activity, target groups and the extent of support for socially responsible projects were
selected on the basis of the sponsorship and donation strategy of the parent company and other
subsidiaries of the Telekom Slovenia Group. In all significant sponsorship and donation activities, the
Group generated added value for its users by investing in the social environment, and thus realised
one of its key strategic objectives. In line with past tradition, a portion of funds was also earmarked for
leisure-time activities involving the Group's employees.

Funds earmarked for sponsorships and donations were cut in 2010. Nevertheless, the Group worked
with a larger number of the partners than the previous year by systematically selecting projects and by
optimising long-term sponsorships. A total of 0.5% of operating revenue were earmarked for donations
and sponsorships.

                                     3.3.1   Major sponsorships and donations

For several years, one of the objectives of sponsorship and donation projects is the mutual
involvement of Group's services via projects in which each element of the Group contributes its
service platform. In this way, projects are enhanced and recipients receive more than mere financial



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support. Users are also exposed to the entire spectrum of channels through which they monitor a
project, become part of a project or merely become more involved with the fund recipient.

To that end, the Group was involved in the following projects last year:
- sponsorship of the Slovenian national football team during qualification for the 2010 World Cup,
    and during the World Cup itself;
- sponsorship of the Slovenian Olympic Committee at the Winter Olympics in Vancouver, Canada;
- the cycle race across Slovenia, in which the Group established a new benchmark for effective
    sponsorship through the active use of various online and mobile media and active market
    communication; and
- support of the Sloka 2010 White-Water Kayak and Canoe World Cup in Tacen.

Other major sponsorship and donation projects of Telekom Slovenia Group companies

Area                     Sponsorship/donation
SPORTS                   - sponsor of the Slovenian Olympic team, Slovenian national football teams,
                            the Nordic ski team, the Slovenian Athletics Association and the Slovenian
                            Kayak Association
                         - sponsor of the Union Olimpija basketball club, the Pivovarno Laško and Krim
                            handball clubs and numerous other sport clubs
                         - sponsor of the Golden Fox World Cup ski event, the Planica World Cup ski
                            jumping event, the cycle race across Slovenia, the Planet Tour golf
                            tournament (Planet 9), Sloka 2010 and the 2010 Skopje marathon (One)
CULTURE                  - support of the Ljubljana Festival, and the Godibodi, Tartini, Carniola, Trnfest,
                            Čarobni dan festivals and the Ljubljana International Film Festival
                         - sponsor of Cankarjev Dom, the National Opera and Ballet in Maribor,
                            Borštnikovo srečanje (theatre event), the Slovenian Drama Week in Kranj
                            and the Ljubljana Puppet Theatre
                         - long-time donator to the Slovenian Ethnographic Museum (Telekom
                            Slovenije)
                         - support of the 15th Biennial of Macedonian Architecture, the Bitola Open
                            City and the Taksirat Festival (One)
                         - sponsorship of the Children's Music Festival in Skadar (Primo)
SCIENCE   AND            - contest for the development of new Andriod applications with the aim of
EDUCATION                   promoting and establishing local know-how (Mobitel and One)
                         - rewarding of golden graduates and support of the graduation parade
                         - cooperation with the Reading Badge Association
                         - sponsor of the House of Experiments
                         - sponsor of the Microsoft NT Conference and the Cisco Expo Conference
                         - sponsor of the Golden Drum Festival, the Slovenian Marketing Conference,
                            the Slovenian Advertising Festival and the Effie awards
HUMANITARIAN             - support of the toll-free helpline for children and adolescents in distress and
PROJECTS                    the pan-European number for people in distress
                         - support of the Z glavo na zabavo (Party With Your Head) and Red Nose
                            foundations
                         - the collection of funds to help children from socially disadvantaged families
                            in cooperation with famous Slovenian athletes (Mobitel)
                         - support of campaigns to raise funds for persons in social distress via
                            Telekom, d. d.'s call centres
                         - SMS donations and support of the sight and hearing impaired (Mobitel)
                         - cooperation with the Macedonian Disabled Workers' Association
                         - donation to the children's oncological clinic and equipment for emergency
                            rescue vehicles, support for the National Transplant Foundation and support
                            of Solidarity Week (One)
ENVIRONMENTAL            • support of the Eco-School project through the online Eco-Quiz with the aim
PROJECTS                    of environmental education of the young (Telekom Slovenije)
                         • participation of employees in the "Let's Clean Slovenia in One Day"
                            campaign
                         • Mobitel, d. d.'s long years of cooperation with DOPPS


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                          •     concern for the Sečovlje salt pans, where Soline, d. o. o. combines the
                                preservation of natural and cultural heritage with entrepreneurship
                          •     participation of One employees in the "Tree Day" tree-planting campaign

                                       3.3.2     Protection of competition

Due to the intense competition within the sector and their strong market positions on most markets,
Telekom Slovenia Group companies are highly exposed to the protection of competition. Through its
activities, the Group strives to ensure equitable and effective competition. In line with its official duties
and on the basis of reports from other operators, the Competition Protection Office initiated two
proceedings in 2010. Details regarding these proceeding may be found in the section Significant
proceedings against Telekom Slovenia Group companies before the Competition Protection Office in
the Business Report section of the annual report.


                                      3.4      Environmental responsibility

During a year characterised by the restructuring of operations, the Telekom Slovenia Group
further improved its responsible treatment of the natural environment. The company's
environmental policy was updated and activities aimed at the efficient use of energy initiated. A
comprehensive waste management system was established and the monitoring of
environmental indicators initiated at subsidiaries in South-Eastern Europe. The Group worked
consistently to realise its established environmental objectives.

The bases for continuous environmental activities, including at the merged company, were laid down
last year in the adopted environmental policy of the Telekom Slovenia Group. The Group will continue
its environmental activities by achieving the following objectives:
- the development and implementation of activities aimed at protecting the environment and
     preserving natural resources wherever the Group is present;
- the methodical reduction of environmental impacts;
- the regular monitoring of the use of resources and energy and costs;
- the setting of environmentally friendly strategies and targets that are balanced against the
     particularities of the Group's operations and development;
- the constant improvement of environmental protection activities;
- the transfer of best own and other environmental practices to all Group companies;
- taking into account globally recognised environmental development guidelines in the development
     of services; and
- compliance with valid legal requirements and standards, and other normative and ethical
     requirements.

Telekom Slovenia Group companies comprise a complex high-technology system. New opportunities
to streamline processes at all levels will arise from of the Group's merged parent company. The
consistent and focused implementation of all activities, including environmental activities, is crucial to
ensuring the optimal use of all available resources. This is accomplished with a formalised system of
management throughout the production cycle, from planning and procurement, to the construction and
maintenance of networks, from the exploitation of services in all user segments to waste management.

Telekom Slovenia Group's environmental activities are directed and verified by an environmental
management committee and an operational environmental team that functioned at the parent
company in 2010. Administrators are responsible for the functioning of the environmental management
system in individual units of a company, which also have waste management coordinators.

The Group regularly complies with the requirements of environmental regulations. All required reports
are submitted by the relevant deadlines, without comment. Despite an increase in the number of
inspections, the Group did not receive any cautionary environmental fines.




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                                    3.4.1   Environmental developments in 2010

In line with its established environmental policy, the Group carried out the following significant
environmental management activities:
- the implementation of a project for the efficient use of energy in which the Group will search for
     internal reserves at companies;
- the introduction of a new comprehensive waste management system;
- Telekom Slovenije, d.d., environmental management system successfully passed a recertification
     assessment according to the SIST EN ISO 14001 standard;
- the introduction of the monitoring of environmental indicators at subsidiaries in south-eastern
     Europe;
- base stations using alternative energy power supplies (e.g. sun and wind) were set up in Kosovo;
- the purchase and recycling of old mobile phones was facilitated at Mobitel centres;
- a mobile phone with built-in solar cells and an energy-saving charger was added to the range of
     environmentally friendly products and services;
- the environmental accounting and bookkeeping system was upgraded; and
- the sustainability report of the Telekom Slovenia Group for 2009 was prepared for the first time in
     accordance with GRI guidelines, and was the first report from a Slovenian company to be
     submitted for independent external verification and registration.

Proactive communication, and the awareness and education of employees, suppliers and users on
environmental topics represent an integral part of responsible environmental management. The Group
was active in the following areas:
- the environmental awareness of employees in the scope of the Plus campaign at Telekom
    Slovenije, d. d., GVO and Najdi, informacijske storitve continued;
- activities in the area of environmental education so called "environmental primary school" was
    attended by 1,108 employees from Slovenian companies. Progress was thus made towards the
    objective of including all employees in Slovenia in the aforementioned programme by 2012;
- articles were published in the in-house magazine "Škrjanček" and environmental guidelines
    published in the e-journal "e-skupaj";
- the flow of and access to environmental documents and news on the intranet site "Caring for the
    Environment" was enhanced;
- proactive communication with interested publics regarding electromagnetic radiation continued;
- the Group continued to raise the environmental awareness of youth through the online Eco-Quiz
    project, through a Mobilatorij, the House of Experiments and
- Group employees participated in the nationwide "Let's Clean Slovenia" campaign.

International comparability is also important in assessing the Group's achievements. This is done by
participating in the sustainable development working group of the European Telecommunications
Network Operators' Association (ETNO; www.etno.be). Key activities in this are were as follows:
- the drafting of an environmental report according to ETNO guidelines;
- participation in meetings via a teleconference link, resulting in a reduction in emissions; and
- inclusion in the expert sub-group for energy (ETT – Energy Task Team).

                     3.4.2      Overview of the key environmental objectives in 2010

Objectives and targets                             Assessment   Implementation success
A: to reduce electricity consumption                            Indices of 90 in terms of value in euros
by 5% to 31 December 2012 - initiated                   ►       and 101 in terms of kWh compared with
2009.                                                           2009.
A1: to prepare for the implementation of                        Completion of preparatory activities;
an energy review of one commercial                      ►       implementation started in January 2011.
facility per year.
A2:     to   establish   a     centralised                      Implementation according to plan; all
consumption control system and to                               analysers not yet connected to the control
install analysers at each new electrical                        system. Activity continues in 2011, when
connection – multi-year objective.                              the installation of analysers at 10 locations
                                                                is planned.


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A3: to replace open batteries for the              The objective for 2010 was met. The
back-up power supply with closed                   replacement of classic battery types with
systems at two locations and to regularly          valve-regulated systems, and preventive
maintain existing systems – multi-year             inspections and the replacement of the
objective.                                         oldest batteries continues.

A5: to replace air conditioners at 20              Targets exceeded – an additional 10 air
locations with "free-cooling" systems with         conditioners were relocated.
the aim of eliminating all non-
professional units by 2011.
B: To improve the efficiency of fuel               Fuel consumption in litres reduced by 5%
consumption in the car fleet by 10%           ►    in year-on-year terms; objective to reduce
(litres/EUR thousand of revenues) –                consumption in the future as well.
initiated in 2009.
B1: to establish vehicle emission records          Completed to the planned extent; to be
for   at    least    50%       of   Telekom        completed in 2011.
Slovenije, d. d.'s car fleet in 2010.
B2: to reduce work-related travel by 2%            Achieved.
in terms of kilometres driven compared
with 2009.
B3: to reduce regular* vehicle costs per           Missed by 0.5 %.
vehicle by 2% compared with 2009.             ►

C: to reduce the volume of mixed                   Achieved.
municipal waste by 10% to 31
December 2012.
C1: to optimise the monitoring of waste –          Application entered into production on 1
introduction of an application to enter       ►    February 2011 due to specification
records and weight certificates.                   changes.
C2: to exclude locations where municipal      ►    Partially implemented; to continue in 2011.
waste is not generated from the system.
C3: to insure five ecological islands in           Completed. Three additional ecological
2010.                                              islands to be insured in 2011.
C4: to install standard identification        ►    Three tables were installed on every
tables for the five most frequently                location; to be completed in 2011.
encountered types of waste.
C5: to establish records and sell copper      ►    Agreements       are    being    reached;
cabling.                                           implementation expected in 2011.
D: to connect all treated wastewater          ►    Progress made; objective remains open
to the public sewerage system by 31                primarily owing to the connection of
December 2010.                                     smaller locations to sewerage.
D1: to connect the Koper business             ►    A sewerage trench was completed at the
premises to the public sewerage system.            end of 2010 according to plans;
                                                   agreements still being reached on
                                                   connecting.
D2: to establish a record of locations not    ►    Records established; verification and
connected to the public sewerage                   amendments continue.
system.
E: to reduce the spillage threat of           ►    Instructions were drafted and equipment
hazardous materials (e.g. pumping                  purchased. Task remains open to due its
and storage).                                      high importance.
E1: to place equipment to resolve spills.          Equipment placed at all recorded
                                                   locations.
E2: to review documentation regarding              Review carried out and instructions
oil traps and draft new plans as                   updated. Documentation for the new oil
necessary.                                         traps included in 2011 objective.
F: to reduce noise and emission into          ►    Use of environmentally friendly silent
the atmosphere by modernising                      cooling units and external air conditioning


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technological devices.                                             units. Objective remains open due to the
                                                                   large number of such units.
F1: to modernise two generators in 2010                ►           Three key generators replaced, despite a
and to reduce emissions and noise to the                           reduction      in     investment       funds.
levels required by environmental permits.                          Continuation of activities planned in 2011.
G: other areas
G1: to update environmental clauses in                  /          Responsible       departments           notified;
business premise agreements with GVO,                              updating not yet complete.
d. o. o. and other subsidiaries and
tenants.
G2: to review and update warehousing                               Completed.
rules for relevant locations as necessary.
G3: to review and update procurement                               Completed in full except for two cases for
contracts as necessary.                                            which signing was postponed until the first
                                                                   quarter of 2011.
G4: to update the environmental                                    Participation in the Let's Clean Slovenia,
communications plan and participate in                             Energija.si and Eco-Quiz campaigns.
at least three environmental campaigns
with external service providers.
G5: to carry out environmental training                            Seminars organised; plan of basic training
with the aim of organising at least two                            significantly exceeded,       as     1,108
seminars and including at least 300                                employees were included in training.
employees in the "environmental primary
school".
G6: to update records of local legislation.             /          Progress made, but non-systematically
                                                                   and not to the desired extent.
G7: to establish a record of locations in              ►           First phase completed; supplementation
SAP.                                                               by technical documentation, tenants, co-
                                                                   owners and co-locations proposed.
G8: to build a bicycle shed at the                                 Completed by the envisaged deadline. The
Cigaletova location.                                               possibility of purchasing bicycles for
                                                                   company use being studied.
Legend: (completed), ► (continuing activity in 2011), / (incomplete; corrective and preventive action)
 A = objective; A1 = target
* Opportunities for improving efficiency are still seen primarily in the consistent management of timetables and the
monitoring of milestones.

                                      3.4.3    Environmental indicators

Electricity

Electricity costs were down one tenth on the previous year, while the number of kWh was unchanged
(index 101). A more notable drop in consumption was recorded over the last four months of the year.
The effects of the savings project will be monitored using the established mechanisms of the
environmental management system.

Companies in south-eastern Europe began monitoring electricity consumption in the scope of
establishing environmental accounting. Electricity represents the highest environmental cost in the
telecommunications sector. The level of electricity costs is conditional on various factors, such as
different prices on markets and the reliability of supply. Energy is frequently supplied by generators,
due to power supply outages and fluctuations in Kosovo and Albania, which increases costs. The
introduction of alternative energy sources could contribute to the reduction of costs. A step was taken
in that direction with the setting up of three solar- and wind-powered base stations in Kosovo. The
monitoring of environmental indicators will be updated in 2011 with the monitoring of fuels costs.




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Changes in electricity costs by year in EUR million

          5,5
          5,0
          4,5
          4,0
          3,5
          3,0
          2,5
          2,0
          1,5
          1,0
          0,5
          0,0
                      2006                 2007                        2008                     2009                       2010



Transportation and heating fuels

The Group met its objectives regarding the use of transportation fuels. It also continued to restructure
the car fleet with the aim of reducing fuel consumption and CO2 emissions. Heating fuel represents the
main source of energy for heating purposes. With rising prices of refined petroleum products, this has
negative impact of rising heating costs. The Group assesses that it can achieve significant savings
through organisational measures that do not require major investments.

Changes in transportation fuel costs and heating cost in million EUR

                             1,20

                             1,00

                             0,80

                             0,60

                             0,40

                             0,20

                               -
                                           2006               2007                2008              2009                2010

                                           total vecihle fuels cost ( in € million)      heating costs (in € million)




Municipal services and the cleaning of premises

The total costs of cleaning and municipal services were down last year. The costs of cleaning services
represent the majority of these costs. Measures are being implemented in the scope of the Orion
projects to reduce the costs of managing premises. The first results of these measures are expected in
2011.

Costs of cleaning and other municipal service in mio EUR

                     2,00
                     1,75
                     1,50
                     1,25
                     1,00
                     0,75
                     0,50
                     0,25
                       -
                                    2006               2007                2008                2009               2010
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Updating of the comprehensive waste management system

The waste management system was comprehensively updated last year to improve its efficiency. The
aim of the update is to achieve zero cumulative waste costs in 2015. The Group began to harmonise
waste management at its two largest companies. Key measures included:
- the selection of a primary comprehensive service provider instead of a larger number of partners;
- a link in a joint plan with a new external service scheme in the area of packaging; and
- replacement of the organization responsible for the joint plan for waste electrical and electronic
   equipment and waste batteries and accumulators.

The primary contractor ensures comprehensive traceability and waste reporting. The transition to
comprehensive waste management will be supplemented by training activities.

Environmental activities in the mobile segment of operations

The year 2010 was characterised by numerous activities aimed at protecting nature and the
environment. Environmental impacts were managed through the use of the latest technological
solutions, conscientious adherence to the law, and through the prudently planned construction,
maintenance and placement of stations within the environment.

The Group developed environmentally friendly mobile telecommunications in its range of services and
products. To that end, it:
- included mobile phones manufactured by companies that take into account environmental impact
    in production in its range of products;
- facilitated the environmentally friendly disposal and recycling of old mobile phones and batteries;
- operated in line with the code of best practices at the national level, which binds the company to
    decrease the burden on the environment and users, and to the use of the best technologies;
- carried out measurements of electromagnetic radiation and, in addition to legally prescribed
    measures, carried out additional measurements on its own initiative to ensure the transparency of
    procedures and cooperated with local communities;
- provided interested inhabitants living near stations access to reports on measurements and
    documents, and participation in performing measurements;
- reduced energy consumption through the use of the latest IT equipment;
- continued preparing for the full digitalisation of operations with customers; and
- invested in raising awareness regarding the environmentally responsible treatment of employees
    and the wider environment.
The measurements of the electromagnetic radiation carried out for all of the Group's base stations
indicate that the environmental burden from electromagnetic radiation is significantly lower than the
thresholds specified in the Regulation on Electromagnetic Radiation in the Natural and Residential
Environment. The majority of stations recorded a value that is as much as 100 times lower than those
specified.

In addition to the Forum EMS, Mobitel, d. d. provides all necessary data to the state institutions that
monitor and supervise electromagnetic radiation. Slovenia is one of the EU Member States that have
introduced an electromagnetic radiation registry.

Best practices are also shared with subsidiaries in south-eastern Europe where mobile
telecommunications activities are carried out.

The Telekom Slovenia Group fulfils its environmental objective of supporting the preservation of the
natural environment through Soline, d. o. o. (100% owned by Mobitel, d. d.), which manages the
Sečovlje Saltpans Regional Park. The park is a saltpan ecosystem of international significance to
environmental protection, which represents a remarkable cultural heritage linked to the traditional
culture of salt miners and desalination.

Soline, d. o. o. protects and preserves the natural and cultural heritage in the area of the regional park
on behalf of the government, and produces salt by traditional method. Since 2003, when a concession
to manage the regional park and utilise the natural resources of the Sečovlje Saltpans was received,
the traditional process for producing salt, which is a precondition for preserving the salt mining activity
linked to the plant and animal species and their habitat, has been nearly fully restored.

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Taking into account the sustainability of processes, the sustainable development of this region is
ensured. By implementing measures to protect natural and cultural heritage, the Group raises
awareness about the importance of preserving the Sečovlje Saltpans Regional Park. EU funds
earmarked for protecting nature, raising awareness and research assists to that end.


                                    3.5   Responsibility to customers

A satisfied customer is the basic guideline to the Group's operations and one of its core
values. To enhance this satisfaction, activities are continuously focused on providing a user
experience of the highest quality that is also simple and secure. It is based on user-friendly
and technologically advanced services, products and content.

Creating new user experiences

The Group continued to adapt last year to the needs and wishes of individual user segments in all
areas, and provided new services, products and content tailored to the user. These include the
following:
- the upgrading of loyalty programmes in all segments where they exist;
- a range of advanced smart mobile phones and entertaining mobile applications for the most
     demanding users (Mobitel);
- the introduction of the SiOL BOX service, which provides an entirely new user experience
     (Telekom Slovenije);
- the introduction of the Mobitel Ena easier-to-use mobile phone for older users (Mobitel);
- the introduction of new external sales channels for SiOL services;
- the introduction of the new Umbrella brand intended for the family segment by One, d. o. o.;
- the upgrading of Mobitel's subscriber packages that are better tailored to the needs of users;
- the upgrading of the Adpartner Search advertising products and the upgrading of the advertising
     network (Najdi); and
- the establishment of a unit responsible for production and the range of multimedia services for
     external subscribers (Planet 9).

Permanent benefits are offered to special user groups. Disabled persons, students and persons with
special needs are entitled to discounts and specially priced packages in the areas of broadband
access and traditional and mobile telephony. The deaf and hearing impaired are entitled to a package
with low-priced text messaging and free video calls, while members of volunteer associations are
provided a package of mobile services with no monthly subscription fee.

All of the following activities are aimed at customer satisfaction:
- Telekom's interactive assistant Tia successfully helps the company's users find answers to the
     most frequently asked questions and guides them using automated answers;
- the functionality of Tia the interactive assistant was expanded with the introduction of chat rooms,
     which facilitates interactive communication with our advisors;
- the Technical Helpdesk Service (080 1000) received 1,179,510 calls and resolved 71% of all
     registered incidents;
- a great deal of energy and activities were invested in the preventive monitoring of operations, in
     improving diagnostics, and in improving responsiveness and work efficiency;
- by introducing a support system to manage network faults and services on the Remedy platform,
     the company ensured the assignment and monitoring of incidents, from the recording of contact,
     through registration to final clearance for all responsible groups, including subsidiaries;
- control of the creditworthiness of subscribers prior to the execution of an order was established to
     mitigate risks and avoid default on receivables; and
- an IT support CRM, which speeds up subscriber order and request processes and procedures and
     facilitates the management of subscriber contacts and submitted documents, was established.

The following internal activities that will contribute to raising customer satisfaction were also
introduced:




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-   a Coaching process that is integrated into the work of the telemarketing department. Assessing
    conversations, as an integral part of the process, effectively illustrates the quality of managing
    conversations with users;
-   My Day with a Customer is a project aimed at improving awareness of the importance of a
    customer; and
-   mentoring, which we use regularly as a process, meanings good training methods and the flow of
    knowledge and information, which is crucial to quality customer service.

Business user segment

Among the most important developments in the business user segment are the following:
- the introduction of the Custom Office service;
- the introduction of new, integrated convergent services such as the Single Business Network;
- the upgrading of the Smart Number and the Click to Call service; and
- a new business newsletter with presentations of key selected user experiences.

Concern for children’s internet security

Informing children, parents and teachers about the secure use of the internet is an integral part of the
Group's social responsibility. To that end, the Group supports Safe.si, a national website aimed at
raising internet security awareness among children and adolescents through various communication
activities, prize contests and games. Secure internet use is also an integral part of the children's
corner on the SiOL website, where an online adventure game has been added to raise awareness
about the benefits and dangers of the internet. Constant communication for children and parents
regarding internet security may be found in the children's corner.

Satisfaction with SiOL services
During the past year, Telekom Slovenije has given special attention to the satisfaction of existing users
of SiOL services, which was measured twice in 2010. The company received useful opinions and
suggestions regarding services that led to the introduction of new products and services, such as the
new Trio 10M package to meet the need for increased speeds, HD on the copper-based (xDSL)
network, and HD and HBO in the basic and standard programme scheme. Several additional functions
and services that users missed (e.g. a recorder, time delay, connection with a computer and access to
news and sports results) were offered with SiOL BOX. It was seen that SiOL BOX users achieve a
higher level of satisfaction with SiOL TV than users who have not yet used SiOL BOX. Customers also
gave a positive assessment of the loyalty programme, with more than three quarters of users
expressing their satisfaction.

Satisfaction of major business users
The Group also measured business user satisfaction. Among major business users, 85% are satisfied
with services. For them, the most important element is the reliable functioning of services, accessibility
when reporting faults and the rapid clearance of faults. They expressed the highest level of satisfaction
with technical support and contact staff and the reliability of Telekom Slovenije's services. Among
those whose reported a fault, the majority were satisfied with the functioning of a service following the
clearance of a fault. Three quarters of users would recommend Telekom Slovenije, d. d. to their
business partners and acquaintances.

The reputation of Telekom Slovenije, d. d. improved in the eyes of the general and business publics,
which also improves the reputation of the corporate brand. Telekom Slovenije, d. d. and Mobitel, d. d.
have been ranked as the most reputable Slovenian telecommunication companies for several years.

The Group also monitors the perception of the general public with regard to broadband service
providers. Results from 2010 indicate that:
- SiOL is the best known brand in the category of internet access and packages of services with the
    widest range of choices (more than half of those surveyed would choose SiOL "today" as their
    broadband service provider);
- SiOL is recognised as the leading and most reputable and family-oriented company, with state-of-
    the-art TV services and a wide selection of video and HD content. It was also rated higher than the
    competition; and



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-   the Mobitel and Najdi.si brands are perceived by users as moderately innovative, and of a
    somewhat more serious and commercial nature.

The trust of users is also confirmed by prestigious awards and titled, such as Trusted Brand and
Superbrand, which the Telekom Slovenije, SiOL, Mobitel and Najdi.si brands have received for several
consecutive years.

Communication with users

Targeted, proactive and effective communication with customers is crucial for the sales, management
and strengthening of the Group's most important brands: SiOL, Mobitel, Telekom Slovenije, Ipko and
One. At the forefront in the past year were interactivity, convergence with the needs of users, the live
presentation of user experiences and the introduction of anticipated new services tailored to the
wishes of users. The most significant shift compared with the previous year was the Group's increased
presence in social networks. These were used to support all communication campaigns, monitor
responses and assist them with solutions or answers to their questions.

The most important communication activities included:
- communication campaigns aimed at attracting subscribers with the help of various tools for all
   brands;
- a comprehensive communication campaign to support the launch of SiOL BOX. In addition to
   traditional advertising, the aforementioned campaign included an interactive cubicle and live
   presentations (Telekom Slovenije, d. d.);
- the introduction of new Trio packages of up to 10M and the Secure Home service;
- communication campaigns aimed at informing the public about the rich content of SiOL TV;
- presentations of SiOL for the business user segment at fairs and via the internet;
- strengthening the Group's online presence via the Twitter and Facebook social networks with
   more than 38,000 fans of Mobitel's profile, 20,000 fans of SiOL's profile, 10,000 fans of the
   Xobi.zabava profile (SiOL BOX) and 56,000 fans of One's profile, communication with fans via
   various applications and prize games;
- the promotion of new and updated packages of services at Mobitel, d. d., One, d. o. o. and Ipko,
   d. o. o.; and
- the building of relations with subscribers via direct communications (e.g. e-newsletters, the reverse
   side of invoices, email, direct mail and calls from the call centre).

Proportions and costs of complaints

The principle of complaint resolution is flexibility in finding solutions to the benefit of both parties. Each
complaint is treated as feedback that facilitates the improvement of internal processes and the
development of the sales offer. Telekom Slovenije, d. d. received complaints on just 0.32% of all
issued invoices. The Group also works proactively to inform subscribers via service sites, portals and
monthly invoices. The majority of complaints at Mobitel, d. d. related to external GSM services. A
number of measures, particularly in the area of data transfer, were adopted to reduce the number of
complaints.

                                     3.6   Responsibility for quality

The quality of the network, services and work is one of the key comparative advantages of the
Telekom Slovenia Group's on all of its markets. Stable quality is maintained in all areas with
the aim of being better than the competition.

Consistent quality is ensured primarily by introducing and maintaining formalised systems of
management such as:
- the core SIST EN ISO 9001 quality management system,
- the SIST EN ISO 14001 environmental management system, and
- the ISO/IEC 27001 information security management system.

Systems are upgraded with the aim of integrated systems of management and business excellence.
The Group has therefore gained additional knowledge from the following areas:


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-   the OHSAS 18001 occupational health and safety management system,
-   the ISO/IEC 20000 IT services management system, and
-   the SIST EN 16001 energy management system.

System                              Company                     Activity in 2010
SIST EN ISO 14 001                  Telekom       Slovenije,    - recertification assessment without identified
                                    d. d.                       irregularities
SIST EN ISO 9001 and                GVO, d. o. o.               - successful regular assessment of the
SIST EN ISO 14001                                               integrated ISO 9001 and 14001 quality and
                                                                environmental management system
SIST EN ISO 9001                    Avtenta.si, d. o. o.        – successful reassessment
                                    Gibtelecom
SIST ISO IEC 27001                  Avtenta.si, d. o. o.        - completion of the process and receipt of
                                                                confirmation regarding compliance with the
                                                                requirements of the standard
Accreditation from the Slovene                                  - receipt of reaccreditation for the perspective
Archive for its own siHramba.eu                                 service of archiving materials in electronic form
service
Business excellence (EFQM)          Gibtelecom                  - receipt of RfE recognition (Recognized for
                                                                Excellence)

Quality of the fixed network and services

The technological quality of the network is crucial for the provision of high-quality telecommunications
and ICT services. This is ensured by enhancing the resilience of network systems and by
systematically mitigating the impact of faults on services. Emphasis is placed on quality assurance in
the IP environment.

KPIs and KRI remain the key mechanism for monitoring quality. Two breakthroughs were made in this
area in 2010: the expansion of the monitoring of quality using key performance and risk indicators to
companies on the markets of south-eastern Europe during the first quarter and the establishment of
primary KRIs at the parent company in the final quarter.

Quality of the mobile network and services

Mobitel continues to ensure the quality of mobile services and improve the quality of the mobile
network. Indicators of the quality of service increasingly reflect the user experience. According to
comparative measurements by independent institutions, the company ranks among leading operators
by European and global standards in terms of quality, while Mobitel boasts the highest-quality network.
The company continued to streamline costs and investments in all segments. Significant savings were
achieved through procurement conditions with the company's main supplier and with regard to the
costs of leased lines.
Already high coverage of the Slovenian territory was improved further, as was coverage of the
population with the UMTS signal. Base stations in the UMTS network were upgraded with HDSPA
technology. A third generation network was established through the construction of base stations with
HSPA+ technology, which facilitates extremely high data transfer speeds.

With the help of the knowledge and experience gained in Slovenia, Ipko in Kosovo has built the
highest quality mobile network in this part of Europe, which it also maintains and upgrades.


                                    3.7     Responsibility to suppliers

The Telekom Slovenia Group creates long-term partnerships with suppliers. Only in that way
can it provide high-quality and technologically advanced services to its users.

Supplier selection
References from past transactions are taken into account when selecting suppliers who offer the
highest-quality and appropriate equipment and services for the telecommunications network. Their


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ability to maintain equipment and the infrastructure is also considered. The ordering of goods,
construction and services is carried out in line with the relevant rules, so that the ordering process is
as efficient, effective and transparent as possible.

A joint strategy in relation to suppliers, which entails achieving equal benefits for both companies
during the preparatory phase of the merger, is being drafted in the scope of the Orion project A joint
negotiating team is being assembled for the Group, which will manage the ordering process under the
same criteria for both companies. A reduction in costs and investments in the telecommunications
network can be expected owing to the lower prices achieved as a single company on the market.

Environmental commitment of suppliers
Agreements on the provision of various services include a commitment by suppliers to comply with
legal requirements and best practices in the area of environmental management, such as:
- to act in accordance with valid environmental protection legislation in performing contractual
    works, and with legislation from other areas directly related to the environment (e.g. chemicals, the
    transport of hazardous materials and fire safety);
- to respect the environmental policy of the ordering party. The supplier will be briefed on the policy
    by the person responsible for environmental management at the location in question; and
- to establish and maintain communication with the person responsible for environmental
    management at the location in question.

-   Telekom Slovenije, d. d. transitioned to the computerised/electronic ordering of goods and
    services in 2010, introducing nearly paperless operations.


                                     3.8   Responsibility for security

The Telekom Slovenia Group is aware of the importance of corporate security. It therefore
protects the assets of companies, business information and information technologies through
high security standards and by spreading a culture of security.

Security policy implementation

The Group provided for a secure working environment and protected the company's assets by
implementing a valid security policy. The culture of security has been strengthened and developed by
introducing security workshops and training employees.

The financial year ended without any major incidents that could affect the company's operations. The
company responded promptly to security incidents and implemented timely measures to protect
employees and assets.


Building and system security
With regard to securing its own infrastructure, the Group continued to exploit synergies in the area of
technical and physical security. The upgrading to technical security systems and the connectivity of
systems on IP protocol continued on the basis of risk assessments. Physical security was also
optimised, thus contributing to the adopted cost reduction policy.
The Group was more active on the security services market. The marketing of services such as
Secure Home and Infranet, intended for business and residential users, and back-up security control
centre services, for the needs of specialised security companies, is already producing positive effects.

Information and information technology security

The Group continued to implement activities in the information technology security sector. These
included:
- - ensuring business continuity,
- - recording critical business processes,
- - analysing impacts on business processes, and
- - risk assessments by business process.


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A great deal of emphasis is given to improving internal procedures regarding the handling of personal
data, trade secrets and other types of information, in accordance with valid legislation and the Group's
security policy.

Telekom Slovenia Group

                            3.9        Content according to GRI G3 reporting guidelines


                 Content according to the GRI G3                                          Page
1                Strategy and analysis
1.1              Statement of the Management Board on the importance of
                 sustainable development for the organisation and strategy
2                Presentation of the organisation
2.1-2.10         Company name, brands, registered office, organisational
                 structure, ownership structure, markets, key data, significant
                 changes regarding composition and ownership, recognitions and
                 awards
3                Reporting parameters
3.1-3.8          Data regarding the report, purpose of reporting and limitations
3.10-3.11        Explanation of the effects of changes to data from previous reports
                 and reasons, knowledge and significant changes with regard to
                 the previous reporting period
3.12             GRI content
4                Governance, organisational commitments and the inclusion
                 of stakeholders
4.1-4.4          Governance structure, mechanisms for the submission of
                 recommendations and suggestion by minor shareholders to the
                 Supervisory Board and by employees to the works council and
                 employee representatives on the Supervisory Board
4.12-4.13        Commitments to and support of external initiatives and
                 membership in associations
4.14-4.15        Inclusion of stakeholders and criteria for selecting stakeholders
                 with whom cooperation has been established
                 Economic impact indicators
EC1              Direct economic value generated and distributed, including
                 revenues, operating costs, employee compensation, donations
                 and other community investments and payments to shareholders
                 Environmental management indicators (environmental
                 indicators)          Environmental      management       indicators
                 (environmental indicators)
EN3EN3           Direct energy consumption by primary sources (fuels)Direct
                 energy consumption by primary sources (fuels)
EN4EN4           Indirect energy consumption by primary sources (electricity)
                 Indirect energy consumption by primary sources (electricity)
EN7 EN7          Initiatives to reduce indirect energy consumption and reductions
                 achievedInitiatives to reduce indirect energy consumption and
                 reductions achieved
EN26EN26         Initiatives to mitigate the environmental impacts of products and
                 services Initiatives to mitigate the environmental impacts of
                 products and services
EN28EN28         Observance of regulations Observance of regulations
EN29EN29         Significant environmental impacts of transportation for the
                 organisation's operations Significant environmental impacts of
                 transportation for the organisation's operations
                 Labour practices and decent work indicators Labour
                 practices and decent work indicators
LA1LA1           Total workforce by employment type, employment contract and
                 regionTotal workforce by employment type, employment contract

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                 and region
LA7LA7           Rates of injuries, occupational diseases, lost days and
                 absenteeism Rates of injuries, occupational diseases, lost days
                 and absenteeism
LA10LA10         Average hours of training per employee and by employment
                 category Average hours of training per employee and by
                 employment category
LA11LA11         Programmes for training and lifelong learning Programmes for
                 training and lifelong learning
                 Social environmental indicators Social environmental
                 indicators
SO7SO7           Competition protection Competition protection
                 Product and service responsibility indicators Product and
                 service responsibility indicators
PR5 PR5          Practices related to customer satisfaction Practices related to
                 customer satisfaction
* Data regarding content is given in the Business Report section of the 2009 Annual Report of Telekom Slovenije,
d. d. and the Telekom Slovenia Group. * Data regarding content is given in the Business Report section of the
2009 Annual Report of Telekom Slovenije, d. d. and the Telekom Slovenia Group.

Table: application of GRI guidelines Table: application of GRI guidelines

                                       CC        C+C+           BB          B+B+           AA          A+A+
Mandatory             Self-
Mandatory             assessment
                      Self-
                      assessment
Voluntary             External
Voluntary             verification
                      External
                      verification




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                           3.10 Suistainability verification statement




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                                     4 FINANCIAL REPORT


                                     4.1   Introductory notes



In addition to the introductory notes, the financial statements herein consist of two major chapters,
namely:

- Financial statements of Telekom Slovenia Group, and
- Financial statements of Telekom Slovenije, d. d..

The financial statements of the Telekom Slovenia Group and Telekom Slovenije, d.d. were prepared in
accordance with the International Financial Reporting Standards as adopted by EU (IFRS).

The auditing firm ERNST & YOUNG, Revizija in poslovno svetovanje d. o. o. have audited both sets of
financial statements and have issued separate auditors' reports, which are enclosed with each set of
the financial statements.




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                           4.2        Financial report of the Telekom Slovenia Group

                      4.2.1          Financial statements of the Telekom Slovenia Group


Consolidated income statement for the year ended 31 December 2010

                                                                                                      In TEUR
                                                                 Note                     2010    2009 adjusted
Revenue                                                            3                   839,337         847,507
Other income                                                       4                     4,189            8,599
Share of profit of a joint venture                                                       4,527            3,611


Cost of goods and materials sold                                                        -46,741         -45,978
Cost of raw materials and consumables                                                   -16,761         -15,899
Cost of services                                                   5                   -331,592        -346,199
Staff costs                                                        6                   -162,523        -152,909
Depreciation and amortisation                                    12, 13                -214,454        -197,681
Other operating expenses                                           7                   -254,464         -30,885


Total operating expenses                                                          -1,026,535           -789,551


Profit from operations                                                                 -178,482         70,166


Finance income                                                     8                     4,267            5,895
Finance cost                                                       9                    -28,174         -32,780


Profit before tax                                                                      -202,389         43,281


Income tax expense                                                10                     -7,928         -13,817


Net profit for the period                                                              -210,317         29,464


Attributable to:
Equity holders of the parent                                                           -210,317         29,464
Minority interest                                                                            0               0


Earnings per share – basic and diluted in EUR                     11                     -32.33            4.53

The accompanying notes are an integral part of these consolidated financial statements.




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Statement of comprehensive income for the year ended 31 December 2010

                                                                                               In TEUR
                                                                                  2010    2009 adjusted
Net profit for the period                                                      -210,317         29,464
Revaluation of AFS financial assets                                                -766             -39
Deferred tax                                                                       153               7
Reclassification of revaluation of available-for-sale
financial assets to profit or loss                                                 545               0
Deferred tax on reclassification of revaluation of
available-for-sale financial assets to profit or loss                              -109              0
Net gain from revaluation of available-for-sale
financial assets                                                                   -177             -32

Changes in fair value of cash flow hedges                                           -81          -4,796
Deferred tax                                                                        16             463
Reclassification of changes in fair value of cash flow
hedges                                                                            1,055           4,698
Deferred tax                                                                       -211            -444

Net gain on changes in fair value of cash flow
hedges                                                                             779              -79



Changes in fixed assets revaluation reserve                                      39,627              0


Deferred tax from changes in fixed assets revaluation
reserve                                                                          -7,925              0



Net gain from fixed assets revaluation reserve                                   31,702              0
F/X reserve                                                                       3,178          -2,966
Other comprehensive income                                                       35,482          -3,077


Total comprehensive income                                                     -174,835         26,387
The majority share                                                             -174,835         26,387
The minority share                                                                    0              0


The accompanying notes are an integral part of these consolidated financial statements.




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Consolidated balance sheet at 31 December 2010
                                                                                                  In TEUR
                                                           31 December        31 December     31 December
                                               Notes              2010       2009 adjusted   2008 adjusted
ASSETS


Intangible assets                               12              162,867           351,951         255,144
Property, plant and equipment                   13             1,108,408         1,206,694       1,120,868
Investment in joint venture                     14               41,023            38,863          38,619
Other investments                               15               12,350            14,661          18,525
Other non-current assets                        16               24,725            27,289          29,578
Investment property                             17                6,413              5,121           5,253
Deferred tax assets                             18               18,681            13,226          10,483
  Total non-current assets                                     1,374,467         1,657,805       1,478,470


Assets held for sale                            19                5,688              1,156            627
Inventories                                     20               20,955            24,998          28,421
Current trade and other receivables             21              196,724           204,496         187,917
Income tax receivable                                               276            15,307            4,399
Current financial assets                        22               13,392               554          21,121
Cash and cash equivalents                       23               46,726            21,210          18,845
  Total current assets                                          283,761           267,721         261,330


Total assets                                                   1,658,228         1,925,526       1,739,800


The accompanying notes are an integral part of these financial statements.




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Consolidated balance sheet at 31 December 2010

                                                                                                  In TEUR
                                                           31 December        31 December     31 December
                                               Notes              2010       2009 adjusted   2008 adjusted
EQUITY AND LIABILITIES


Issued capital                                  24              272,721           272,721         272,721
Treasury shares                                 24                -3,671            -3,671          -3,671
Reserves                                        24              357,620           573,531         543,457
Retained earnings                               24              102,287           111,433         148,820

Fixed assets revaluation reserves               24               76,513            48,998          51,162

Financial instruments revaluation reserve       24                2,117              1,515           1,626
F/X reserves                                    24                  225             -2,961              5
Minority interest                                                     0                 0             235
   Total capital and reserves                                   807,812          1,001,566       1,014,355


Non-current deferred income                     25                9,549              8,528           9,169
Provisions                                      26               37,814            30,529          30,580
Non-current operating liabilities                                    31                35              46
Interest bearing borrowings                     27              131,224           254,683         241,145
Other non-current financial liabilities         28              312,221           326,331          63,863
Deferred tax liabilities                        18                9,621              5,595           1,306
  Total non-current liabilities                                 500,460           625,701         346,109


Trade and other payables                        29              153,317           156,173         157,280
Income tax liabilities                                            5,590              2,419           3,400
Interest bearing borrowings                     27              125,451            56,277         177,431
Other current financial liabilities             30               17,042            38,871            1,411
Deferred income                                 31               22,913            19,238          18,437
Accruals                                                         25,643            25,281          21,377
  Total current liabilities                                     349,956           298,259         379,336
  Total liabilities                                             850,416           923,960         725,445


Total equity and liabilities                                   1,658,228         1,925,526       1,739,800

The accompanying notes are an integral part of these financial statements.




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Consolidated statement of changes in equity for the year ended 31 December 2010


                                                                                                                                                                            In TEUR



                                                                                              Net gain or loss   Net gain or loss
                                                                                                on revaluation on changes in fair               Total attrib.
                                  Issued    Treasury              Retained                    of AFS financial     value of cash difference/X         to the    Minority
                                  capital     shares   Reserves   earnings   FA rev. reserves          assets       flow hedges       reserve        parent     interest       Total


Balance at 1 January
2010                            272,721       -3,671    573,531   111,433             48,998           2,294               -779       -2,961      1,001,566           0    1,001,566
Net profit for the period                                         -210,317                                                                         -210,317                 -210,317
Other comprehensive
income for the period                                                                 31,702             -177               779        3,178         35,482                  35,482


Total comprehensive
income for the period                  0          0          0    -210,317            31,702             -177               779        3,178       -174,835           0     -174,835
Transfer to retained
earnings and reserves                                     1,430     2,760             -4,190                                                               0                      0
Transfer to legal
reserves                                                   -367       367                                                                                  0                      0
Transfer to other
reserves (decision of
the Management)                                        -216,976   216,976                                                                                  0                      0
Payment of dividends                                               -19,716                                                                          -19,716                  -19,716
Other                                                        2        784                  3                                               8             797                    797
Balance at 31
December 2010                   272,721       -3,671    357,620   102,287             76,513           2,117                  0          225        807,812           0     807,812


The accompanying notes are an integral part of these consolidated financial statements.




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Consolidated cash flow statement for the year ended 31 December 2009
                                                                                                                                                                                In TEUR
                                                                                                     Net gain or
                                                                                                          loss on   Net change in
                                                                                                  revaluation of      fair value of
                                                                               Fixed assets        available-for-          hedging
                                   Issued    Treasury               Retained    revaluation        sale financial         financial difference/X    Total attrib.   Minority
                                   capital     shares   Reserves    earnings        reserve                assets     instruments        reserve   to the parent    interest       Total


Balance at 31
December 2008                     272,721      -3,671    550,683     143,040          101,031              2,326              -700            5       1,065,435         235    1,065,670


Effect of changes in
accounting policy                                          -7,226      5,780          -49,869                                                            -51,315                 -51,315

Balance at 1 January
2009 adjusted                     272,721      -3,671    543,457     148,820           51,162              2,326              -700            5       1,014,120         235    1,014,355

Net profit for the period                                             29,464                                                                             29,464                  29,464
Other comprehensive
income for the period                                                                                        -32               -79       -2,966           -3,077                  -3,077
Total comprehensive
income for the period                   0          0           0      29,464                  0              -32               -79       -2,966          26,387           0      26,387
Transfer to retained
earnings and reserves                                      1,430         690           -2,120                                                                  0                      0
Transfer to reserves                                         680        -680                                                                                   0                      0
Transfer to other
reserves under the
resolution of the
Management Board                                          28,012     -28,012                                                                                   0                      0
Dividends paid                                                       -39,033                                                                             -39,033       -180      -39,213
Other                                                        -48         184              -44                                                                 92        -55          37
Balance at 31
December 2009
adjusted                          272,721      -3,671    573,531     111,433           48,998              2,294              -779       -2,961       1,001,566           0    1,001,566




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Consolidated cash flow statement for the year ended 31 December 2010
                                                                                               In TEUR

                                                                                  2010    2009 adjusted
Cash flows from operating activities
     Profit before tax                                                         -202,389         43.281
     Adjustments for:
     Depreciation and amortisation                                             214,460         197.681
     Depreciation of investment property                                            53              43
     Loss on disposal and write-downs of intangible assets and PPE             212,640            5.291
     Gains/loss on disposal of FA                                                -1,702          -1.927
     Movement in bad debt allowances                                            30,511          14.823

     Finance income                                                              -4,267          -5.895
     Finance cost                                                               28,174          32.780

     Change in assets held for sale                                              -4,532            -529
     Change in trade and other receivables                                      -22,739         -31.402
     Change in other non-current assets                                          1,272            2.421
     Change in inventories                                                       4,043            3.423

     Change in provisions                                                        7,285              -51
     Change in deferred income                                                   4,696             160
     Change in accruals                                                            362            3.446
     Change in trade and other payables                                           -253             -545

     Tax paid                                                                    -3,299         -27.562
     Cash flow from operating activities                                       264,315         235.438

Cash flows from investing activities
     Receipts from investing activities                                          6,141          37.218
     Proceeds from sale of PPE                                                   2,947            5.836
     Dividends received                                                          2,953            3.793
     Interest received                                                             241            1.064
     Proceeds from sale of non-current financial assets                              0            6.008
     Proceeds from sale of current financial assets                                  0          20.517
     Disbursements from investing activities                                   -146,356        -402.371
     Purchase of property, plant and equipment                                  -94,362        -158.052
     Purchase of intangible assets                                              -19,213         -26.724
     Investments in subsidiaries and joint ventures net of cash acquired and
     acquisition of minority interests                                          -32,761        -217.558
     Interest bearing loans                                                         -20             -37
     Cash used in investing activities                                         -140,215        -365.153

Cash flows from financing activities
     Receipts from financing activities                                          1,619         682.058
     Paid in capital                                                                 0            3.625
     Non-current borrowings                                                        600         346.762
     Short-term borrowings                                                       1,019          33.996
     Bonds issued                                                                    0         297.675
     Disbursements from financing activities                                   -100,203        -549.978

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     Repayment of short-term borrowings                                                 -17,741             -71.890
     Repayment of non-current borrowings                                                -38,100           -415.557
     Sale of derivatives                                                                 -3,749                  0
     Interest paid                                                                      -21,126             -23.317
     Dividends paid                                                                     -19,487             -39.214
     Cash flow from financing activities                                                -98,584            132.080

Net increase/decrease in cash and cash equivalents                                      25.516               2,365

Closing balance of cash                                                                 46.726              21,210
Opening balance of cash                                                                 21.210              18,845

The accompanying notes are an integral part of these consolidated financial statements.


   4.2.2    Notes to the consolidated financial statements of the Telekom Slovenia Group and
                         summary of significant accounting policies of the Group

1. General information

Financial statements
The financial statements are the consolidated financial statements of the Telekom Slovenia Group (the
“Group”) for the year ended 31 December 2010.

In accordance with article 54 of the Companies Act, the Group is required to prepare and publish
consolidated financial statements in accordance with International Financial Reporting Standards as
adopted by EU (IFRS) as the parent company’s shares are listed on the Ljubljana Stock Exchange.
The financial statements were authorised for issue by the Board on 5 April 2011.

The Telekom Slovenia Group consists of the parent company, Telekom Slovenije d.d., and the
following subsidiaries or groups of subsidiaries:
- MOBITEL, d. d. (100% interest)
- GVO, d. o. o. (100% interest)
- Najdi Group (100% interest),
- AVTENTA.SI d. o. o. (100% interest)
- SOLINE d. o. o., in which Mobitel d. d. holds a 100% interest
- PLANET 9 d. o. o. (100% interest),
- IPKO Group, Kosovo (93.11% interest),
- ON.NET d.o.o. Skopje, Macedonia, Telekom Slovenije, d.d. holds a 83.38% interest and ONE DOO
Skopje, Macedonia holds a 16.62% interest,
- ANEKS d. o. o. Banja Luka, Bosnia in Herzegovina (70% interest)
- PRIMO Communications, Sh.p.k, Albania (75% interest), in 2009 renamed from the AOLSP Group,
- SIOL d.o.o., Croatia (100% interest),
- SIOL B.V. Group, Netherlands (100% interest), which in addition to the parent company SIOL, B.V. in
liquidation includes a daughter company ONE DOO Skopje, Macedonia in which it holds a 74.38%
interest,
- ONE DOO Skopje, Macedonia (25.62% interest)
- ONE TO ONE AD Skopje, Makedonija (100% interest), renamed from Germanos Telecom, and
- DIGI PLUS MULTIMEDIA DOOEL Skopje, Macedonia (100% interest).

Mobitel, d.d. is the owner of a subsidiary Soline, Pridelava soli d. o. o., in which it holds a 100% interest.
The company also acquired a 50% interest in the company M-Pay, d. o. o.

Planet 9 d. o. o. has been established by the companies Mobitel, d. d. and SiOL, d. o. o. (which merged
with Telekom Slovenije, d. d. in 2007). After purchasing from Mobitel, d. d. a 50% interest in Planet 9 d. o.
o. in December 2010, Telekom Slovenije, d. d., became a 100% shareholder of the company.



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The Najdi Group consists of a parent company Najdi, informacijske storitve, d. o. o., which holds a
100% interest in subsidiary companies POGODAK TRAŽILICA d. o. o. in liquidation in Croatia,
POGODAK DOO BEOGRAD in Serbia, and 50.1% interest in the subsidiary MEGANET d. o. o.,
Slovenia.

Within the Ipko Group the parent company Ipko Telecommunications LLC holds a 100% interest in
N.B. »Media Works« Sh.p.k, Kosovo. The interest of Telekom Slovenije, d. d., amounts to 93.11%,
however, the parent company holds a call option and minority shareholders hold a put option for the
remaining interest in the company.

In the SIOL. B.V. Group the parent company SIOL B.V. in liquidation holds a 74.38% interest in the
company One doo Skopje. The remaining interest of 25.62% is held by Telekom Slovenije, d. d.

Telekom Slovenije, d. d. holds a 100% economic ownership in all subsidiaries through call options and
granting put options to minority shareholders.

A 50% interest in Gibtelecom Limited represents the investment into a joint venture. Together with the
company M-Pay, d. o. o., they are included in the consolidated statements by using the equity method.

General information about the parent company
Telekom Slovenije d.d., with its registered address in Cigaletova 15, Ljubljana, Slovenia, is a public
company, incorporated and domiciled in the Republic of Slovenia, whose shares are listed on
Ljubljana stock exchange.
As of 31 December 2010, the Republic of Slovenia as the majority shareholder holds 3,434,021 shares
or a 52.54% interest in the Group.

Principal activities
Telekom Slovenija d.d. is the owner of almost all telecommunications capacities in the territory of
Slovenia. It provides local and international fixed-line telephone services, internet services in Slovenia,
other telecommunications services, and sells various mostly telecommunications merchandise.
Principal activities of Mobitel d.d. include construction and management of the mobile telephony
infrastructure, provision of telecommunication services in the field of public mobile
telecommunications, and sale of merchandise - mobile phone handsets and accessories.

The principal activity of the subsidiary is the traditional salt production, while the subsidiary is also
engaged in the preservation and management of the landscape park.
The principal activity of the company M-Pay, d. o.o., is mobile payments processing.

Planet 9 d. o. o., is a provider of multimedia content and services to users of the mobile broadcast and
internet network.

GVO, d. o. o. performs building and maintenance works on telecommunication networks,
predominantly for Telekom Slovenije, d.d.
Najdi, informacijske storitve, d.o.o., the parent company in the Najdi, informacijske storitve Group, issues
telephone directories and carries out service of information provision, maintains business databases,
provides Internet services in Slovenia and, through its subsidiaries, also in Croatia and Serbia.

Avtenta.si, d. o. o., is a system integrator of business solutions.

Ipko Telecommunications LLC in Kosovo provides telecommunications services.

The Telekom Slovenia Group is the provider of Internet services in Bosnia and Herzegovina through its
subsidiary Aneks, d.o.o. and in Macedonia through On.net doo Skopje.

Primo Communications Sh.p.k provides Internet services and fixed telephony services.

One doo Skopje in Macedonia is the provider of integrated telecommunications services through its
powerful telecommunications network and extensive sales network within the company One To One AD
Skopje.



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Digi Plus Multimedia dooel Skopje provides digital TV marketing in Macedonia.

Gibtelecom is the provider of telecommunications services in Gibraltar.

Summary of significant accounting policies
The significant accounting policies used in the preparation of the consolidated financial statements of
the Telekom Slovenia Group are set out below.

a. Statement of compliance
The accompanying consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting
Standards Board (“IASB”), as adopted by the EU, and interpretations issued by the International
Financial Reporting Interpretations Committee of the IASB (“IFRIC”),
Effective from the listing date the Group is required to prepare its consolidated financial statements in
accordance with IFRS adopted by the EU (Regulation EC No 1606/2002).

At this particular time, due to the endorsement process of the EU and the activities of the Group, there
is no difference in the policies applied by the Group between IFRS and IFRS adopted by the EU.

b. Basis for preparation
The financial statements have been prepared on a historical cost basis except for the measurement at
fair value of financial assets available for sale and derivative financial instruments, and certain classes
of property, plant and equipment which are revalued to fair value under the alternative treatment
available in IAS 16 (refer below to accounting policy (j) Property, plant and equipment).

The accounting policies used are consistent with those applied in the previous year, except:
- The changed accounting policy applied in the measurement of cable network and telephone
  switchboard after initial recognition from the revaluation model to the cost model as described in
  more detail in continuation, and
- the adoption of new standards and interpretations noted below and considered in the
  compilation of the financial statements if the stated events occurred in the reporting period. The
  adoption of these standards and interpretations did not impact the financial position or
  performance of Telekom Slovenije, d.d., and the Telekom Slovenia Group in the period under
  review.

Change in the accounting policy
As from 1 January 2010, the accounting policy applied in the subsequent measurement of cable
network and switching exchange was changed from the revaluation model to the cost model.
This change was supported by the fact that the majority of European Telecom companies value their
telecommunications assets under the cost model. The new accounting policy will improve
comparability with financial statements of other enterprises engaged in the same or similar activities.

IAS 16 prescribes treatment of property, plant and equipment however, it does not include special
provisions for recognition of the above mentioned changes in the accounting policy: Therefore,
Telekom Slovenije, d. d., and the Telekom Slovenia Group followed provisions of IAS 8 – Accounting
policies, changes in accounting estimates and errors, and made adjustments in its financial statements
of the previous periods in accordance with requirements of IAS 1 – Presentation of financial
statements.

Effects of changes in the accounting policy, which are reported in the separate financial statements of
Telekom Slovenije, d.d. and consequently also in the consolidated financial statements of the Group,
are presented below:
                                                                                                     In TEUR
Balance at 31.12.2008
Decrease in property, plant and equipment                                                              -54,771
Decrease in the fixed assets revaluation reserve                                                       -49,869
Decrease in reserves                                                                                    -7,226
Decrease in deferred tax liabilities                                                                    -4,902


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Increase in income tax liability                                                                     1,446
Change in retained earnings                                                                          5,780


Decrease in property, plant and equipment
Decrease in the fixed assets revaluation reserve                                                   -48,670
Decrease in reserves                                                                               -44,291
Decrease in deferred tax liabilities                                                               -10,839
Increase in income tax liability                                                                    -4,379
Change in net profit for the year                                                                    2,168
Change in retained earnings                                                                          4,856
Decrease in property, plant and equipment                                                            3,815
Earnings per share – increase in the basic and diluted earnings per share by 0.75 EUR per share


Balance at 31 Dec 2010
Decrease in depreciation of property, plant and equipment                                           -6,101
Increase in income tax liability                                                                     1,245
Increase in net profit                                                                               4,856
Earnings per share – increase in the basic and diluted earnings per share by 0.75 EUR per share

Newly adopted standards and interpretations
The adoption of these standards and interpretations did not have a significant effect on the financial
position or performance of the Telekom Slovenia Group.

Amendment to IFRS 2 - Cash-Settled Share-Based Payment Transactions in the Group
Amendments to IFRS 2 comprise three basic amendments: revised definition of share-based
transactions and agreements, the scope of IFRS2, and additional clarification of how to account for
cash-settled share-based payment transactions in the group. IFRIC 8 and 11 are replaced by the
amendment.

IFRS 3R - Business Combinations and IAS 27R – Consolidated and Separate Financial Statements
The revised standards were issued in January 2008 and become effective for financial years
beginning on 1 July 2009. IFRS 3R introduces a number of changes in the accounting for business
combinations that will impact the amount of goodwill recognized, the reported results in the period that
an acquisition occurs, and future reported results. IAS 27R requires that a change in the ownership
interest of a subsidiary is accounted for as an equity transaction. Therefore, such a change will have
no impact on goodwill, nor will it give raise to a gain or loss. Furthermore, the amended standard
changes the accounting for losses incurred by the subsidiary as well as the loss of control of a
subsidiary. The changes introduced by IFRS 3R and IAS 27R must be applied prospectively and will
affect future acquisitions and transactions with minority interests.

IAS 39 - Financial Instruments: Recognition and Measurement – Eligible Hedged Items
These amendments to IAS 39 were issued in August 2008 and become effective for financial years
beginning on or after 1 July 2009. The amendment addresses the designation of a one-sided risk in a
hedged item, and the designation of inflation as a hedged risk or portion in particular situations. It
clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow
variability of a financial instrument as a hedged item.

IFRIC 17 - Distribution of Non-Cash Assets to Owners
IFRIC 17 became effective for annual periods beginning on 1 July 2009. The interpretation provides
guidance on how to account for non-cash distribution of assets to owners. The interpretation clarifies
when an entity should recognize the liability, how it should be measured, and how to recognize and
measure the related assets, as well as when such assets and liabilities should be derecognized in
books of accounts.



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IFRIC 18 - Transfers of Assets from Customers
IFRIC 18 applies to transfers of assets from customers on or after 1 July 2009. The interpretation
provides guidance on how to account for property, plant and equipment transferred from customers or
cash received for acquisition or construction of certain assets. This guidance applies only to assets
used by entities to connect the customer to a network or to provide the customer with an ongoing
access to a supply of goods, services or, in some cases, to do both. The entities must identify the
service or services rendered and allocate the received payment (the fair value of assets) to each
identifiable service. Revenue should be recognized on delivery or performance of each individual
service by the entities.

Improvements/amendments to IFRS
In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to
removing inconsistencies and clarifying wording. There are separate transitional provisions for each
standard.

The adoption of these amendments did impact the changes in the Group, however, it did not have any
impact on its financial position or performance.

IAS 1 – Presentation of financial statements.
Assets and liabilities held for trading under IAS 39 Financial Instruments: Recognition and
measurement, are not automatically classified as current in the balance sheet. As a result of the
amended standards, the Group did not reclassify its financial instruments from current to non-current
assets or vice versa.

IAS 16 – Property, plant and equipment
Replace the term “net selling price” with “fair value less costs to sell”. Items of property, plant and
equipment held for rental that are routinely sold in the ordinary course of business after rental, are
transferred to inventory when rental ceases and they are held for sale.

IAS 23 – Borrowing costs
The definition of borrowing costs is revised to consolidate the two types of items that are considered
components of ‘borrowing costs’ into one - the interest expense calculated using the effective interest
rate method in accordance with IAS 39. The Group has amended its accounting policy accordingly.

IAS 38 – Intangible assets.
Expenditure on advertising and promotional activities is recognized as an expense when companies
either have the right to access the goods or has received the service. The reference to there being
rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a
straight-line method has been removed. The Group has reassessed the useful lives of intangible
assets and found that the use of the straight-line method of amortization is appropriate.

The following amendments had no impact on the accounting policies of the Group, its financial position
or operations:

IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations

IFRS 7 – Financial Instruments: Disclosures

IAS 7 – Cash flow statement

IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors

IAS 10 – Events after the Reporting period

IAS 19 – Employee Benefits

IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance

IAS 27 - Consolidated and Separate Financial Statements


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IAS 28 – Investments in Associates

IAS 29 - Financial Reporting in Hyperinflationary Economies

IAS 31 – Interests in Joint Ventures

IAS 32 – Financial Instruments: Presentation

IAS 34 – Interim Financial Reporting

IAS 36 – Impairment of Assets

IAS 39 – Financial Instruments: Recognition and Measurement

IAS 40 – Investment Property

IAS 41 - Agriculture – Additional biologic transformation

Improvements, issued in April 2009
In April 2009 the Board issued amendments to its standards, primarily with a view to removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard.

The adoption of these improvements did not have any impact on the financial position of the Group.

IFRS 2 - Share-Based Payments – specification when to apply IFRS 2 and IFRS 3

IFRS 5 - Non-current Assets Held for Sale – Disclosure

IFRS 8 - Operating Segments – Disclosure of Segments' assets

IAS 1 - Presentation of Financial Statements – current/non-current liabilities for swap instruments.

IAS 7 - Statement of Cash Flows – classifying expenditure for unrecognized assets

IAS 17 - Leases – classifying land and buildings.

IAS 18 - Revenue – designation whether an entity acts as a principal or an agent

IAS 36 - Impairment of Assets – the maximum unit to which goodwill may be attributed
IAS 38 - Intangible Assets – amendments as a result of new IFRS 3 Standard and amendments in
relation to determining fair value

IAS 39 - Financial Instruments – assessment of liquidating damages for prepayment of a credit as a
derivative, cash flow hedges

IFRIC 9 - Reassessment of Embedded Derivatives – impact of IFRS 3 and IFRIC 9.

IFRIC 16 – Hedges of a Net Investment in a Foreign Operation– amendment of restriction to an
entity allowed having a hedge.

Improvements issued in May 2010
In May 2010 the IASB issued Improvements to IFRSs, and an omnibus of amendments to its IFRS
standards. The amendments have not been adopted as they become effective for annual periods
beginning on or after either 1 July 2010 or 1 January 2011.

IFRS 3 - Business Combinations.

IFRS 7 - Financial Instruments: Disclosures

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IAS 1 - Presentation of Financial Statements

IAS 27 - Consolidated and Separate Financial Statements

IFRIC 13 - Customer Loyalty Programmes.

c. Basis of consolidation
The consolidated financial statements comprise of the financial statements of Telekom Slovenija, d. d.,
and its subsidiaries as at 31 December 2010. Financial statements of subsidiaries are prepared for the
same reporting year as the financial statements of the parent company using consistent accounting
policies. In case of inconsistencies of the accounting policies, the consolidated financial statements
include relevant modifications.

All inter-company transactions, balances and including unrealized gains on transactions between
group companies are eliminated.

All subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
are de-consolidated from the date that control over the subsidiary ceases. In case the Group’s control
over a subsidiary ceases during the year, the consolidated financial statements include the results of
the subsidiary until the date that such control over the subsidiary still existed.
Minority interest, which represents the portion of profit or loss and net assets not held by the Group, is
presented separately in the income statement and within equity in the consolidated balance sheet,
separately from the parent shareholders equity. Acquisition of minority interest is accounted for using
the entity concept method, whereby the difference between the consideration and the book value of
the share of the net assets acquired is recognized as equity transaction.

When in a business combination the Group acquires less than 100% interest in the acquiree and the
Group grants put option to the remaining shareholders of the acquiree exercisable at the later date,
the put option on minority interest is recognized as a financial liability under other non-current or
current liabilities (notes 28 and 30) and corresponding minority interest is derecognised. Put options by
minority shareholders are recognised only for the current obligation and if the outflow of assets is
likelier than not and the size of which could be reliably assessed. The difference between the value of
the put option and the cost of business combination is recognized as goodwill. Any subsequent
changes in the value of the put option are recognised as an adjustment to goodwill.

Business combinations are accounted for under the cost method. The costs that can be directly
attributed to the acquisition are added to the cost of the investment. After initial recognition, goodwill
arising on a business combination as a surplus of consideration over the assumed net assets of the
company is carried at cost less any impairment losses.

Investments in associates and shares in companies under joint control are accounted for under the equity
method.

d. Functional currency and foreign currency transactions
The consolidated financial statements are presented in thousand of Euro (EUR) which is the functional
and presentation currency of the parent company and its subsidiaries in Slovenia. Foreign currency
transactions are translated into the functional currency at the exchange rate ruling at the date of the
transactions.

Monetary assets and liabilities in foreign currency are translated at the exchange rate of the functional
currency prevailing at the balance sheet date. All differences resulting from foreign currency
translation are recognized in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency
are translated using the exchange rates prevailing at the dates of the initial transactions.

Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value was determined.

The following functional currencies are used by foreign subsidiaries:

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Skupina Ipko, Kosovo - EURO,
On.net doo Skopje, Macedonia - Denar,
Aneks d. o. o., Banja Luka, Bosnia and Herzegovina – Bosnian mark,
Primo Communications Sh.p.k, Albania - LEK,
SIOL d. o. o., Croatia - KUNA,
SIOL, B.V. Group, the Netherlands - EURO,
One doo Skopje, Macedonia – Denar,
One To One AD Skopje, Macedonia – Denar,
Digi Plus Multimedia dooel, Skopje, Macedonia - Denar.

As at the reporting date, the financial statements of subsidiaries listed above are translated into the
presentation currency of the consolidated financial statements. The Bank of Slovenia rate of exchange
ruling at the reporting date is used for the balance sheet, while the weighted average exchange rates
for the reporting year are used in the income statement.

The exchange differences arising on translation of the functional currency into the presentation
currency are recognized directly in equity and in the statement of comprehensive income, until a
foreign subsidiary is sold, when the foreign exchange differences are recognized in the income
statement and as a reclassification in the statement of comprehensive income.

e. Profit from operations
Profit from operations is defined as result before income taxes and finance items. Profit from
operations includes a share of profits of joint ventures. Finance items comprise interest revenue on
cash balances in the bank, deposits, interest bearing available for sale investments, interest expense
on borrowings, gains and losses on derivatives and on sale of available for sale financial instruments
and foreign exchange gains and losses on all monetary assets and liabilities denominated in foreign
currency.

f. Significant accounting estimates
The preparation of the financial statements required management to make certain estimates and
assumptions which impact the carrying values of the Group’s assets and liabilities and the disclosure
of contingent items at the balance sheet date and reported revenues and expenses for the period then
ended.

Estimates are used for, but not limited to:
- depreciable lives and residual values of property, plant and equipment and intangible assets,
- allowances for inventories and doubtful debts and
- legal claims.

Future events and their effects cannot be perceived with certainty. Accordingly, the accounting
estimates made require the exercise of judgement and those used in the preparation of the financial
statements will change as new events occur, as more experience is acquired, as additional information
is obtained and as the Group’s operating environment changes. Actual results may differ from those
estimates.

The key assumptions concerning the future and other key sources of estimation uncertainty at the
balance sheet date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below.

Provisions and contingent liabilities
As set out in notes 26 and 33, some of the subsidiaries of the Group are participants in several
lawsuits and administrative proceedings including those related to their respective pricing policies.

The Group’s treatment of obligations with uncertain timing and amount depends on the management’s
estimation of the amount and timing of the obligation and probability of an outflow of resources
embodying economic benefits that will be required to settle the obligation (both legal or constructive.

A provision is recognised when the Group has a present obligation as a result of past events, it is
probable that an outflow of resources will be required to settle the obligation and a reliable estimate
can be made of the amount of the obligation.

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Contingent liabilities are not recognised because their existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
the Group.

Contingent liabilities are assessed continually to determine whether an outflow of resource embodying
economic benefits has become probable. If it becomes probable that an outflow of future economic
benefits will be required for an item previously dealt with as a contingent liability, a provision is
recognised in the financial statements of the period in which the change in probability occurs.

Interconnect
The Group provides and enters into the contracts for interconnect services and the revenue is
recognised on the basis of the reasonable estimation of expected amount. Such estimation is regularly
reviewed, however for some operators the final agreement and invoicing is determined on a yearly
basis or even more frequently.

Impairment of UMTS licence in Slovenia, GSM licence in Kosovo and GSM and UMTS licences
in Macedonia
The Group determined that an indication of impairment of UMTS and GMS licences appeared during
the year 2010, particularly in Kosovo and Macedonia, while there was no indication of impairment of
UMTS licenses in Slovenia.

he carrying value of UMTS licence at 31 December 2010 was EUR 44,442 thousand (31 December
2009: EUR 57,548 thousand).

The carrying value of GSM licence at 31 December 2010 was EUR 55,731 (31 December 2009: EUR
84,274 thousand). Further details are given in note 12.

Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an
estimation of a value in use of the cash generating unit to which the goodwill is attributed.
Estimating a value amount requires management to make an estimate of the expected future
cash flows from the cash generating unit and also to choose suitable discount rate in order to
calculate the present value of those cash flows.
The Group found indicators of goodwill impairment. Based on appraisals of companies and
individual cash generating units by independent valuers, the Group recognised impairment in the
amount of EUR 105,471 thousand.
After impairments, the carrying value of goodwill at 31 December 2010 was EUR 3,382 thousand
(31 December 2009: EUR 104,751 thousand). Further details are given in note 12.

g. Significant management judgements
In the process of applying the accounting policies, management had made the following judgment
concerning the carrying amount of intangible assets and property, plant and equipment, apart from
those involving estimations, which have the most significant effect on the amounts recognised in the
financial statement.

The Group has concluded that there are no indicators of impairment of property, plant and equipment
and intangible assets at year end and that there are no indicators that fair values of plant and
equipment carried at revalued cost differ materially from carrying values.

h. Early adoption of IFRS and IFRS's and IFRIC's interpretations not yet effective
The Group has not early adopted any IFRS and IFRIC interpretation issued and not yet effective.
The following new and amended IFRSs will be adopted in future periods as required by
International Financial Reporting Standards:

Amendment to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for first time
adopters.

IAS 24 – Related Party Disclosures



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Applicable for periods beginning after 1 January 2011. Amendments to IAS 24 define in more
detail and simplify definition of a related party. Furthermore the amended standard reduces the
scope of disclosures of transactions of a government owned entity with the government and other
government owned entities.

IAS 32 Financial Instruments: Presentation, Classification of the Option to Purchase Shares
Denominated in a Foreign Currency
Applicable for periods beginning on or after 1 January 2010. The amended Standard allows entities
issuing puttable financial instruments denominated in foreign currency not to account for these rights
as derivatives but rather to recognize the effects in the profit or loss. These rights are classified as
equity if they fulfil a number of specified criteria.

Amendment to IFRIC 14 - Prepayments of a minimum funding requirement
The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with
retrospective application. The amendment provides guidance on assessing the recoverable amount of
a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding
requirement as an asset.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments: IFRIC 19 is effective for annual
periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to
a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued
are measured at their fair value. In case that this cannot be reliably measured, the instruments are
measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in
profit or loss. The adoption of this interpretation will have no effect on the financial statements of the
Group.

The following new and amended standards and interpretations will be adopted in future
periods as required by International Financial Reporting Standards and if endorsed by the EU:

IFRS 9 – Financial Instruments
The Standard replaces IAS 39 and is applicable for periods beginning on 1 January 2013. The
first part of the standard introduces new requirements for classifying and measuring financial
assets.

Amendment to IFRS 7 - Financial instruments - Disclosures to enhance the transparency of
disclosure requirements for the transfer of financial assets.
Issued in October 2010. The amendments will assist users to understand the implications of transfers
of financial assets and the potential risks that may remain with the transferor.

IAS 34 - Interim Financial Reporting
Effective for annual periods beginning on or after 1 January 2011. This improvement provides
guidance to illustrate how to apply disclosure principles in IAS 34 and add disclosure requirements.

IAS 12 - Deferred tax: Recovery of Underlying Assets (Amended)
The amendment is effective for annual periods beginning on or after 1 January 2012. This amendment
concerns the determination of deferred tax on investment property measured at fair value. The aim of
this amendment is to include a) a rebuttable presumption that deferred tax on investment property
measured using the fair value model in IAS 40 should be determined on the basis that its carrying
amount will be recovered through sale and b) a requirement that deferred tax on non-depreciable
assets, measured using the revaluation model in IAS 16, should always be measured on a sale basis.

The Group is reviewing the not yet effective standards and interpretations and at this stage cannot
reasonably assess the impact of the new requirements. The Group will comply with new standards
and interpretations as and when effective.

i. Intangible assets
Intangible assets with finite useful lives are stated at cost less accumulated amortisation less
impairment losses, while intangible assets with infinite useful lives are stated at cost less impairment
losses.



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Intangible assets include:
- goodwill arising on business combinations
- licences for the use of radio frequency spectrum for mobile telephony,
- licences for computer software,
- software that was acquired separately from hardware and used for more than one year,
- other intangible assets.

Expenditure on licences for the use of radio frequency spectrum for mobile telephony is capitalised
and amortised on a straight-line basis over the contract period of the relevant license, which is 9-20
years. Expenditure on licences for computer software is capitalised over the period of between 3 to 5
years, while expenditure incurred on software applications is capitalised at cost and amortised on a
straight-line basis over the estimated useful lives which ranges from 2–5 years.

Intangible assets are subject to amortisation once the assets are available for use.
Subsequent expenditure on intangible assets is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All other expenditure is
expensed as incurred.

At least once a year and at least at year end, the Group checks for any indications of impairment
of intangible assets and if such indicators exist, the recoverable amount of such assets is
determined.

j. Property, plant and equipment
Property, plant and equipment owned by the Group are stated at cost or valuation less
accumulated depreciation and impairment losses.

The cost of an item of property, plant and equipment includes all expenditures that are necessary
to make the asset ready for its intended use including costs of preparing the construction site and
easement fees.
Costs of borrowing that may be directly attributed to the acquisition, construction or production
of an asset under construction are also a part of the cost of an item of property, plant and
equipment.

Estimated cost of restoring the leased base station locations to their original condition is
recognised as a component of the cost of purchase of the asset and is depreciated over its useful
life. The provisions required for the restoration, discounted to the present value, are recognised
under provisions.

The cost of self-constructed assets includes the cost of materials, direct labour and an
appropriate proportion of production overheads. Internal expenses capitalised in fixed assets are
recognised in the profit or loss.

When an item of property, plant and equipment comprises major components having different
useful lives, these components are accounted for as separate items of property, plant and
equipment.

Subsequent to initial recognition certain classes of property, plant and equipment are carried at cost,
while land, buildings, cable and lines and exchange switches are carried at fair value on the
revaluation day less cost of depreciation and impairment losses. The revaluation to fair value of these
assets is based on a report of an independent appraiser. When an asset's carrying amount is
increased as a result of a revaluation, the increase is credited directly to equity as a revaluation
reserves in the statement of comprehensive income after the deduction of deferred tax liabilities.

Transfer of the amount of depreciation on the restated portion of property, plant and equipment from
fixed asset's revaluation reserves to retained earnings is carried out by the Group on an ongoing
basis.

The Group assesses annually whether there are any internal or external business circumstances that
could provide significant indication that the fair value of the assets should be determined i.e. that the



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assets should be impaired. Fair value is determined with the assistance of an independent appraiser
whenever, due to business circumstances, the need arises.

Leases in terms of which a lessee assumes substantially all the risks and rewards of ownership are
classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an
amount equal to the lower of its fair value and the present value of the minimum lease payments at
inception of the lease, less accumulated depreciation and impairment losses. The property, plant and
equipment acquired under finance leases are depreciated over the useful life of the asset.

If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease
term, the property, plant and equipment acquired under finance leases are depreciated over the
shorter of the useful life of the asset or the lease term.

All leases other than finance leases are regarded as operating leases. Lease payments under an
operating lease are recognised as an expense in the income statement on a straight-line basis over
the lease term.
If the operating lease contract is terminated prior to the expiration of the lease term, each lease
payment required by the lessor as a penalty for the breach of contract is recorded as expense in the
period, in which the contract is terminated.
Subsequent expenditure incurred to replace a component of an item of property, plant and
equipment is capitalised. Other subsequent expenditure is capitalized only when it increases the
future economic benefits embodied in the item of property, plant and equipment. All other
expenditure is recognised in the income statement as an expense when incurred.

In the event of subsequent expenditure on the asset, the remaining useful life of the asset is re-
assessed. If the asset has already been fully depreciated, the subsequent expenditure is treated
as a new item with new useful life.

Government grants related to assets are presented in the balance sheet as deferred income in
the amount of the grant. They are intended to compensate the costs of depreciation of these
assets. The grant is recognised in the income statement on a straight-line basis over the life of
the depreciable asset.

Depreciation is accounted for individually on a straight-line basis over the useful life of an
individual item of property, plant and equipment.

The estimated useful lives of property, plant and equipment are as follows


Groups of property, plant and equipment                                   Useful lives in years



- buildings                                                                      7 to 50
- cable lines                                                                   20 to 50
- cable network                                                                  7 to 25
- other network                                                                 2 to 12.6
- exchange switches                                                               4 to 7
- other equipment                                                                2 to 20

Land and assets under construction are not depreciated.
An item of property, plant and equipment under construction is recognized at cost and depreciated
when brought to working condition for its intended use.

k. Investments
Investments in joint ventures are accounted for in the consolidated financial statements using the
equity method. A joint venture is an investment into a jointly controlled entity based on a contractual

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foundation arrangement. Financial statements of joint ventures represent the basis for accounting
under the equity method. The reporting date of joint ventures is equal to the reporting date of the
Group. Joint ventures use consistent accounting policies, as used by the Group.

Investments in joint ventures are carried in the balance sheet at cost plus post-acquisition changes in
the Group's share of equity of the joint venture and less impairment loss. The income statement
reflects the share of the results of operations of the joint venture. Where there has been a change
recognized directly in the equity of the joint venture, the Group recognizes its share of any changes
and discloses this in the statement of changes in equity.

Investments in debt and equity securities that are classified as available-for-sale are stated at fair
value.

The fair value of investments in debt and equity securities listed on the stock exchange is their quoted
price. If the financial instruments are not listed on the stock exchange and their fair value cannot be
reliably determined, they are stated at cost.

Any associated unrealised gains or losses are recognised directly in equity in net amount and as an
item of comprehensive income. When the investment is disposed of, the cumulative gain or loss
previously recorded in equity is recognised in the income statement and in the statement of
comprehensive income as a reclassification.

Available-for-sale investments are recognised (or derecognised) on the date of commitment to
purchase or sell.

Interest on debt securities is recognized in the income statement using the effective interest rate.

Loans are stated at amortised cost less impairment losses.

If a long-term investment is designated as available for sale, it is reclassified into non-current
assets for sale and recognized at the lower of the carrying amount or fair value, less costs to sell.

The Group assesses at each balance sheet date whether financial assets or groups of financial assets
are impaired.

If there is objective evidence that an impairment loss on loans and receivables or held to maturity
investments carried at amortised cost has been incurred, the amount of the loss is measured as
the difference between the asset’s carrying amount and the present value of estimated future cash
flows discounted at the financial asset’s original effective interest rate. The carrying amount of the
asset is reduced either directly or through use of an allowance account. The amount of the loss is
recognised in the income statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment loss was recognised, the previously
recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised
in the income statement and only to the extent that the carrying amount of the financial asset does not
exceed its amortised cost at the reversal date.

If an item of available-for-sale assets is impaired, an amount comprising the difference between its
acquisition cost (net of any principal repayment and amortisation) and its current fair value, less any
impairment loss previously recognised in profit or loss, is transferred from equity to the income
statement and recognised as reclassification in the statement of comprehensive income.

Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase
in fair value of the instrument can be objectively related to an event occurring after the impairment loss
was recognised in the income statement.

l. Derivative financial instruments
Derivative financial instruments are used to hedge the Group’s exposure to risks arising from financing
and investing activities.

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Derivative financial instruments are recognized at fair value. The method of recognition of gains or
losses arising from the change in fair value depends upon whether hedge accounting has been
applied or not.

When hedge accounting has been applied the recognition of gains or losses arising from the change
in fair value depends on the type of hedging:
- When a derivative instrument is designated as a hedge of the exposure to variability in cash flows
attributable to a particular risk associated with a recognised asset or liability or a highly probable
forecasted transaction, the portion of the gain or loss on the hedging instrument that is determined to
be an effective hedge is recognised directly in equity in the statement of comprehensive income.
When the forecasted transaction results in the recognition of an asset or a liability, the associated
cumulative gains or losses that were recognised directly in equity are removed from equity and
entered into the initial measurement of the acquisition cost or other carrying amount of the asset or
liability. For all other cash flow hedges, amounts that have been recognised directly in equity are
included in net profit or loss in the same period during which the hedged forecasted transaction affects
net profit or loss. The reclassification is recognised in the statement of comprehensive income
- The ineffective portion of the cash flow hedge is immediately recognised in the income statement.

When hedge accounting has not been applied, derivative financial instruments are accounted for at
fair value with changes in fair value recognised in the income statement.

If the hedging instrument expires, yet the forecasted transaction is still expected to occur, the
cumulative gain or loss on the hedging instruments that initially had been reported directly in equity
when the hedge was effective remains separately in equity until the forecasted transaction occurs. If
the forecasted transaction is no longer expected to occur, the cumulative gain or loss on the hedging
instrument that initially has been reported directly in equity is transferred to the income statement. The
reclassification is recognised in the statement of comprehensive income.

m. Other non-current assets
Prepaid rentals and compensations are deferred over the contract period and are
progressively transferred to rental expenses.

Sale incentives given to subscribers are recognised in the amount by which the equipment’s
cost exceeds its selling price, under the condition that subsidies shall be covered by the average
subscription fee earned over the expected life of the subscriber contract.Therefore, the difference
between the selling price and the cost is reported within deferred costs over the expected
subscription period.

Over the period of the subscription agreement, deferred costs are amortised proportionally to the cost
of sale incentives, starting at the inception of the contractual period.
If a subscription agreement is terminated or a subscriber is disconnected from the network due to
non- payment of bills, subsidies are impaired accordingly.

The Group pays commission to dealers for acquisition of new subscribers of mobile telephony.
The amount of commission depends on the type of subscription package. Customer acquisition
cost, including sales incentives is expensed pro rata over the contracted subscription period.
Cost of commission not related to the customer acquisition is recognized in the profit or loss when
incurred.

n. Investment property
Investment properties are measured initially at costs, including transactions costs, less accumulated
depreciation.

Depreciation is calculated individually, on a straight-line basis over the estimated useful lives of the
investment property. Land is not depreciated.




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The estimated useful lives of investment property


 Investment property                                                     Useful lives in years

 - buildings                                                                   20 to 50

o. Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost includes the purchase price, import duties and other costs directly attributable to the acquisition.

Declining quantities of inventories of merchandise and materials are recognized under the average
prices method.

Slow-moving items of inventories are written down to net realisable value. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion and
selling expenses.

p. Trade receivables
Trade receivables are recognised at cost less any impairment losses.

Allowances for trade receivables due from local customers are based on the maturity of individual
receivables, while the amount of allowance for individual classes of trade receivables is based on the
assessed likelihood of their recovery.

Allowances for foreign trade receivables are made individually or based on the previous experience.

r. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with maturities
of up to three months with insignificant risk of change in fair value.

s. Dividends
Dividends are recognised as a liability in the period in which they are approved.

t. Non-current deferred income
Non-current deferred income comprises co-locations billed in advance and lease of optics as
well as government grants for fixed assets which are recognised in the amount of monetary
assets received.

Non-current deferred income from co-locations and leases are transferred to operating revenue
over contractually agreed term of lease or co-location. Government grants are used to cover
depreciation costs of assets acquired with the grant and are expensed by transferring them to
operating revenue in line with the computed depreciation.

u. Provisions
A provision is recognized in the financial statements when the Company has a present legal or
constructive obligation as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation. If material, the provisions are determined by discounting the
expected future cash flows.

Provisions for probable liabilities from legal actions are formed on the basis of the
estimation of the actions' outcome in consultation with legal advisors.

Provisions for termination benefits and anniversary bonuses
In accordance with the statutory requirements, the collective agreement, and the internal rules and
regulations, the Company is obligated to pay jubilee benefits and termination benefits upon retirement.
In 2010, the 4.125% discount rate was used, and the turnover rate is considered with regard to age
intervals and is between 0% and 2% (in 2009: discount rate 4.625%, turnover rate between 0% and
3%).

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Provisions are formed in the amount of estimated future payments of termination benefits and
jubilee benefits discounted at the balance sheet date. A calculation is made per individual
employees taking into account the cost of termination benefit upon retirement and the cost of all
expected anniversary benefits by the time of retirement. At each year-end, the amount of
provisions is assessed and either increased or decreased accordingly.
The Group has no other pension liabilities.

Provisions for costs of restoring the lease base station locations to their original condition
are made for costs of removal of base stations and restoration of leased property to its original
condition. Provisions are formed in the amount of estimated future cost of removal of base
stations from the leased locations, discounted to the present value. At the year-end, the amount
of such provisions is re-assessed.

Provisions for performance bonds issued are made if their amount can be reliably estimated
considering contracts on services rendered. Assessment is made by the relevant company's
professional and confirmed by the director. At each year-end, the amount of such provisions is
reassessed.

v. Interest bearing borrowings
Interest-bearing borrowings are recognised initially at amounts from relevant documents that
evidence the receipt of cash or payment of an operating debt, which is their fair value.

Subsequent to initial recognition interest bearing borrowings are stated at amortised cost with any
differences between cost and the redemption value being recognised in the income statement
over the terms of the loans on an effective interest rate basis.

z. Trade and other liabilities
Trade and other payables are initially stated at cost. Subsequent to initial recognition, trade and
other payables are stated at amortised cost.

aa. Revenue
Revenue includes the sales value of goods sold and services rendered in the accounting period.

The revenue from services is recognised when services are rendered and there are no significant
uncertainties regarding recovery of the consideration due.

The revenue consists principally of monthly subscription fees, connection fees, revenue from call
charges and charges for other services, revenue from the provision of interconnection services,
revenue from network lease and revenue from sale of merchandise.

Revenue from monthly subscription fees is recognised in the period to which it relates.

Revenue from connection fees is recognised at the time of conclusion of the agreement with the
customer.

Revenue from call charges and other services rendered to the users is recognised in the period in
which calls are made or services are rendered.

The revenue from prepaid cards is deferred and recognised in the period in which calls are made.

Revenue from interconnection services and network lease is recognised in the period in which
services are provided.

Revenue from sale of merchandise is recognised when the sale is made.

Revenue from voice services with added value is recognised in net amounts in the period in which
services are provided.

Under the customer loyalty programme, customer loyalty credits are accounted for as a separate
component of the sales transaction in which they are granted.

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ab. Customer acquisition costs
The Group pays commission to dealers for acquisition of new subscribers of mobile telephony. The
amount of commission depends on the type of subscription package. Commission which do not relate
to the customer acquisition are reported in income statement when incurred. Customer acquisition
cost, including sales incentives are expensed pro rata over the contracted subscription period. Further
details are given in note m - Other non-current assets.

ac. Finance income
Interest income is recognised in the profit or loss as the interest accrues using the effective
interest method (the rate of interest directly discounting estimated future cash flows during the
useful life of the financial instrument) to the net carrying amount of the financial assets.

Dividend income is recognised in the income statement on the date dividends are declared.

ad. Income tax
Income tax for the year comprises current and deferred tax.

Income tax is recognised in the income statement except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at
the balance sheet date, and any adjustments to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The amount of deferred tax provided is based on
the expected manner of realisation or settlement of the carrying amounts of assets and liabilities,
using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profit
will be available against which the deductible temporary differences can be utilised.

A deferred tax asset or liability is recognised irrespective of the time period in which temporary
differences are settled.

Deferred tax is charged or credited directly to equity, if the tax relates to items that are credited or
charged, in the same or a different period, directly to equity.

The Group accounts for deferred tax on account of the difference between the carrying amount
and fair value of assets of the subsidiaries.

ae. Segment reporting
Segment disclosures must comply with the requirements of the management for internal use.

The Group has divided segments in to operating segments according to services rendered and
geographical segments.

Operating segments are designated as fixed line telephony, mobile telephony, and other
services which primarily include services of construction and maintenance of telecommunications
networks, publishing of telephone directories and databases, business communications systems
integration, and the provision of web-based content.

The Group applies the seat of activity as the criteria for designation of geographical segments, which
include Slovene market and foreign markets.

Segment reporting is based on the financial statements of the Telekom Slovenia Group. All sales
transactions between individual segments are carried at market value.




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2. Segment reporting
Operating segments in 2010
                                                                                                                  In TEUR

                                                     Fixed line        Mobile                 Eliminations
                                                     telephone     telephone                           and
2010                                                   services      services       Other     adjustments    Consolidated
External sales                                        370,981       433,301        35,055               0          839,337
Inter segment revenue                                   61,538        58,904       76,605        -197,047                0
                                                                                                         1
Segment revenue                                       432,519       492,205       111,660       -197,047           839,337
Other revenue                                            2,073         1,611          936            -431            4,189

Share of income from joint ventures                                                                                  4,527


Cost of goods and materials sold                        -9,949       -36,559      -14,322          14,089          -46,741
Cost of raw materials and consumables                   -8,993        -7,906       -7,086           7,224          -16,761
Cost of services                                      -220,983      -230,738      -51,762        171,891          -331,592
Staff costs                                            -81,460       -54,402      -29,395           2,734         -162,523
Amortisation/depreciation expense                      -95,812      -110,154       -6,777          -1,711         -214,454
Other operating expenses                               -69,289      -177,670       -5,560          -1,945         -254,464
Operating expenses                                    -486,486      -617,429     -114,902        192,282         -1,026,535

Profit/loss from operations                            -51,894      -123,613       -2,306         -5,1962         -178,482
Finance income                                                                                                       4,267
Finance expense                                                                                                    -28,174
Profit before tax                                                                                                 -202,389
Income tax                                                                                                           -7,928
Net profit/loss for the year                                                                                      -210,317


Other segment information
Balance as at 31 December 2010
Segment assets                                        926,744       759,570        69,483        -97,5693        1,658,228
Impairment of segment assets                           -39,772       -60,497      -10,915               0         -211,184

Carrying amount of goodwill                              1,531             0        1,851               0            3,382
Investments in associates and joint ventures under
equity method                                                  0           0        2,159               0            2,159
                                                                                                         4
Capital expenditure in intangible assets                 9,626         6,726       10,236              0            26,588
Capital expenditure in PP&E                             50,864        30,810        1,044              04           82,718
                                                                                                         5
Segment liabilities                                   139,235       134,181        40,164        536,836           850,416


1
  Intersegment revenue is eliminated from the consolidation.
2
  Operating profit of individual segments includes profit from intersegment transactions of EUR 5,196
thousand.
3
  Segment assets are net of loans of EUR 2,070 thousand, bank deposits of EUR 11,270 thousand, other
investments of EUR 52 thousand, deferred tax assets of EUR 18,681 thousand, income tax receivable of
EUR 276 thousand and eliminations of intragroup transaction of EUR -129,918 thousand.
4
  Capital expenditure in intangible assets and property, plant and equipment are inclusive of additional
acquisitions of intangible assets, land, buildings and equipment, as well as assets obtained through
acquisition of subsidiaries.
5
  Segment liabilities are net of borrowings of EUR 256,675 thousand, bonds issued of EUR 297,051
thousand, finance lease liabilities of EUR 4,897 thousand, other financial liabilities of EUR 27,315 thousand,
deferred tax liabilities of EUR 9,621 thousand, income tax payable of EUR 5,590 thousand and elimination of
losses on intragroup transactions of EUR -64,313 thousand.


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Operating segments in 2009
                                                                                                                 In TEUR

                                                     Fixed line        Mobile                  Eliminations
2009 adjusted                                        telephone     telephone                            and
                                                       services      services        Other     adjustments    Consolidated
External sales                                        376,633       437,820         33,054               0         847,507

Inter segment revenue                                   66,236        53,380        83,288        -202,904                 0
                                                                                                          1
Segment revenue                                       442,869       491,200        116,342       -202,904          847,507

Other revenue                                            3,982         2,766         1,897             -46              8,599

                                                                                                                        3,611
Share of income from joint ventures


Cost of goods and materials sold                       -10,400       -36,941       -14,993          16,356         -45,978

Cost of raw materials and consumables                   -9,621        -9,343        -8,214          11,279         -15,899

Cost of services                                      -224,079      -234,439       -54,078         166,397        -346,199

Staff costs                                            -77,517       -50,373       -30,640           5,621        -152,909

Amortisation/depreciation expense                      -91,426       -98,793        -5,892          -1,570        -197,681

Other operating expenses                               -13,308       -13,099        -3,218          -1,260         -30,885

Operating expenses                                    -426,351      -442,988      -117,035         196,823        -789,551

                                                        20,500        50,978         1,204          -6,1272         70,166
Profit from operations
Finance income                                                                                                          5,895

Finance expense                                                                                                    -32,780

Profit before tax                                                                                                   43,281

Income tax                                                                                                         -13,817

Net profit for the year                                                                                             29,464


Other segment information
Balance at 31 December 2009 adjusted
Segment assets                                        913,271       840,860         77,150         94,2453       1,925,526

Investments in associates and joint ventures under                                     250                               250
equity method
Capital expenditure in intangible assets                 9,925        25,105         4,948               04         39,978
                                                                                                          4
Capital expenditure in PP&E                           101,209         53,835         5,387               0         160,431
                                                                                                          5
Segment liabilities                                   141,225       115,651         44,851        622,233          923,960


1
  Intersegment revenue is eliminated from the consolidation.
2
  Operating profit of individual segments includes profit from intersegment transactions of EUR 6,127 thousand.
3
  Segment assets are net of loans of EUR 1,479 thousand, deferred tax assets of EUR 13,226 thousand, income
tax receivable of EUR 15,307 thousand and eliminations of intragroup transaction of EUR 64,233 thousand.
4
  Capital expenditure in intangible assets and property, plant and equipment are inclusive of additional acquisitions
of intangible assets, land, buildings and equipment, as well as assets obtained through acquisition of subsidiaries.
5
  Segment liabilities are net of borrowings of EUR 310,960 thousand, bonds issued of EUR 296,932
thousand, finance lease liabilities of EUR 6,345 thousand, other financial liabilities of EUR 61,960
thousand, deferred tax liabilities of EUR 5,595 thousand, income tax payable of EUR 2,419 thousand and
elimination of losses on intragroup transactions of EUR -61,943 thousand.




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Geographical segments in 2010
                                                                                                                 In TEUR
                                                                                           Eliminations and
2010                                                 Slovenian market    Foreign markets       adjustments    Consolidated
External sales                                               725,922            113,415                  0         839,337
Inter segment revenue                                        154,047             43,000           -197,047               0
                                                                                                          1
Segment revenue                                              879,969            156,415          -197,047          839,337
Other revenue                                                    3,765              855               -431           4,189

Share of income from joint ventures                                                                                  4,527


Cost of goods and materials sold                             -53,768              -7,062            14,089         -46,741
Cost of raw materials and consumables                        -21,532              -2,453             7,224         -16,761
Cost of services                                            -405,982            -97,501            171,891        -331,592
Staff costs                                                 -150,204            -15,053              2,734        -162,523
Amortisation/depreciation expense                           -165,116            -47,627             -1,711        -214,454
Other operating expenses                                     -36,931           -215,588             -1,945        -254,464
Operating expenses                                          -833,533           -385,284            192,282       -1,026,535

Profit/loss from operations                                     50,201         -228,014             -5,1962       -178,482
Finance income                                                                                                       4,267
Finance expense                                                                                                    -28,174
Profit/loss before tax                                                                                            -202,389
Income tax                                                                                                           -7,928
Net profit/loss for the year                                                                                      -210,317


Other segment information
Balance at 31 December 2010
Segment assets                                             1,387,428            368,369           -97,5693       1,658,228
Impairment of segment assets                                    -8,538         -202,646                  0        -211,184
Carrying amount of goodwill                                      1,851            1,531                  0           3,382
Investments in associates and joint ventures under
equity method                                                       4             2,155                  0           2,159
                                                                                                          4
Capital expenditure in intangible assets                        22,171            4,417                  0          26,588
Capital expenditure in PP&E                                     58,994           23,724                  04         82,718
                                                                                                          5
Segment liabilities                                          250,644             62,936           536,836          850,416


1
  Intersegment revenue is eliminated from the consolidation.
2
  Operating profit of individual segments includes profit from intersegment transactions of EUR 5,196
thousand.
3
  Segment assets are net of loans of EUR 2,070 thousand, bank deposits of EUR 11,270 thousand, other
investments of EUR 52 thousand, deferred tax assets of EUR 18,681 thousand, income tax receivable of
EUR 276 thousand and eliminations of intragroup transaction of EUR -129,918 thousand.
4
  Capital expenditure in intangible assets and property, plant and equipment are inclusive of additional
acquisitions of intangible assets, land, buildings and equipment, as well as assets obtained through
acquisition of subsidiaries.
5
  Segment liabilities are net of borrowings of EUR 256,675 thousand, bonds issued of EUR 297,051
thousand, finance lease liabilities of EUR 4,897 thousand, other financial liabilities of EUR 27,315 thousand,
deferred tax liabilities of EUR 9,621 thousand, income tax payable of EUR 5,590 thousand and elimination of
losses on intragroup transactions of EUR -64,313 thousand.




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Geographical segments in 2009

                                                                                                                  In TEUR
                                                                                           Eliminations and
2009 adjusted                                        Slovenian market    Foreign markets       adjustments    Consolidated
External sales                                               753,236             94,271                  0         847,507
Inter segment revenue                                        162,876             40,028           -202,904                 0
                                                                                                          1
Segment revenue                                              916,112            134,299          -202,904          847,507
Other revenue                                                    6,421            2,224                -46              8,599

Share of income from joint ventures                                                                                     3,611


Cost of goods and materials sold                             -55,170              -7,164            16,356         -45,978
Cost of raw materials and consumables                        -24,151              -3,027            11,279         -15,899
Cost of services                                            -434,837            -77,759            166,397        -346,199
Staff costs                                                 -147,000            -11,530              5,621        -152,909
Amortisation/depreciation expense                           -162,758            -33,353             -1,570        -197,681
Other operating expenses                                     -22,383              -7,242            -1,260         -30,885
Operating expenses                                          -846,299           -140,075            196,823        -789,551

Profit from operations                                          76,234            -3,552            -6,1272         70,166
Finance income                                                                                                          5,895
Finance expense                                                                                                    -32,780
Profit before tax                                                                                                   43,281
Income tax                                                                                                         -13,817
Net profit for the year                                                                                             29,464


Other segment information
Balance at 31 December 2009 adjusted
Segment assets                                             1,426,753            404,528            94,2453       1,925,526
Investments in associates and joint ventures under
equity method                                                       5               245                  0               250
                                                                                                          4
Capital expenditure in intangible assets                        19,620           20,358                  0          39,978
Capital expenditure in PP&E                                  105,664             54,767                  04        160,431
Segment assets                                               245,610             56,117           622,2335         923,960


1
  Intersegment revenue is eliminated from the consolidation.
2
  Operating profit of individual segments includes profit from intersegment transactions of EUR 6,127 thousand.
3
  Segment assets are net of loans of EUR 1,479 thousand, deferred tax assets of EUR 13,226 thousand, income
tax receivable of EUR 15,307 thousand and eliminations of intragroup transaction of EUR 64,233 thousand.
4
  Capital expenditure in intangible assets and property, plant and equipment are inclusive of additional acquisitions
of intangible assets, land, buildings and equipment, as well as assets obtained through acquisition of subsidiaries.
5
  Segment liabilities are net of borrowings of EUR 310,960 thousand, bonds issued of EUR 296,932
thousand, finance lease liabilities of EUR 6,345 thousand, other financial liabilities of EUR 61,960 thousand,
deferred tax liabilities of EUR 5,595 thousand, income tax payable of EUR 2,419 thousand and elimination of
losses on intragroup transactions of EUR -61,943 thousand.




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3. Revenue
                                                                       In TEUR
                                                               2010      2009
Voice                                                        145,889   151,748
Voice transfer through IP network                              6,670     5,717
Mobile telephone services                                    330,511   344,788
Internet and broadband access                                102,051    94,191
Interconnection                                               47,970    46,917
International operator services                               66,809    72,569
Leased lines and data transmission                            48,003    42,349
Unbundled access and collocations                             10,130    14,349
Voice services with added value                                3,043     2,341
Network construction and maintenance                          11,714     8,213
Sale of advertising space                                      8,179     8,370
Other services                                                16,140    17,678
Revenue from sale of merchandise                              37,653    34,953
Other revenue                                                  4,575     3,324
Total                                                        839,337   847,507


4. Other income
                                                                       In TEUR
                                                               2010      2009
Government grants                                               758       745
Net gains on disposal of property, plant and equipment          343      1,443
Other revaluation operating income                              132       329
Other income                                                   2,956     6,082
Total other income                                             4,189     8,599


5. Cost of services
                                                                       In TEUR
                                                               2010      2009
Cost of communication and transportation services and rent    20,675    12,279
Cost of maintenance                                           37,399    35,611
Cost of telecommunication services                           125,904   144,796
Cost of leased lines                                           9,081     4,778
Cost of sale incentives                                       24,074    25,885
Cost of professional services                                 14,085    17,359
Cost of insurance, marketing and entertainment                34,616    36,167
Cost of sale commission                                        9,579     8,967
Cost of banking services                                       1,855     2,623
Cost of multimedia content                                    17,468    14,116
Cost of other services                                        36,856    43,618
Total                                                        331,592   346,199




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6. Staff costs
                                                                                          In TEUR
                                                                        2010                    2009
Wages and salaries                                                   113,015                  109,527
Social security contributions                                         25,223                   23,408
- of which pension insurance contributions                            13,486                   12,878
Other staff costs                                                     24,285                   19,974
Total                                                                162,523                  152,909

The average number of employees in the Telekom Slovenia Group was 4,672 (in 2009: 4,973) in
2010.

7. Other operating expense
                                                                                          In TEUR
                                                                        2010                    2009
Provision (note 26)                                                    6,623                     400
Loss on disposal of property, plant and equipment                      3,879                    2,818
Impairment and write-off of current assets                            32,046                   11,225
Impairment of intangible and tangible FAs                            211,184                       0
Other costs                                                              732                   16,442
Total                                                                254,464                   30,885


8. Finance income
                                                                                          In TEUR
                                                                        2010                    2009
Dividends                                                                469                     518
Interest income on loans                                               2,593                    4,207
Foreign exchange gain                                                      0                     127
Other financial income                                                 1,205                    1,043
Total                                                                  4,267                    5,895


9. Finance expense
                                                                                          In TEUR
                                                                        2010                    2009
Finance expenses from bonds issued                                    15,122                     456
Interest expense                                                       7,364                   27,529
Exchange rate losses                                                   1,179                       0

                                                                       1,406                    4,601
Change in fair value of derivative financial instruments
AFS investment impairment                                              2,716                       0
Other finance expenses                                                   387                     194
Total finance expenses                                                28,174                   32,780




10. Income tax

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Income tax expense recognized in the profit or loss
                                                                                                In TEUR
                                                                            2010          2009 adjusted
Current tax expense                                                      -17,510                 -16,623
Deferred tax income/expense                                                9,582                   2,806
Income tax expense in the profit or loss                                   -7,928                -13,817

Reconciliation of actual and computed tax expense taking into account effective tax rate
                                                                                                In TEUR
                                                                            2010          2009 adjusted


Profit/loss before tax under IFRS                                       -202,389                 43,281
Income tax using the domestic corporate tax rate of 20% (21% in
                                                                          40,478                  -9,089
2009)

Current year tax loss not recognised as deferred tax asset               -11,232                  -3,235

Tax-free dividends                                                           188                        26
Non-deductible expenses                                                  -40,378                  -2,265
Change in tax rate                                                              0                       -39
Tax incentives used in the current period                                  1,239                   1,869
Reversal of tax incentives used in previous periods                             0                       -48
Effect of lower tax rate                                                      -25                 -1,586
Other                                                                      1,803                    550
Total income tax                                                           -7,928                -13,817
In 2010, effective tax rate was 3.92% (2009: 31.92%).

In accordance with Slovenian income tax regulations, the Group is entitled to an annual tax incentive
in the amount equal to 20% of investments in research and development, and in the amount of 30% of
investments in equipment, to a maximum of EUR 30,000.

Deferred tax credit/expense recognised in the income statement

                                                                                                In TEUR
                                                                            2010          2009 adjusted
Intangible assets                                                          2,750                        18
Property, plant and equipment                                              1,671                   2,506
Investments                                                                  544                         0
Provisions                                                                   645                    -232
Receivables and inventories                                                4,000                    542
Accrued costs                                                                 -28                       -28
Other                                                                           0                        0
Deferred tax assets/liabilities                                            9,582                   2,806




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Deferred tax recognized in equity
                                                                                                  In TEUR
                                                                              2010                    2009

Change in fixed assets revaluation reserve                                   -7,925                         0

Change in fair value of available-for sale investments                           44                         7
Change in fair value of financial instruments designated as
hedges                                                                         -195                        19
Deferred tax assets/liabilities                                              -8,076                        26


11. Earnings per share

Earnings per share are calculated by dividing the profit attributable to equity holders of the Company
by the weighted average number of ordinary shares in issue during the year.

The weighted average of ordinary shares in issue during the year is calculated by reference to shares
in issue during the period, considering any potential redemptions and sales in that period and the
period during which these shares generated profit. Diluted earnings per share also include all potential
ordinary shares that originated in exchangeable bonds, options and forward contracts. When
calculated, earnings and the number of shares are adjusted for effects of all adjustable potential
ordinary shares that would occur if they would be swapped for ordinary shares in the accounting
period.
                                                                                                  In TEUR
                                                                              2010           2009 adjusted
Net profit attributable to holders of ordinary shares of the
parent company                                                            -210,317                  29,464
Adjusted net profit attributable to holders of ordinary
shares of the parent company                                              -210,317                  29,464
Weighted average number of ordinary shares for net
earnings per share                                                       6,505,478               6,505,478
Adjusted average number of ordinary shares for net
earnings per share                                                       6,505,478               6,505,478




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12. Intangible assets

Movement in intangible assets
                                                                                                       In TEUR

                                                                              Other
                                                                         intangible   Intangibles in
2010                                    Goodwill   Licenses   Software       assets    construction      Total
COST
Balance at 1 January 2010                104,751    249,855    118,961      39,067           17,283    529,917
Translation to the
presentation currency                         0        707         147          34                2       890
Additions                                     0        309       3,789         240           22,250     26,588
Acquisition of new
subsidiaries                               3,170         0           0           0                0      3,170
Transfer to use                               0       2,054     23,541          14          -25,609         0
Disposals                                     0         -13    -13,196          -33            -355    -13,597
                     1
Other transfers                             932       5,966     -1,662       -6,896           -1,823    -3,483
Balance at 31 December
2010                                     108,853    258,878    131,580      32,426           11,748    543,485
ACCUMULATED
AMORTIZATION
Balance at 1 January 2010                     0      84,865     87,662       5,210              229    177,966
Translation to the
presentation currency                         0        210         115          25                0       350
Additions                                     0        257           0           0                0       257
Impairment                               105,471     48,740      1,877      20,298              405    176,791
Disposals                                     0         -11    -12,749        -203                0    -12,963
                 1
Other tranfers                                0         -11        -90        -231                0       -332
Amortization                                  0      16,960     18,912       2,677                0     38,549
Balance at 31 December
2010                                     105,471    151,010     95,727      27,776              634    380,618

CARRYING AMOUNT
Balance at 1 January 2010                104,751    164,990     31,299      33,857           17,054    351,951
Balance at 31 December
2010                                       3,382    107,868     35,853       4,650           11,114    162,867

1
Other transfers comprise transfers between intangible assets and property, plant and equipment, as
well as transfers between groups of assets.

All the items of intangible assets, except goodwill, have finite useful lives and are amortized on a
straight-line basis.

In their operations, the Group companies use also intangible assets, which have already been written
off, yet are still in use (primarily software licenses).

The Group companies do not have limited property right on intangible assets, which are free of
encumbrances.




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Movement in intangible assets
                                                                                                      In TEUR
                                                                             Other
                                                                        intangible   Intangibles in
2009                                   Goodwill   Licenses   Software       assets    construction      Total
COST
Balance at 01.01.2009                    57,652    206,045    105,569       8,517           13,789    391,572
Translation to the
presentation currency                        0        -431        -78          -61               0       -570
Additions                                 9,280      5,728      3,757          82           22,798     41,645
Acquisition of new
subsidiaries                             44,111     39,239      8,432      21,762                0    113,544
Transfer to use                              0        978      17,438         835          -19,251         0
Disposals                                    0      -1,704     -5,000        -541              -76     -7,321
Other transfers1                             0          0     -11,157       2,181               23     -8,953

Goodwill allocation                      -6,292         0           0       6,292                0         0
Balance at 31.12.2009                   104,751    249,855    118,961      39,067           17,283    529,917
ACCUMULATED
AMORTIZATION
Balance at 01.01.2009                        0      62,232     73,589         607                0    136,428
Translation to the
presentation currency                        0        -107        -60          -10               0       -177
Acquisition        of       new
subsidiaries                                 0       9,051      5,047         189                0     14,287
Disposals                                    0      -1,379     -4,059        -418                0     -5,856
Amortization                                 0      15,068     16,518       5,071                0     36,657
Other tranfers1                              0          0      -3,373        -229              229     -3,373
Balance at 31.12.2009                        0      84,865     87,662       5,210              229    177,966
CARRYING AMOUNT
Balance at 01.01.2009                    57,652    143,813     31,980       7,910           13,789    255,144
Balance at 31.12.2009                   104,751    164,990     31,299      33,857           17,054    351,951



Goodwill and other intangible assets
The Group assesses annually if there are any indications of goodwill impairment. For the purpose of
goodwill impairment test, the Group determines value in use using the discounted cash flow model.
As at 31 October 2010, the Group established a need for impairment of goodwill, licenses and other
non-current assets.

The recoverable amount of goodwill and other intangible assets arising from the acquisition of Ipko
Telecommunications LLC has been determined based on the value in use calculation using the cash
flow projections approved by the Management Board covering a five-year period. The pre tax discount
rate applied to cash flow projections in 2010 was 18.6% to 12.6% in residual. Cash flow projections
beyond five-year period were extrapolated at 3.5% annual growth rate. As at 31 December 2010, the
Group impaired goodwill in the amount of EUR 46,019 thousand, licenses in the amount of EUR
17,622 thousand and other intangible assets in the amount of EUR 932 thousand.

The recoverable amount of goodwill and other intangible assets arising from the acquisition of
companies in Macedonia (One doo Skopje, One To One AD Skopje, On.net doo Skopje and Digi Plus
Multimedia dooel, Skopje), has been determined based on the value in use calculation using the cash
flow projections approved by the Management Board covering a five-year period. The pre tax discount
rate applied to cash flow projections in 2010 was 17.1% to 12.2% in residual. Cash flow projections
beyond five-year period were extrapolated at 2% annual growth rate. As at 31 December 2010, the
Group impaired goodwill in the amount of EUR 51,601 thousand, licenses in the amount of EUR
26,069 thousand and other intangible assets in the amount of EUR 16,888 thousand. In establishing

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the recoverable amount, the companies are considered as equal cash generating unit due to the
interconnected operations and future planned business combinations.

The recoverable amount of goodwill and other intangible assets arising from the acquisition of Aneks,
d. o. o., Banja Luka has been determined based on the value in use calculation using the cash flow
projections approved by the Management Board covering a five-year period. The pre tax discount rate
applied to cash flow projections in 2010 was 19.4% to 15.0% in residual. Cash flow projections beyond
five-year period were extrapolated at 2% annual growth rate. As at 31 December 2010, the Group
impaired goodwill in the amount of EUR 4,237 thousand, and other intangible assets in the amount of
EUR 691 thousand.

The recoverable amount of goodwill and other intangible assets arising from the acquisition of Primo
Communications Sh.p.k, Albania has been determined based on the value in use calculation using the
cash flow projections approved by the Management Board covering a five-year period. The pre tax
discount rate applied to cash flow projections in 2010 was 19.9% to 14.9% in residual. Cash flow
projections beyond five-year period were extrapolated at 2% annual growth rate. As at 31 December
2010, the Group impaired goodwill in the amount of EUR 3,614 thousand, and other intangible assets
in the amount of EUR 1,292 thousand.


The profit centres Teledat and Najdi.si, which represent the core activity of the Najdi.si Group have
also been appraised. The value of the Teledat profit centre is determined on the expected free cash
flow current value basis, and the value of the Najdi.si profit centre on the basis of the value
assessment based on market comparisons. Considering the appraisals, the Group has established the
need for the impairment of licenses and intangible assets arising from the acquisition of share in the
Najdi Group totalling EUR 8,538 thousand.

After the impairments, the recoverable amount of goodwill amounted to EUR 3,382 thousand as at 31
December 2010 (31 December 2009: EUR 104,751 thousand); the carrying amount of other intangible
assets which are a result of final reclassification of purchase values of individual companies is EUR
2,633 thousand.

Licences
Licences represent licences for the use of radio frequency spectrum GSM 900 and 1800, and UMTS
mobile telephony on the territory of the Republic of Slovenia, GSM licence in Kosovo, and GSM 900
and UMTS licences in Macedonia.

The carrying amount of the UMTS licence obtained in Slovenia amounts to EUR 44,442 thousand (in
2009: EUR 48,583 thousand), while the carrying amount of GSM licence amounts to EUR 3,198
thousand (in 2009: EUR 4,134 thousand).

The carrying amount of GSM licence in Kosovo after impairment (note above) as at 31 December
2010 amounts to EUR 52,533 thousand (in 2009: EUR 61,048 thousand). The carrying amount of
GSM licence in Macedonia after impairment amounts to 0 EUR (in 2009: EUR 19,092 thousand), and
of UMTS licence also 0 EUR (in 2009: EUR 8,965 thousand).




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13. Property, plant and equipment

Movements in property, plant and equipment
                                                                                                                     In TEUR

                                                                  Network
                                                                  equipment               Assets
                           Land      and Cables         Switching of mobile Other         under
2010                       buildings     and lines      exchanges operations equipment    construction   Advances       Total
COST
Balance at 1 Jan
2010                             424,948      887,601     286,427    763,826   442,713         72,397       7,395   2,885,307
Translation to the
presentation currency                   274        4            0      2,382       260            188         -21      3,087
Revaluation                        -2,771          0            0         0          0              0           0      -2,771
Additions                               78      4,105          60      2,218     3,938         78,728      -6,409     82,718
Transfer from assets
under construction                  9,081      17,108       2,321     19,494    46,419        -94,464          41          0
Disposals, write-offs              -7,746         -74        -915    -11,619    -17,587          -233         -69     -38,243
                 1
Other transfers                         332      594            0         0       -340         -1,002           0       -416
Balance at 31 Dec
2010                             424,196      909,338     287,893    776,301   475,403         55,614         937   2,929,682
ACCUMULATED
DEPRECIATION
Balance at 1 Jan
2010                             100,024      605,513     251,115    408,626   313,335              0           0   1,678,613
Translation to the
presentation currency                   136        0            0      1,303       179              0           0      1,618
Revaluation                      -42,385           0            0         0          0              0           0     -42,385
Impairment                              19      2,753           0     16,434    13,561            914           0     33,681
Disposals, write-offs              -1,177         -12        -843     -8,710    -15,594             0           0     -26,336
Depreciation                      16,139       32,127      10,474     69,835    47,330              0           0    175,905
                 1
Other transfers                         178       70            0         0         -70             0           0        178
Balance at 31 Dec
2010                              72,934      640,451     260,746    487,488   358,741            914           0   1,821,274
CARRYING
AMOUNT
Balance at 1 Jan
2010                             324,924      282,088      35,312    355,200   129,378         72,397       7,395   1,206,694
Balance at 31 Dec
2010                             351,262      268,887      27,147    288,813   116,662         54,700         937   1,108,408

1
 Other transfers comprise transfers between intangible assets and property, plant and equipment,
as well as transfers between groups of assets.




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Movements in
property, plant
and equipment                                                                                                        In TEUR

                             Land and                            Network
                             buildings,                          equipment               Assets
                            cable duct Cables          Switching of mobile Other         under
                               system and lines        exchanges operations equipment    construction   Advances       Total
COST
Balance on 31 Dec
2008 – original               279,271 1,032,795          282,994    589,838   422,175         44,941       1,176   2,653,190
Change of
accounting policy                      0     -60,872           0         0          0              0           0     -60,872
Balance on 1 Jan
2009 – adjusted               279,271       971,923      282,994    589,838   422,175         44,941       1,176   2,592,318
Translation to the
presentation
currency                          -165            3            0     -1,404      -103           -136           1      -1,804
Additions                              0      6,779           97      8,560     4,739       133,765        6,491    160,431
Acquisition of new
subsidiaries                    15,464            0            0    126,816    14,729         12,509           6    169,524
Transfer from
assets under
construction                           0     31,660        6,577     32,264    47,098       -117,523         -76          0
Disposals, write-
offs                            -5,201         -730       -3,241     -4,173    -29,796          -769        -203     -44,113
Transfer of cable
duct system                   135,605       -135,605           0         0          0              0           0          0
                  1
Other transfers                       -26    13,571            0     11,925    -16,129          -390           0      8,951
Balance at 31 Dec
2009                          424,948       887,601      286,427    763,826   442,713         72,397       7,395   2,885,307
ACCUMULATED
DEPRECIATION
Balance on 31 Dec
2008 – original                 42,484      611,191      242,495    287,640   293,741              0           0   1,477,551
Change of
accounting policy                      0      -6,101           0         0          0              0           0      -6,101
Balance on 1 Jan
2009 – adjusted                 42,484      605,090      242,495    287,640   293,741              0           0   1,471,450
Translation to the
presentation
currency                              -72         0            0       -667        -72             0           0       -811
Acquisition of new
subsidiaries                     6,557            0            0     57,241     8,180              0           0     71,978
Disposals, write-
offs                              -545         -478       -2,977     -1,021    -23,376             0           0     -28,397
Depreciation                     9,114       37,393       11,597     61,881    41,039              0           0    161,024
Transfer of cable
duct system                     42,492       -42,492           0         0          0              0           0          0
                  1
Other transfers                        -6     6,000            0      3,552     -6,177                                3,369
Balance at 31 Dec
2009                          100,024       605,513      251,115    408,626   313,335              0           0   1,678,613
CARRYING
AMOUNT
Balance on 31 Dec
2008 – original               236,787       421,604       40,499    302,198   128,434         44,941       1,176   1,175,639
Change of
accounting policy                      0     -54,771          0          0          0              0          0      -54,771
Balance on 1 Jan
2009 – adjusted               236,787       366,833       40,499    302,198   128,434         44,941       1,176   1,120,868
Balance on 31 Dec
2009                          324,924       282,088       35,312    355,200   129,378         72,397       7,395   1,206,694



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As from the financial year 2010, the Group companies changed their accounting policy of
measurement of cable network subsequent to initial recognition (with exception of the cable duct
system, switching exchanges and some other items of equipment) from the revaluation model to the
cost model. The effects and detailed explanation are provided in Section b. Summary of significant
accounting policies, Chapter 1 General information.

Land and buildings and the cable duct system are carried at fair value, whereas other items of
property, plant and equipment are stated at cost.

Land and buildings were valued by a licensed appraiser to fair value as at 1 January 2007 using
comparable market prices. The licensed appraiser of real estate checked the assumptions used in this
valuation as at 30 September 2010 and issued an opinion stating that additional revaluation was not
necessary.

Cable ducts were valued by a licensed appraiser as at 1 January 2010 using the depreciated
replacement cost method as no comparable prices are available for these assets. As a result of this
valuation, a revaluation in the amount of EUR 39,627 thousand and an impairment loss in the amount
of EUR 13 thousand were recognized.

As at 31 December 2010, the Group established the need for impairment of fixed assets in the total
amount of EUR 33,681 thousand based on the findings that led to the impairment of goodwill and
other intangible assets (Note 12).

As at 31 December 2010, the carrying amount of equipment under finance lease was EUR 8,306
thousand.

In its operations, the Group also uses property, plant and equipment, which have already been written
off, yet they are still in use (particularly telecommunication equipment, such as network, centrals,
modems, etc.).

The Group companies do not have limited property right on property, plant and equipment, which are
free of encumbrances.

14. Investments in subsidiaries, associates and joint ventures

No investments in subsidiaries, associates and joint ventures were made in 2010.


15. Other investments
                                                                                                    In TEUR
                                                                                2010                    2009
Investments in equity securities of banks                                      4,277                   4,571
Investments in other equity securities                                         3,942                   5,685
Loans to others                                                                     0                    925
Loans to employees                                                             1,836                   2,257
Receivables from the sale of apartments                                           21                         44
Loans to telecommunications subscribers                                        1,493                         47
Other non-current financial assets                                               781                   1,132
Total                                                                         12,350                  14,661

All investments in equity securities are classified as available for sale. Of total amount of EUR 8,219
thousand, EUR 4,317 thousand (2009: EUR 5,084 thousand) refer to financial instruments traded on
the securities market and carried at the fair value. Other financial assets are not traded and are carried
at cost, as their fair value cannot be reliably estimated.




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16. Other non-current assets
                                                                                                  In TEUR
                                                                              2010                    2009
Long-term prepaid rentals                                                   12,161                  11,889
Long-term deferred sale incentives                                          12,323                  14,888
Other non-current assets                                                       241                     512
Total                                                                       24,725                  27,289



Movement in deferred items (excluding sundry other non-current assets)
                                                                                                  In TEUR
                                                                            Rentals        Sales incentives
Balance at 1. 1. 2009                                                       10,939                  17,213
Increase                                                                      2,678                 17,678
Transfer to costs                                                           -1,728                 -20,003
Balance at 31. 12. 2009                                                     11,889                  14,888
Increase                                                                      2,066                 16,773
Transfer to costs                                                           -1,794                 -19,338
Balance at 31. 12. 2010                                                     12,161                  12,323


17. Investment property

Investment properties are stated at cost.

Movement in investment property
                                                                                                   In TEUR
                                                                              2010                    2009
Balance at 1 January                                                          5,121                  5,253
Increase                                                                      1,345                         0
Decrease                                                                          0                        -86
Depreciation                                                                    -53                    -46
Balance at 31 December                                                        6,413                  5,121

Investment property is land and buildings in Sečovlje and real estate on Vojkova 58 in Ljubljana.
The fair value of investment property approximates to its book value. In 2010, the revenue from
property lease reached EUR 105 thousand (2009: EUR 82 thousand).

18. Deferred tax assets and liabilities

Deferred tax assets and liabilities are provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes, using tax rates enacted in the future years. In
2010, applicable tax rate was 20% (2009: 21%).




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                                                                                                   In TEUR
                                                                               2010           2009 adjusted
Intangible assets                                                               759                   -1,734
Property, plant and equipment                                                 -3,878                  2,206
Investments and financial assets                                                 -30                    -423
Trade receivables                                                             7,102                   3,109
Inventories                                                                        0                        -16
Other non-current assets                                                          92                    121
Provisions                                                                    5,015                   4,368
Deferred tax assets/liabilities                                               9,060                   7,631

Deferred tax liabilities increased primarily as a result of a revaluation of cable ducts in the amount of
EUR 39,627 thousand (EUR 7,925 thousand).


19. Non-current assets held for sale

Non-current assets held for sale mainly relate to land and buildings which the Group will no longer use
for business purposes in accordance with the process of rationalization and optimization of real estate
and which are to be sold in the next 12 months according to the decision of the management board.
In 2010, the Group recognized an impairment loss in the amount of EUR 658 thousand as the
difference between the carrying amount and fair value, less costs of sales.


20. Inventories

                                                                                                   In TEUR
                                                                               2010                    2009
Material                                                                      6,098                   6,803
Finished products                                                               306                     506
Merchandise                                                                  14,542                  17,686
Advances                                                                           9                         3
Total                                                                        20,955                  24,998

As at 31 December 2010, inventories were revalued to their recoverable amount and impairment loss
in the amount of EUR 153 thousand was recognised (2008: EUR 603 thousand).

21. Trade and other receivables
                                                                                                   In TEUR
                                                                               2010                    2009
Trade receivables                                                           142,869                 134,489
Receivables from foreign operators                                           12,339                  20,011
Receivables due from domestic operators                                      67,868                  38,193
Advances                                                                      3,537                   3,005
VAT and other tax receivables                                                 8,519                  17,990
Accrued income                                                               16,816                  13,283
Current amounts of sale incentives                                            3,495                   6,701
Other receivables                                                             2,758                   1,675
Bad debt allowance                                                          -61,477                 -30,851
Total                                                                       196,724                 204,496


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Trade receivables are non-interest bearing.

Movement of bad debt allowance
                                                                                                                   In TEUR
                                                                                         2010                         2009
Balance at 1 January                                                                 -30,851                       -16,028
Acquisition of new subsidiaries                                                                 0                  -10,194
Impairment allowance during the year                                                 -39,636                       -13,933
Reversal                                                                                6,332                        6,890
Utilization                                                                             2,876                        2,395
F/X differences                                                                         -198                            19
Balance at 31 December                                                               -61,477                       -30,851


At 31 December 2010, the maturity structure of trade receivables that were past due but
not impaired
                                                                                                                    In TEUR

                             Neither past   Past due
                                 due nor         and
                    Total       impaired    impaired                      Past due but not impaired


                                                       Up to 30                                                    More than
                                                          days    31 - 60 days   61 - 90 days       91 -120 days    120 days
2010            196,724         125,857      17,755    20,228          9,397          5,929               2,428      15,130
2009            204,496         133,810       9,628    28,291          9,729          5,650               8,192       9,196



22. Current financial assets
                                                                                                                   In TEUR
                                                                                         2010                         2009
Other loans                                                                             2,070                          554
Other current financial assets                                                              52                            0
Bank deposits                                                                         11,270                              0
Total                                                                                 13,392                           554
23. Cash and cash equivalents
                                                                                                                   In TEUR
                                                                                         2010                         2009
Cash in hand and bank balances                                                        31,559                        19,208

Deposits with banks with maturity of up to three months                               15,167                         2,002
Total                                                                                 46,726                        21,210

Cash at banks earns interest at floating rates based on daily bank deposit rates, while night deposits
earn interest at contractually agreed rates.

Short term deposits are made for varying periods of between one to three months, depending on the
immediate cash requirements of the Group and earn interest at the respective short term deposit
rates.




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24. Capital and reserves

Shares issued
Authorised, issued and fully paid up capital amounts to EUR 272,721 thousand. It is divided into
6,535,478 ordinary shares.

Ownership structure as of 31 December 2010

Shareholder                                                    Number of shares              Share in %
Republic of Slovenia                                                 3,434,021                  52.54%
Slovenska odškodninska družba, d.d.                                      931,387                 14.25%
Individual shareholders (local and foreign)                              669,741                 10.25%
Local legal entities                                                     433,705                  6.64%
Kapitalska družba, d.d.                                                  365,175                  5.59%
PID - DZU                                                                180,063                  2.76%
Foreign legal entities                                                   155,102                  2.37%
Banks                                                                    118,038                  1.81%
Kapitalska družba – PPS                                                  115,558                  1.77%
Mutual funds and other funds                                              81,308                  1.23%
Telekom Slovenije, d.d.                                                   30,000                  0.46%
Insurance undertakings                                                    10,970                  0.17%
BPH                                                                       10,410                  0.16%
Total                                                                  6,535,478                  100%

The balances and changes in the equity are shown in the Statement of Changes in Equity. The
number of issued shares did not change in the financial year under review.

Reserves
Originally, reserves were set up in accordance with the provisions of the Ownership Transformation of
Companies Act, whilst in recent years reserves have been set up in accordance with the resolution of
the Management Board. Consistent with the Companies Act, the Management Board is entitled to
appropriate one half of the profit for the period to reserves.

Composition of reserves
                                                                                                In TEUR
                                                                            2010          2009 adjusted
Capital surplus                                                          135,831                139,782
Reserves for treasury shares and interests                                 3,671                   3,671
Legal reserves                                                            51,464                 51,449
Statutory reserves                                                       105,005                105,005
Other reserves                                                            61,649                273,624
Total                                                                    357,620                573,531

Capital and statutory reserves can be used for purposes specified in the company’s act and statutes.
Statutory reserves may not exceed 20% of share capital. Such reserves are not intended for
distribution.


Surplus paid-up capital arising from ownership transformation in the amount of EUR 130,111
thousand, and transfer of tax-free portion of fixed assets revaluation reserves in the amount of EUR
5,720 thousand are included in capital surplus.



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Reserves for treasury shares are formed in the amount paid for these shares. These reserves are not
distributable. The Group has not acquired any additional treasury shares during the 2010 financial
year.

The Group can transfer up to 50% of current year profits, reduced by amounts allocated to legal
reserves and statutory reserves, to other reserves. Other reserves are distributable in accordance
with the law, Statute, business policy and resolution of the Annual General Meeting.


Retained earnings
Retained earnings include retained net profit from previous periods and net profit for the current
period.

According to the resolution of the Shareholders' meeting held on 1 July 2010, total retained earnings
of 2009 in the amount of EUR 61,470 thousand was appropriated as follows: EUR 19,516 thousand
(2009: EUR 39,033 thousand) was appropriated to dividend payout - a dividend of EUR 3 per share
(2009: EUR 6), while the remaining EUR 41,953 thousand was appropriated to retained earnings.


Dividend proposed
Proposed for approval at AGM:                                                    EUR      19,516,434.00
Dividend per ordinary shares:                                                    EUR               3.00


Treasury shares
In 2003, the Group acquired 30,000 treasury shares at par value of EUR 1,252 thousand representing
0.46% of the issued capital.

Fixed asset revaluation reserve
In 2010, the fixed assets revaluation reserve increased by EUR 31,702 thousand as the result of a
revaluation of cable ducts and reduced by EUR 4,128 thousand as follows: EUR 2,698 thousand was
transferred from revaluation reserve to retained earnings on account of additional depreciation of
property, plant and equipment; furthermore, EUR 1,430 thousand was transferred from revaluation
reserves to capital reserves on account of the revaluation of property, plant and equipment.
Revaluation reserves are not distributable.

Other revaluation reserves
Other revaluation reserves relate to the revaluation of available-for-sale financial assets in the amount
of EUR 2,117 thousand.

25. Non-current deferred income

                                                                                                   In TEUR
                                                                               2010                    2009
Co-location billed in advance                                                 6,432                   6,704
Government grants                                                               797                     898
Other                                                                         2,320                     926
Total                                                                         9,549                   8,528

Co-location relates to payments received in advance for renting certain premises and equipment to
other operators.




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26. Provisions

                                                                                                   In TEUR

                                                              Utilisation and
                                                 31.12.2009          reversal        Formation    31.12.2010
Provisions for probable payments
resulting from legal actions                        16,839                 0              6,489      23,328
Provisions for terminal bonuses on
retirement                                           8,919              -339               283        8,863


Cost of base station removals                        3,912                -4               301        4,209
Other                                                  859              -303               858        1,414

Total                                               30,529              -646              7,931      37,814

Provisions for probable payments resulting from legal actions
Provisions for probable payments resulting from legal actions are formed on the basis of the
estimation of the actions' outcome in consultation with legal advisors. The date of payment cannot be
determined.

Total damages claimed by pending legal actions brought against the Group amount to EUR 253,492
thousand (in 2009: EUR 256,807 thousand), of which the largest claims are as follows: by T-2, d. o. o.,
in the amount of EUR 129,557 thousand, SINFONIKA, d. d., in the amount of EUR 34,702 thousand,
Sky.net, d. o. o., totalling EUR 33,047 thousand, and TUŠMOBIL, d. o. o., EUR 28,176 thousand.

The Competition Protection Office of the Republic of Slovenia began, ex officio, a process of
determining an alleged abuse of Telekom Slovenije's dominant position on inter-operators market of
broadband access. The Competition Protection Office may impose a fine up to 10% of the annual
turnover of the Company. Therefore, the Company made provisions in the amount of EUR 1,992
thousand, equalling 0.5% of the operating revenue generated in 2009.

Provisions for termination and jubilee benefits
Formation of provisions for terminal bonuses on retirement is based on the actuarial calculation.
Liabilities reported by the Group are equal to the present value of estimated future payments.
The Group has no other pension liabilities.

Provisions for estimated cost of removal of base stations
It is expected that the removal of base stations will commence after the year 2021 when the UMTS
licence expires (not considering the option of extension). Provisions were formed in the amount of
estimated cost of removal discounted to present value by using the discount rate of 5% (2009: 5%).

27. Interest bearing borrowings

This note provides information about the contractual terms of the Group's interest-bearing borrowings.
For more information relating to interest rate and foreign currency risk management refer to note 35 -
Financial risk management.

                                                                                                  In TEUR
                                                                                  2010                2009
Non-current borrowings
Borrowings from foreign banks                                                   187,487            220,242
- current portion of non-current borrowings                                     -57,149            -32,755
- non-current portion of borrowings from banks                                  130,338            187,487




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Borrowings from domestic banks                                                                   67,609                        72,290
- current portion of non-current borrowings                                                     -66,723                        -5,133
- non-current portion of borrowings from banks                                                      886                        67,157


Other borrowings                                                                                        0                           39
- current portion of other borrowings                                                                   0                            0
- non-current portion of other borrowings                                                               0                           39
Total non-current borrowings                                                                   131,224                       254,683
Current borrowings
Borrowings from domestic banks                                                                    1,543                        18,249
Current portion of non-current borrowings from foreign banks                                     57,149                        32,755
Current portion of non-current borrowings from domestic banks                                    66,723                         5,133
Interest                                                                                                36                        140
Total current borrowings                                                                       125,451                         56,277


Contractual terms agreed on borrowings
                                                                                                                               In TEUR


                              Non-current       Current    Maturity in                                          Last
                                 amount        amount     excess of 5                                        payment
                              31.12.2010    31.12.2010         years             Interest rate agreed            due          Collateral
                                                                         3mEURIBOR + 0.330%                  2011                 None
                                                                         3mEURIBOR + 1.900%                  2014      Bills of exchange
                                                                         3mEURIBOR + 2.100%                  2014                 None
                                                                         3mEURIBOR + 2.900%                  2014      Bills of exchange
                                                                         6mEURIBOR - 0.025%                  2017       Bank guarantee
Non-current borrowings
                                  131.224   123.872        106.664       3mEURIBOR + 0.083%                  2017                 None
from banks
                                                                         3mEURIBOR - 0.018%                  2017       Bank guarantee
                                                                         3mEURIBOR + 0.105%                  2017                 None
                                                                         6m EURIBOR + 0.7%                   2011
                                                                         6m EURIBOR + 3.75%                  2020                pledge
                                                                         5.950 do 7.200%                2012-2014
Current borrowings                                                       6.50%                               2010      Bills of exchange
                                              1.543
from banks
                                                                         3 m EURIBOR + 6.000%                2011
                                                                         3m EURIBOR + 3.500%                 2014                 None
Financial liabilities to                                                 3m EURIBOR + 3.850%                 2010                 None
                                  212.785    85.649             2.747
group companies
                                                                         6m EURIBOR + 3.850%                 2012
                                                                         1.191% do 9.000%                    2010                 None

All borrowings from foreign banks are nominated in euro (EUR). One portion of these borrowings
bears a variable interest rate, and with the rest, the variable interest rate was replaced by a fixed
interest rate, by means of the financial derivatives obtained to this purpose.

As at the balance sheet date, the outstanding amount of borrowing from EIB is EUR 160,428 thousand
(2009: EUR 190,243 thousand). The principals gradually fall due for payment by 2017. The
outstanding amount of borrowing from the banking union (90% of its resources being from the local
banks), amounting to EUR 50,000 thousand as at the balance sheet date (2009: EUR 50,000
thousand), falls due in 2011.


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The banks that have approved long term loans require that certain debt covenants specified in the
loan contracts be maintained, including: Consolidated Total Debt, Consolidated Net Tangible Worth,
EBITDA, Consolidated Total Debt/EBITDA. The non-achievement of these covenants may result in the
requirement to repay early these borrowings. As at 31 December 2010, the Group failed to meet some
of its debt covenants due to the impairment of investments.

Consequently, and in accordance with IAS 1.74, as at 31 December 2010, all non-current borrowings
whose debt covenants were not met, were reclassified to current financial liabilities. Financial liabilities
of total EUR 31,926,470.56 were reclassified.

Subsequent to the balance sheet date, the Company received written declarations from the lenders
stating that they agreed with certain covenants not being complied with and that they would not
demand early repayment of these borrowings.

28. Other non-current liabilities
                                                                                                      In TEUR
                                                                                 2010                     2009
Bonds issued                                                                  297,182                  296,932
Put options:                                                                   11,648                   22,947
- Ipko Telecommunications LLC                                                       0                   13,502
- On.net, d. o. o.                                                               3,200                   1,800
- Aneks, d. o. o.                                                                5,070                   5,070
- Primo Communications, Sh.p.k.                                                  2,575                   2,575
- Meganet, d. o. o.                                                                803                         0
Finance lease                                                                    3,387                   4,940
Other non-current liabilities                                                        4                   1,512
Total                                                                         312,221                  326,331

In December 2009, Telekom Slovenije, d.d. issued bonds in the notional amount of EUR 300,000
thousand. Bonds bear interest at the rate of 4.875% and mature in December 2016. They are
measured at the amortised cost method using effective interest rate of 5.047%.


29. Trade and other liabilities
                                                                                                      In TEUR
                                                                                 2010                     2009
Trade payables                                                                 85,705                  103,431
Payables to domestic operators                                                 28,091                   14,979
Payables to foreign operators                                                  12,415                   14,146
VAT and other taxes payable                                                      8,429                   8,146
Payables to employees                                                          11,882                   10,538
Advances                                                                         1,206                     684
Other payables                                                                   5,589                   4,249
Total                                                                         153,317                  156,173

Trade payables are non interest bearing and are normally settled on 5 to 100 days term. Payables to
operators are non interest bearing and are normally settled on 15 to 50 days term.




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30. Other current financial liabilities
                                                                                                  In TEUR
                                                                              2010                      2009
Bonds issued                                                                  -131                       -78
Compensation for additional share in a subsidiaries:                        13,509                 32,181
- Ipko Telecommunications LLC                                               13,502                 32,181
- Planet 9 d. o. o.                                                              7                         0
Interest rate swap                                                           2,153                  5,271
Finance lease                                                                1,510                  1,483
Other financial liabilities                                                      1                        14
Total other current financial liabilities                                   17,042                 38,871


31. Short-term deferred income
                                                                                                  In TEUR
                                                                              2010                      2009
Mobile telephony prepaid cards                                               5,984                  4,655
Subscriptions billed in advance and short-term collocations                 14,689                 13,986
Current amounts of government grants                                           119                       130
Other deferred income                                                        2,121                       467
Total                                                                       22,913                 19,238


32. Commitments

The Group as a lessee
Liabilities from operating lease relate to property, plant and equipment (primarily leased lines,
business premises lease and base stations lease. Non-cancellable operating lease is payable as
follows:
                                                                                                 In TEUR
Payable in                                                                   2010                       2009
- up to 1 year                                                              7,971                  17,099
- 1 to 2 years                                                             10,656                   7,665
- 3 to 5 years                                                             16,344                  12,101
- more than 5 years                                                        31,116                  22,629
Total                                                                      66,087                  59,494

In the financial year 2010, the Group had EUR 14,563 thousand of lease costs from operating lease
contracts (2009: EUR 19,779 thousand).

The Group as a lessor
Receivables from operating leases refer to lease of property, plant and equipment and are as follows.
                                                                                                 In TEUR
Payable in                                                                   2010                       2009
- up to 1 year                                                                866                       726
- 1 to 2 years                                                              1,448                   1,450
- 3 to 5 years                                                              1,448                   1,450
- more than 5 years                                                         3,620                   3,627
Total                                                                       7,382                   7,253



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In 2010, total amount of rentals reported in the income statement was EUR 4,348 thousand (2009:
EUR 5,355 thousand).

Obligations for intangible and tangible assets

At the balance sheet date, the Group discloses obligations for intangible assets in the amount of EUR
1,713 thousand, mainly relating to the implementation of the “Billing” system.
The assumed liabilities for property, plant and equipment as at 31 December 2010 are EUR 8,277
thousand (2009: EUR 4,707 thousand), mainly relating to the construction of the telecommunication
network.


33. Contingencies
                                                                                                              In TEUR
                                                                                       2010                      2009
Contingent liabilities from legal actions                                           253,741                   256,807

At the balance sheet date, there were 73 pending legal actions brought against the Group companies
in the total amount of EUR 253,741 thousand (2009: EUR 256,807 thousand). Based on the opinion of
legal advisors, the managing boards of Group companies expect the liability from the said legal
actions to amount to EUR 23,328 thousand (Note 26).

34. Transactions with related parties

Related parties of the Group include the Republic of Slovenia as the majority shareholder of Telekom
Slovenije, d.d., other shareholders, the managing board, the supervisory board and their family
members.

Transactions with related individuals
Natural persons (president and members of the managing board, president and members of the
supervisory board) hold 564 shares of Telekom Slovenije, d.d., representing a 0.01% shareholding.

In 2010, no loans were granted to related individuals.

Cost of wages and salaries
                                                                                                              In TEUR
                                                                                       2010                      2009
Management Board                                                                       1,283                     1,157
Supervisory Board                                                                            69                     90
Total                                                                                  1,352                     1,247


Information on groups of persons
                                                                                                                In TEUR
                                                                                    Loans

                                                        Share of profit paid
                                                              according to     Outstanding
                                                          resolution of the        amount         Repaid in         Trade
                                       Total receipts                  AGM      31.12.2010           2010     receivables
Total members of the
Management Board                               1,283                       -             -                -              -
        - Dremelj Bojan                          150                       -             -                -              -
        - Mitič Dušan                            185                       -             -                -              -
        - Ogris-Martič Filip                     174                       -             -                -              -
        - Puljić Željko                          167                       -             -                -              -


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        - Senica Darja                               163                          -                   -               -                -
        - Kranjčević Ivica                           135                          -                   -               -                -
        - Boštjančič Marko                           107                          -                   -               -                -
        - Vehovar Zoran                              110                          -                   -               -                -
      - Peterlin Jožko                                 92                         -                   -               -                -
Members of the supervisory
board                                                  69                         -                   -               -                -




Other members of management
employed under a contract for
which tariff under the collective
agreement does not apply                            3.755                         -              164                32                6

Loans to other managers were approved at interest rates from 4.13% to 5.45% with term of 10 to 20
years.

The Group has not granted any advances or guarantees.

Break-down of receipts of members of the Management Board
                                                                                                                                      In EUR

                                                    Other                                                              Other
                                         Salary
                                                  receipts Reimbursement         Holiday Insurance                 payments-
                                                                 of costs            pay premiums         Benefits  PDPZ II*           Total
Dremelj Bojan                      111,528         26,963            330          1,099      1,515          6,248      1,985         149,668
Mitič Dušan                        134,814         40,444             1,052           1,099       399       4,605          2,205     184,618
Ogris-Martič Filip                 134,814         26,963             1,991           1,099     2,034       4,605          2,205     173,711
Puljić Željko                        53,926       107,851              951            1,099     1,001       1,582           882      167,292
Senica Darja                       152,743             0              1,554           1,099     2,314       2,475          2,646     162,831
Kranjčević Ivica                   119,918             0              1,872              0      1,123      10,573          1,544     135,030
Boštjančič Marko                     98,817            0              1,096              0        516       5,501          1,544     107,474
Vehovar Zoran                        98,817            0              1,686              0        585       6,864          1,544     109,496
Peterlin Jožko                       85,336            0              1,680              0        498       3,639          1,323       92,476
Total                              990,713        202,221            12,212           5,495     9,985      46,092         15,878    1,282,596

Salaries are not broken-down to fixed and variable part. In 2010, members of the Management Board
did not receive any shares in the profit, options, commission or any other payments.


Break-down of receipts of members of the Supervisory Board
                                                                                                                               In EUR
                                                                 Attendance                                  Travel
                                                                       fees             Committees        expenses                 Total
External members from 1. 1. to 31. 12. 2010
Berginc Tomaž                                                            5,005                2,503             159                7,667
Kalin Tomaž                                                              3,025                3,575              79                6,679
Kafol Ciril                                                              3,025                2,145              54                5,224
Kremljak Zvonko                                                          3,850                5,500             165                9,515
Hočevar Marko                                                            3,300                4,290             153                7,743
Berce Jaroslav                                                           3,025                6,023              77                9,125
Internal members from 1. 1. to 31. 12. 2010


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Richter Milan                                              3,850           4,400              59              8,309
Gorišek Martin                                             3,575           1,650             269              5,494
Sparavec Branko                                            3,575           3,300           2,703              9,578
Total                                                     32,230          33,386           3,718          69,334

In 2010, members of the Supervisory Board received no other payments.

Transactions with the Government of Republic of Slovenia and entities and institutions under
its control
The Group provides telecommunications services to the Government of Republic of Slovenia and
various entities, agencies and companies in which the Slovenian state is either the majority or minority
shareholder. All such transactions are concluded on normal commercial terms and conditions such as
are not more favourable than those available to other customers.

Total income earned in the interim period from sales to the central and local governments and other
public entities amounts to EUR 24,586 thousand (2009: EUR 31,055 thousand). The Group does not
monitor nor collect information on sales to companies owned or partially owned by the republic of
Slovenia or entities under its control. Accordingly information on such sales has not been disclosed.

35. Financial risk management

The Group’s principal financial instruments, other than derivatives, comprise cash and cash
equivalents, trade and other receivables, trade and other payables, investments and borrowings. The
main purpose of borrowings is to raise finance for the Group’s operations.

The Group also enters into interest rate derivatives. The purpose is to manage the interest rate risks
arising from its sources of finance.

It is and has been the Group’s policy that no trading in derivatives shall be undertaken. The main risks
arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign
currency risk and credit risk. The Management Board reviews and agrees policies for managing each
of these risks which are summarised below.

Foreign currency risk
The Group provides its services predominantly in Slovenia. The currency risk in ordinary activities
arises in connection with international operators and foreign suppliers of services, merchandise and
property and plant and equipment. The majority of deliveries and borrowings from foreign entities are
denominated in euro, which is also the functional currency of the majority members of the Group.
Therefore, the exposure to foreign currency risk is minimal.

Since the currency risk is assessed as minimal, the Group does not use any special instruments to
hedge its exposure to such risks.


Interest rate risk
Interest rate risk is the risk of the negative impact of changes in market interest rates on the results of
the Group's operations. The interest structure of the balance sheet assets and liabilities is not
matched, since the amount of borrowings is much higher than the amount of interest-earning
investments. The negative movement (increase) of the variable EURIBOR interest rate represents an
exposure to interest rate risk in respect of borrowings. Most non-current borrowings bear interest at a
variable interest rate based on 1m, 3 m and 6 m EURIBOR.

The adopted financial risk management allows the Group to hedge against interest rate risk by using
interest rate call options, interest rate swaps and combinations of call and put options. The Group uses
derivative financial instruments exclusively for the purpose of risk hedging and at 31 December 2010,
42 percent of non-current loans were hedged against interest rate risk.




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The table below sets the Group's derivative instruments used for hedging interest rate
risk:


                                        Date of                  Notional            Fair value at   Fair value at
                                       contract    Maturity      amount               31.12.2010      31.12.2009
                                                                  In EUR                In TEUR            In TEUR
Interest rate swap                    24.6.2009   15.6.2014    58,642,857                  -1,129             -772
Interest rate collar                  19.1.2005   19.8.2011    50,000,000                  -1,024           -1,657
Total                                                         108,642,857                  -2,153           -2,429

On re-measurement of hedging instruments that are no longer designated as accounting hedge, the
Group recognized revenue in the amount of EUR 276 thousand (in 2009 an expense of EUR -4,636
was recognised).

For a financial instrument used for hedge accounting in notional amount of EUR 29,474 thousand,
which matured at 15 December 2010, EUR 974 thousand (in 2009: EUR 98 thousand) related to
effective hedging, and recognised directly in statement of comprehensive income in the net amount of
EUR 779 thousand (in 2009: EUR 78 thousand).

Interest rate risk table
The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with
all other variables held constant, of the Group’s profit before tax (through the impact on floating rate
borrowing, net of interest rates hedges). There is no impact on the Group’s equity.


                                                   Increase/decrease in basis
                                                                       points Effect on profit before tax
2010
EURO                                                                        +10 bp                     -255
EURO                                                                        -10 bp                      255
2009
EURO                                                                        +10 bp                     -293
EURO                                                                        -10 bp                    +293

Non-interest bearing financial instruments are not included in the tables above as they are not subject
to interest rate risk.


Credit risk
The Group has a large number of customers, both individuals and legal persons. Since receivables
are widely spread, the Group assesses the credit risk as low. The Group has developed well-
established procedures of managing receivables and formation of bad debt allowance. Receivable
balances are monitored on an ongoing basis with the result that Group's exposure to bad debts is not
significant. The Group's maximum exposure to receivables equals the carrying amount of these
receivables.

With respect to credit risk arising to from the other financial assets of the Group, which comprise cash
and cash equivalents, deposits with banks, available for sale financial assets, the Group's exposure to
credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying
amount of these instruments.




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Liquidity risk
Liquidity is subject to effective cash management and investment dynamics. The Group manages the
liquidity risk by careful monitoring of the liquidity of assets and liabilities and cash flows from
operations. Short-term deficits are bridged by current borrowings from the local banks and from the
companies in the Group. Short-term surpluses are placed in bank deposits and securities. Also a large
portion of payments made by the customers is reasonable predictable and stable.


The table below summarises the maturity profile of the Group's financial liabilities as at 31
December 2010 and 31 December 2009 based on the contractual undiscounted payments
                                                                                                          In TEUR
                                                         Less than 3    3 to 12             More than 5
                                Past due On demand           months     months 1 to 5 years       years      Total
                    2010

Borrowings                                 0        0             104   125,347      95,150      36,074    256,675
Estimated interest
on loans                                   0        0              0      4,320       8,620          75     13,015
Other financial
liabilities                                0        1         13,864      3,177      14,220     300,000    331,262
Estimated interest
on bonds                                   0        0              0     14,625      58,500      14,625     87,750

Supplier payables                       7,752   25,274       107,975     12,316         31            0    153,348
Derivative financial
instruments                                0        0             628      810         715            0      2,153
                    2009
Borrowings                                36        0         24,992     31,249     195,438      59,245    310,960
Estimated interest
on loans                                   0        0             980     2,636       6,995         259     10,870
Other financial
liabilities                                0        0          3,373     35,463      29,425     296,941    365,202
Estimated interest
on bonds                                   0        0              0     18,281      91,406      18,281    127,968

Supplier payables                  16,068        5,753       118,068     16,319          0            0    156,208
Derivative financial
instruments                                0        0          2,980      2,291        665            0      5,936



Capital management
The primary objective of the Group's capital management is to ensure that it maintains strong credit
rating and capital ratios in order to support its business and maximise shareholder value.

The Group monitors capital using a gearing ratio, which is net debt divided by total net debt plus total
equity. The Group includes within net debt, interest bearing loans and borrowings and other financial
liabilities, less current financial assets and cash and cash equivalents.




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                                                                                                      In TEUR

                                                                          31.12.2010     31.12.2009 adjusted
Interest bearing loans and borrowings                                        585,938                  676,162

Less current financial assets, cash and cash equivalents                      -60,118                  -21,764
Net debt                                                                     525,820                  654,398


Capital                                                                      807,812                 1,001,566
Capital and net debt                                                       1,333,632                 1,655,964
Gearing ratio                                                                    39%                      40%

Fair value
The Group estimates that fair values of financial assets and liabilities are not significantly different to
their carrying value.


Fair value hierarchy
In the recognition and disclosure of the fair value of financial instruments using the assessed
value model, we applied the following hierarchy:
Level 1: Determining fair value directly by reference to the official published price on an active
              market,
Level 2: Other models used in determining fair value based on assumptions and significant
              impact on fair value in line with observed current market transactions with the
              same instruments either directly or indirectly,
Level 3: Other models used in determining fair value based on assumptions and significant
              impact on fair value that are not in line with observed current market transactions
              with the same instruments and investments recognised at cost.
                                                                                                     In TEUR
Assets at fair value                                       31.12.2010       Level 1        Level 2       Level 3
AFS financial assets
Equity securities and other investments                        8,219          4,317              0            3,902
Derivatives
Cash flow hedges                                               -1,129             0         -1,129               0
For trading                                                    -1,024             0         -1,024               0


Assets at fair value                                       31.12.2009       Level 1        Level 2       Level 3
AFS financial assets
Equity securities and other investments                       11,214          5,084              0            6,130
Derivatives
Cash flow hedges                                                -974              0           -974               0
For trading                                                    -1,657             0         -1,657               0

All Level 3 securities are carried at cost.


36. General authorization and the rights of use for radio frequencies and numbers

Fixed line operations
The provision of electronic communications networks or the provision of electronic communications
services is only subject to a general authorisation. Prior to the commencement of the provision of
public communications networks or services, notification must be given in writing to the Agency for

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Post and Electronic Communications (Agency). The undertaking is not required to obtain an explicit
decision or any other administrative act by the national regulatory authority before exercising the rights
stemming from the authorisation.

Telekom Slovenije has in the past notified the provision of the following electronic communications
services:
- Public Voice Services over a Fixed Public Telecommunications Network,
- International Telecommunications Services,
- Data Transmission Services,
- Domestic and International Leased Line Services.

Pursuant to the notification the annual fee must be paid in the amount of EUR 496 thousand
(2009: EUR 492 thousand). The amount of the fee to be paid is defined with a tariff, which is a
general act of the Agency.

Telekom Slovenije also has to pay annual fees for the rights of use for radio frequencies and for
numbers. The fee for the rights of use for radio frequencies amounts to EUR 231 thousand (2009:
EUR 246 thousand), and the fee for the rights of use for numbers amounts to EUR 246 thousand
(2009: EUR 266 thousand). The amount of the fees to be paid is defined within the tariff, which is
a general act of the Agency.

Mobile telephony services



Service concession agreements                            Starting date            Period      Concession fee
Concession            Agreements          for
Telecommunications Services with the usage of
radio frequency spectrum in GSM mobile
telephone services in radio frequency bands
from 890 – 915 and from 935 – 960 MHz by                                                    Initial fee of 9,863
GSM standards                                             02.04.1998                  15                  TEUR
Concession            Agreements          for
Telecommunications Services with the usage of
radio frequency spectrum in GSM mobile                                                      Initial fee of 4,173
telephony in DCS1800 network                              03.01.2001                  15                  TEUR
Concession            Agreements          for
Telecommunications Services with the usage of
radio frequency spectrum in mobile network                               15, extended to Initial fee of 91,804
system: UMTS/ITM-2000                                     27.11.2001         21.09.2021                  TEUR
Concession            Agreements          for
Telecommunications Services with the usage of
radio frequency spectrum in GSM mobile                                                     Initial fee of 75,000
telephone services network in Kosovo                      06.03.2007                  15                   TEUR
Concession            Agreements          for
telecommunications services with the usage of
radio frequency spectrum in 2G-GSM 900                                                     Initial fee of 28,000
mobile telephony in Macedonia                             21.11.2001                  22                   TEUR
 Concession           Agreements          for
telecommunications services with the usage of
radio frequency spectrum in 3G-UMTS mobile                                                 Initial fee of 10,000
network system in Macedonia                               02.11.2008                  10                   TEUR


The Group, based on legal requirements, pay annual fees as follows:
-  fees based on revenues from public telecommunication network,
-  fees for use of radio frequencies
-  fees for allocated block of numbers




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In 2010, the Group paid EUR 5,281 thousand (2009: EUR 4.054 thousand) of fees.


37. Auditor's cost

                                                                                 In TEUR
                                                                   2010            2009
Audit of annual report                                              290             359
Other audit services                                                 40             155
Tax advisory services                                                  7              0
Other non-audit services                                             29              90
Total                                                               366             604




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     4.2.3      Independent Auditor's Report for the Telekom Slovenia Group




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                               4.3    Financial report of Telekom Slovenije, d. d.

                          4.3.1      Financial statements of Telekom Slovenije, d. d.


Income statement of Telekom Slovenije, d.d. for the year ended 31 December 2010

                                                                                        EUR '000
                                                                                            2009
                                                         Notes             2010         adjusted
Revenue                                                      2          381,168          396,490
Other income                                                 3            1,363            1,974


Cost of goods and materials sold                                          -9,287          -9,656
Cost of raw materials and consumables                                     -7,526          -8,112
Cost of services                                             4         -177,385         -191,592
Staff costs                                                  5           -77,213         -74,309
Depreciation and amortisation                            11, 12          -86,390         -83,229
Other operating expenses                                     6           -23,032         -12,178
Total operating expenses                                               -380,833         -379,076


Profit from operations                                                    1,698           19,388


Finance income                                               7           58,574           73,213
Finance cost                                                 8         -295,964          -28,515


Profit before tax                                                      -235,692           64,086


Income tax expense                                           9              280           -1,855


Net profit for the period                                              -235,412           62,231


Earnings per share – basic and diluted in EUR             10              -36.19            9.57
The accompanying notes are an integral part of these financial statements.




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Statement of comprehensive income for the year ended 31 December 2010

                                                                             EUR '000
                                                                                2009
                                                                     2010    adjusted
Net profit for the period                                         -235,412     62,231


Revaluation of available-for-sale financial assets
                                                                      -458       596
Deferred tax                                                            91       -119
Reclassification of revaluation of available-for-sale
financial assets to profit or loss                                    545          0
Deferred tax on reclassification of revaluation of
available-for-sale financial assets to profit or loss                 -109         0
Net gain from revaluation of available-for-sale
financial assets                                                        69       477



Changes in fair value of cash flow hedges                              -81     -4,796
Deferred tax                                                            16       463

Reclassification of changes in fair value of cash flow
hedges                                                               1,055      4,894
Deferred tax                                                          -211       -483

Net gain on changes in fair value of cash flow
hedges                                                                779         78



Changes in fixed assets revaluation reserve                         39,627         0

Deferred tax from changes in fixed assets
revaluation reserve                                                 -7,925         0


Net gain from fixed assets revaluation reserve                      31,702         0


Other comprehensive income                                          32,550       555


Total comprehensive income                                        -202,862     62,786


The accompanying notes are an integral part of these financial statements.




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Balance sheet of Telekom Slovenije, d.d. as at 31 December 2010



                                                                                           EUR '000

                                                                           31. 12. 2009 31. 12. 2008
                                                Notes       31. 12. 2010      adjusted     adjusted
ASSETS


Intangible assets                                11              28,730         28,891       28,608
Property, plant and equipment                    12             612,739        623,053      638,962


Investment in subsidiaries and joint ventures    13             273,614        477,870      336,303
Other investments                                14             195,486        229,877      130,546
Other non-current assets                         15              11,457         11,112       10,595
Deferred tax assets                              16              10,780          6,680        6,208
  Total non-current assets                                    1,132,806      1,377,483    1,151,222


Non-current assets held for sale                 17               5,688          1,156          627
Inventories                                      18               7,017          8,065       10,222
Current trade and other receivables              19              73,010         91,249       92,064
Income tax receivable                                                 0          9,574        3,969
Current financial assets                         20              74,336         80,559       43,135
Cash and cash equivalents                        21              25,249          5,146        9,603
  Total current assets                                          185,300        195,749      159,620

Total assets
                                                              1,318,106      1,573,232    1,310,842

The accompanying notes are an integral part of these financial statements.




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Balance sheet of Telekom Slovenije, d.d. as at 31. December 2010

                                                                                       EUR '000

                                                                       31. 12. 2009 31. 12. 2008
                                            Notes       31. 12. 2010      adjusted     adjusted
EQUITY AND LIABILITIES


Issued capital                               22             272.721        272.721      272.721
Treasury shares                              22              -3.671         -3.671        -3.671
Reserves                                     22             251.213        461.372      431.942
Retained earnings                            22              29,500         70.141       74.306

Fixed assets revaluation reserves            22              71.590         44.016       46.075

Financial instruments revaluation reserve    22                 184           -664        -1.219
   Total capital and reserves                               621.537        843.915      820.154


Non-current deferred income                  23               8.577          8.279        8.988
Provisions                                   24              21.889         15.713       16.678
Non-current operating liabilities                               525             35           46
Interest bearing borrowings                  25             130.338        203.737      190.243
Other non-current financial liabilities      26             308.001        301.542       18.690
Deferred tax liabilities                     16               9.621          2.371        2.537
  Total non-current liabilities                             478.951        531.677      237.182


Trade and other payables                     27              70.483         79.830      105.636
Income tax liabilities                                        3.802          2.168        1.446
Interest bearing borrowings                  25             116.001         64.638      130.852
Other current financial liabilities          28              15.943         37.670        1.125
Deferred income                              29               7.287          7.031        7.881
Accruals                                                      4.102          6.303        6.566
  Total current liabilities                                 217.618        197.640      253.506
  Total liabilities                                         696.569        729.317      490.688


Total equity and liabilities                              1.318.106      1.573.232    1.310.842

The accompanying notes are an integral part of these financial statements.




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Statement of changes in equity of Telekom Slovenije, d.d. for the year ended 31 December 2010
                                                                                                                                         EUR '000

                                                                                                Net gain or loss    Net change in fair
                                                                              Fixed assets     on revaluation of     value of hedging
                                     Issued    Treasury              Retained revaluation      available-for-sale            financial
                                     capital     shares Reserves     earnings      reserve      financial assets         instruments         Total


Balance at 1 Jan 2010                272,721     -3,671    461,372     70,141        44,016                  115                 -779     843,915

Net profit for the period                                            -235,412                                                            -235,412
Other comprehensive
income for the period                                                                31,702                   69                  779      32,550
Total comprehensive
income for the period                     0          0           0   -235,412        31,702                   69                  779    -202,862
Transfer to retained
earnings and reserves                                        1,430      2,698         -4,128                   0                                0
Transfer to legal reserves                                                                                                                      0
Dividends paid                                                        -19,516                                                             -19,516
Decrease in other
reserves                                                  -211,589    211,589                                                                   0
Balance at 31 Dec 2010               272,721     -3,671    251,213     29,500        71,590                  184                    0     621,537


The accompanying notes are an integral part of these financial statements.
Retained earnings at 31 December 2010

                                                                                                  EUR
Net profit for 2010                                                                  -235,412,457.33
Retained earnings                                                                      53,323,267.72
Decrease in other reserves                                                            211,589,189.61
Net retained earnings at 31 December 2010                                                29,500,000.00




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Statement of changes in equity of Telekom Slovenije, d.d. for the year ended 31 December 2009


                                                                                                                                          EUR '000

                                                                                                 Net gain or loss    Net change in fair
                                                                             Fixed assets       on revaluation of     value of hedging
                                     Issued    Treasury             Retained revaluation        available-for-sale            financial
                                     capital     shares Reserves    earnings      reserve        financial assets         instruments         Total


Balance at 31 Dec 2008               272,721     -3,671   439,168     68,526        95,944                   -362                 -857     871,469
Effect of changes in
accounting policy                                          -7,226      5,780        -49,869                                                -51,315
Balance at 31 Dec 2008
adjusted                             272,721     -3,671   431,942     74,306        46,075                   -362                 -857     820,154
Balance at 1 Jan 2009
adjusted                             272,721     -3,671   431,942     74,306        46,075                   -362                 -857     820,154

Net profit for the period                                             62,231                                                                62,231
Other comprehensive
income for the period                                                                       0                 477                   78        555
Total comprehensive
income for the period                     0          0         0      62,231                0                 477                   78      62,786
Transfer to retained
earnings and reserves                                       1,430        629         -2,059                                                      0
Transfer to reserves                                                                                                                             0
Transfer to other reserves
under the resolution of the
Management Board                                           28,000    -28,000                                                                     0
Dividends paid                                                       -39,033                                                               -39,033
Other                                                                      8                                                                     8
Balance at 31 Dec 2009
adjusted                             272,721     -3,671   461,372     70,141        44,016                    115                 -779     843,915

The accompanying notes are an integral part of these financial statements.




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Statement of cash flows of Telekom Slovenije, d.d. for the year ended 31 December 2010
                                                                                                              EUR '000
                                                                                                                  2009
                                                                                              2010
                                                                                                              adjusted
Cash flows from operating activities
     Profit before tax                                                                     -235,692             64,086
     Adjustments for:
     Depreciation and amortization                                                           86,390             83,229
     Impairment and write-offs of fixed assets                                                1,410              1,904
     Movement in bad debt allowances                                                         13,201               -159
     Gain/loss on disposal of property, plant and equipment                                  -1,625               -518
     Finance income                                                                         -58,574             -73,213
     Finance expense                                                                        274,817             28,515
     Change in assets held for sale                                                          -4,532               -529
     Change in trade and other receivables                                                   14,612              -4,631
     Change in other non-current assets                                                      -4,445               -517
     Change in inventories                                                                    1,048              2,157


     Change in provisions                                                                     6,176                -965
     Change in deferred income                                                                  554              -1,559
     Change in accruals                                                                      -2,201               -721
     Change in trade and other payables                                                      -1,740             -24,416
     Income tax paid                                                                          9,142              -7,773
     Net cash from operating activities                                                      98,541             64,890
Cash flows from investing activities
     Receipts from investing activities                                                     112,424            117,066
     Proceeds from sale of fixed assets                                                       2,860              5,115
     Dividends received12                                                                    41,749             57,759
     Interest received                                                                        5,810             20,637
     Disposal of non-current investments                                                     42,246             17,794
     Disposal of current investments                                                         19,759             15,761


     Disbursements from investing activities                                               -125,295           -374,789
     Purchase of property, plant and equipment                                              -35,944             -64,025
     Purchase of intangible assets                                                           -8,222              -6,962
     Investments in subsidiaries and joint ventures                                         -71,255           -125,845
     Interest bearing loans                                                                  -9,875           -177,957

    Cash used in investing activities                                                       -12,872           -257,723
Cash flows from financing activities
     Receipts from financing activities                                                      15,500            658,675
     Proceeds from non-current borrowings                                                         0            346,000
     Proceeds from current borrowings                                                        15,500             15,000
     Bonds issued                                                                                 0            297,675
     Disbursements from financing activities                                                -81,066           -470,299
     Repayment of current borrowings                                                              0             -91,345
     Repayment of non-current borrowings                                                    -37,505           -322,142
     Sale of derivatives                                                                     -3,748                     0
     Interest paid                                                                          -20,325             -17,779
     Dividends paid                                                                         -19,487             -39,033

     Cash flow from/used in financing activities                                            -65,566            188,376




12
   Telekom Slovenije and Mobitel have agreed a mutual settlement of receivables of total EUR 39,000 thousand in
relation to a revolving loan granted by Mobitel to Telekom Slovenije and dividends payable for financial year 2009 by
Mobitel to Telekom Slovenije.




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    4.3.2        Notes to the financial statements and summary of significant accounting policies of
                                               Telekom Slovenije, d. d.

1. General information

Financial statements
The financial statements are the separate financial statements of Telekom Slovenije d.d. (hereinafter the
“Company”) for the period ended 31 December 2010. In accordance with the resolution of the
Shareholders’ Meeting of Telekom Slovenije, d.d. of June 2007, the separate financial statements are
prepared in accordance with International Financial Reporting Standards as adopted by EU (IFRS).
The financial statements were authorized for issue by the Board on 5April 2011.
The Company compiles consolidated financial statements of the Telekom Slovenia Group, which are
included in the financial statements section of the report by the Telekom Slovenia Group and which are
available from the head office of Telekom Slovenije, d.d., at Cigaletova 15, Ljubljana, Slovenia. The
consolidated financial statements were approved by the Board on 5 April 2011.
General about the Company
Telekom Slovenije d.d., with its registered address at Cigaletova 15, Ljubljana, Slovenia, is a public
company, whose shares are listed on the Ljubljana stock exchange. As at 31 December 2010, the
Republic of Slovenia as the majority shareholder holds 3,434,021 shares which accounts for a 52.54%
interest in the Company.

Principal activities
Telekom Slovenije d.d. is the owner of almost all telecommunications capacities in the territory of
Slovenia. It provides local and international fixed-line telephone services, local broad-band services, other
telecommunications services, and sells various mostly telecommunications merchandise.
As at 31 December 2010, Telekom Slovenije has the following subsidiaries:



Subsidiary                               Principal activity                  Country       Operating in

Mobitel, d.d.                            Mobile telephony                    Slovenia      Slovenia
                                         Construction and maintenance of     Slovenia
GVO, d.o.o.                              telecommunication networks                        Slovenia
                                         Publication of telephone
Najdi, informacijske storitve,           directories and business bases,                   Slovenia, Croatia
d.o.o.                                   Internet services provider          Slovenia      and Serbia
                                         System integration of business
Avtenta.si d.o.o.                        solutions                           Slovenia      Slovenia
                                         Internet services and mobile
Planet 9 d.o.o.                          telecommunications services         Slovenia      Slovenia

Ipko Telecommunications d.o.o.           Telecommunications services         Kosovo        Kosovo
On.net d.o.o. Skopje                     Internet services                   Macedonia     Macedonia

                                                                             Bosnia and    Bosnia and
Aneks d.o.o. Banja Luka                  Internet services                   Herzegovina   Herzegovina

Primo Communications d.o.o.              Internet services                   Albania       Albania

Siol d.o.o.                              Internet services                   Croatia       Croatia
                                                                             The
SIOL B.V. in liquidation                 Financial holding                   Netherlands   The Netherlands

One d.o.o. Skopje                        Telecommunications services         Macedonia     Macedonia

One to one AD Skopje                     Sales network of ONE DOO            Macedonia     Macedonia
Digi Plus Multimedia dooel
Skopje                                   Marketing and digital TV services   Macedonia     Macedonia




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Mobitel d.d. has 100% interest in Soline, pridelava soli, d.o.o. The principal activity of the subsidiary is
traditional salt production, while the subsidiary is also engaged in the preservation and management of
the landscape park.
The parent company Najdi, informacijske storitve, d.o.o., holds a 100% interest in the following
subsidiaries: Pogodak tražilica, d.o.o. in Croatia and Pogodak, d.o.o., in Serbia, as well as a 50.1%
interest in Meganet, d.o.o., Slovenia. At the end of December, the Croatian company instigated liquidation
procedure and thus changed its name to Pogodak Tražilica d.o.o. in liquidation.

Planet 9 d.o.o. is the provider of multimedia content and services to users of the mobile broadcast and
internet network. Pursuant to the Contract for sale and acquisition of a business share in »Planet 9«, in
December 2010 Telekom Slovenije, d.d. acquired from Mobitel, d.d. a 50% interest in Planet 9, d.o.o. and
became its sole owner.

Ipko telecommunications d.o.o. holds a 100% interest in Ipko LLC Albania and N.B »Media Works« d.o.o.
Telekom Slovenije, d.d. holds 93.11% interest in Ipko Telecommunications d.o.o.. The parent company
holds a call option and minority shareholders hold a put option for the remaining interest in the company.

Telekom Slovenije, d.d. acquired an 11.44% share in One d.o.o. Skopje on 23 November 2010 with an
investment of EUR 15 million. Until then SIOL B.V. in liquidation held a 100% ownership in the company.
By the end of the year, Telekom Slovenije, d.d. increased the share capital of the company for further 25
million EUR (a total investment of 40 million EUR) to become the holder of 25.62% interest in One d.o.o.
Skopje.

Telekom holds 100% economic ownership in all subsidiaries through holding call options and granting put
options to minority holders.
An investment in joint ventures represents the acquisition of 50% interest of Gibtelecom Limited.

Summary of significant accounting policies
The significant accounting policies used in the preparation of the separate financial statements of
Telekom Slovenije d.d. are set out below.

a. Statement of compliance
The accompanying separate financial statements of Telekom Slovenije, d.d. have been prepared in
accordance with International Financial Reporting Standards (“IFRS“) promulgated by the International
Accounting Standards Board (“IASB“), and interpretations issued by the International Financial Reporting
Interpretations Committee of the IASB (“IFRIC“), as adopted by the European Union.
At the balance sheet date, due to the endorsement process of the EU and the activities of the Company,
there is no difference in the policies applied by the company between IFRS and IFRS adopted by the EU.

b. Basis for preparation
The financial statements have been prepared on a historical cost basis except for the measurement of
financial assets available for sale and derivative financial instruments, and certain classes of property,
plant and equipment which are revalued to fair value under the alternative treatment available under IAS
16 (refer to accounting policy (i) Property, plant and equipment).

The financial statement items are expressed in euros rounded to the nearest thousand.
The accounting policies used are consistent with those applied in the previous year, except for
−     The changed accounting policy applied in the measurement of cable network and telephone
    switchboard after initial recognition from the revaluation model to the cost model as described in more
    detail in continuation, and
−      the adoption of new standards and interpretations noted below and considered in the compilation
    of the financial statements if the stated events occurred in the reporting period. The adoption of these
    standards and interpretations did not impact the financial position or performance of Telekom
    Slovenije, d.d. in the period under review.




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Change in the accounting policy
As from 1 January 2010, the accounting policy applied in the subsequent measurement of cable network
and switching exchange was changed from the revaluation model to the cost model.

This change was supported by the fact that the majority of European Telecom companies value their
telecommunications assets under the cost model. The new accounting policy will improve comparability
with financial statements of other enterprises engaged in the same or similar activities.

IAS 16 prescribes treatment of property, plant and equipment however, it does not include special
provisions for recognition of the above mentioned changes in the accounting policy: Therefore, Telekom
Slovenije, d.d. followed provisions of IAS 8 – Accounting policies, changes in accounting estimates and
errors, and made adjustments in its financial statements of the previous periods in accordance with
requirements of IAS 1 – Presentation of financial statements.

Effects of changes in the accounting policy, which are reported in the separate financial statements of
Telekom Slovenije, d.d. and consequently also in the consolidated financial statements of the Group, are
presented below:

                                                                                                  EUR ‘000
Balance at 31.12.2008
Decrease in property, plant and equipment                                                          -54,771
Decrease in the fixed assets revaluation reserve                                                   -49,869
Decrease in reserves                                                                                -7,226
Decrease in deferred tax liabilities                                                                -4,902
Increase in income tax liability                                                                     1,446
Change in retained earnings                                                                          5,780


Balance at 31.12.2009
Decrease in property, plant and equipment                                                          -48,670
Decrease in the fixed assets revaluation reserve                                                   -44,291
Decrease in reserves                                                                               -10,839
Decrease in deferred tax liabilities                                                                -4,379
Increase in income tax liability                                                                     2,168
Change in net profit for the year                                                                    4,856
Change in retained earnings                                                                          3,815
Earnings per share – increase in the basic and diluted earnings per share by 0.75 EUR per share


Balance at 31 Dec 2010
Decrease in depreciation of property, plant and equipment                                           -6,101
Increase in income tax liability                                                                     1,245
Increase in net profit                                                                               4,856
Earnings per share - increase in the basic and diluted earnings per share by 0.75 EUR per share

Newly adopted standards and interpretations
The adoption of these standards and interpretations did not have a significant effect on the financial
position or performance of the Company. The effect of renewed standards IFRS 3R and IAS 27R on the
financial position or performance of the Telekom Slovenia Group is disclosed in the Section Newly
adopted standards and interpretations in the Financial Report of the Telekom Slovenia Group.
Amendment to IFRS 2 - Cash-Settled Share-Based Payment Transactions in the Group
Amendments to IFRS 2 comprise three basic amendments: revised definition of share-based transactions
and agreements, the scope of IFRS2, and additional clarification of how to account for cash-settled share-
based payment transactions in the group. IFRIC 8 and 11 are replaced by the amendment.



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IFRS 3R - Business Combinations and IAS 27R – Consolidated and Separate Financial Statements
The revised standards were issued in January 2008 and become effective for financial years beginning on
1 July 2009. IFRS 3R introduces a number of changes in the accounting for business combinations that
will impact the amount of goodwill recognized, the reported results in the period that an acquisition
occurs, and future reported results. IAS 27R requires that a change in the ownership interest of a
subsidiary is accounted for as an equity transaction. Therefore, such a change will have no impact on
goodwill, nor will it give raise to a gain or loss. Furthermore, the amended standard changes the
accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes
introduced by IFRS 3R and IAS 27R must be applied prospectively and will affect future acquisitions and
transactions with minority interests.

IAS 39 - Financial Instruments: Recognition and Measurement – Eligible Hedged Items
These amendments to IAS 39 were issued in August 2008 and become effective for financial years
beginning on or after 1 July 2009. The amendment addresses the designation of a one-sided risk in a
hedged item, and the designation of inflation as a hedged risk or portion in particular situations. It clarifies
that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a
financial instrument as a hedged item.

IFRIC 17 - Distribution of Non-Cash Assets to Owners
IFRIC 17 became effective for annual periods beginning on 1 July 2009. The interpretation provides
guidance on how to account for non-cash distribution of assets to owners. The interpretation clarifies
when an entity should recognize the liability, how it should be measured, and how to recognize and
measure the related assets, as well as when such assets and liabilities should be derecognized in books
of accounts.

IFRIC 18 - Transfers of Assets from Customers
IFRIC 18 applies to transfers of assets from customers on or after 1 July 2009. The interpretation provides
guidance on how to account for property, plant and equipment transferred from customers or cash
received for acquisition or construction of certain assets. This guidance applies only to assets used by an
entity to connect the customer to a network or to provide the customer with an ongoing access to a supply
of goods, services or, in some cases, to do both. The entity must identify the service or services rendered
and allocate the received payment (the fair value of assets) to each identifiable service. Revenue should
be recognized on delivery or performance of each individual service by the entity.

Improvements/amendments to IFRS
In May 2008 the Board issued its first omnibus of amendments to its standards, primarily with a view to
removing inconsistencies and clarifying wording. There are separate transitional provisions for each
standard.

The adoption of these amendments did impact the changes in the Company's accounting policies
however, it did not have any impact on its financial position or performance.

IAS 1 – Presentation of financial statements.
Assets and liabilities held for trading under IAS 39 Financial Instruments: Recognition and measurement,
are not automatically classified as current in the balance sheet. As a result of the amended standards, the
Company did not reclassify its financial instruments from current to non-current assets or vice versa.

IAS 16 – Property, plant and equipment
Replace the term “net selling price” with “fair value less costs to sell”. Items of property, plant and
equipment held for rental that are routinely sold in the ordinary course of business after rental, are
transferred to inventory when rental ceases and they are held for sale.


IAS 23 – Borrowing costs
The definition of borrowing costs is revised to consolidate the two types of items that are considered
components of ‘borrowing costs’ into one - the interest expense calculated using the effective interest rate
method in accordance with IAS 39. The Company has amended its accounting policy accordingly.

IAS 38 – Intangible assets.
Expenditure on advertising and promotional activities is recognized as an expense when the Company
either has the right to access the goods or has received the service. The reference to there being rarely, if
ever, persuasive evidence to support an amortisation method of intangible assets other than a straight-line


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method has been removed. The Company has reassessed the useful lives of intangible assets and found
that the use of the straight-line method of amortization is appropriate.

The following amendments had no impact on the accounting policies of the Company, its financial position
or operations:

IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations

IFRS 7 – Financial Instruments: Disclosures

IAS 7 – Cash flow statement

IAS 8 - Accounting Policies, Change in Accounting Estimates and Errors

IAS 10 – Events after the Reporting period

IAS 19 – Employee Benefits

IAS 20 - Accounting for Government Grants and Disclosures of Government Assistance

IAS 27 - Consolidated and Separate Financial Statements

IAS 28 – Investments in Associates

IAS 29 - Financial Reporting in Hyperinflationary Economies

IAS 31 – Interests in Joint Ventures

IAS 32 – Financial Instruments: Presentation

IAS 34 – Interim Financial Reporting

IAS 36 – Impairment of Assets

IAS 39 – Financial Instruments: Recognition and Measurement

IAS 40 – Investment Property

IAS 41 - Agriculture – Additional biologic transformation

Improvements/amendments, issued in April 2009
In April 2009 the Board issued amendments to its standards, primarily with a view to removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The
adoption of these improvements did not have any impact on the financial position of the Company:

IFRS 2 - Share-Based Payments – specification when to apply IFRS 2 and IFRS 3

IFRS 5 - Non-current Assets Held for Sale – Disclosure

IFRS 8 - Operating Segments – Disclosure of Segments' assets

IAS 1 - Presentation of Financial Statements – current/non-current liabilities for swap instruments

IAS 7 - Statement of Cash Flows – classifying expenditure for unrecognized assets

IAS 17 - Leases – classifying land and buildings

IAS 18 - Revenue – designation whether an entity acts as a principal or an agent




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IAS 36 - Impairment of Assets – the maximum unit to which goodwill may be attributed
IAS 38 - Intangible Assets – amendments as a result of new IFRS 3 Standard and amendments in relation
to determining fair value

IAS 39 - Financial Instruments – assessment of liquidating damages for prepayment of a credit as a
derivative, cash flow hedges

IFRIC 9 - Reassessment of Embedded Derivatives – impact of IFRS 3 and IFRIC 9

IFRIC 16 – Hedges of a Net Investment in a Foreign Operation– amendment of restriction to an entity
allowed to have a hedge

Improvements/amendments issued in May 2010
In May 2010 the IASB issued Improvements to IFRSs, and an omnibus of amendments to its IFRS
standards. The amendments have not been adopted as they become effective for annual periods
beginning on or after either 1 July 2010 or 1 January 2011.

IFRS 3 - Business Combinations

IFRS 7 - Financial Instruments: Disclosures

IAS 1 - Presentation of Financial Statements

IAS 27 - Consolidated and Separate Financial Statements

IFRIC 13 - Customer Loyalty Programmes

c. Functional currency and foreign currency transactions
The separate financial statements of Telekom Slovenije, d.d. are presented in euro (EUR) which is the
functional and presentation currency of the Company and its subsidiaries in Slovenia. Foreign currency
transactions are translated into the functional currency at the exchange rate ruling at the date of the
transactions.

Monetary assets and liabilities in foreign currency are translated at the exchange rate of the functional
currency prevailing at the balance sheet date. All differences resulting from foreign currency translation
are recognized in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are
translated using the exchange rates prevailing at the dates of the initial transactions. Non-monetary
assets and liabilities measured at fair value in a foreign currency are translated using the exchange rates
at the date when the fair value was determined.

d. Profit from operations
Profit from operations is defined as the result before income taxes and finance items. Finance items
comprise interest revenue on cash balances in the bank, deposits, interest bearing available-for-sale
investments, interest expense on borrowings, gains and losses on sale of available-for-sale financial
instruments and foreign exchange gains and losses on all monetary assets and liabilities denominated in
foreign currency.
e. Significant accounting estimates
The preparation of the financial statements requires management to make certain estimates and
assumptions which impact the carrying values of the Company’s assets and liabilities and the disclosure
of contingent items at the balance sheet date and reported revenues and expenses for the period then
ended.
Estimates are used for, but not limited to:
- depreciable lives and residual values of property, plant and equipment and intangible assets,
- allowances for inventories and doubtful debts and
- legal claims.

Future events and their effects cannot be perceived with certainty. Accordingly, the accounting estimates
made require the exercise of judgment and those used in the preparation of the financial statements will




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change as new events occur, as more experience is acquired, as additional information is obtained and as
the Company’s operating environment changes. Actual results may differ from those estimates.
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance
sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are discussed below.


Provisions and contingent liabilities
As set out in Notes 24 and 31 the Company is a participant in several lawsuits and administrative
proceedings including those related to its pricing policies.
The Company’s treatment of obligations with uncertain timing and amount depends on the management’s
estimation of the amount and timing of the obligation and probability of an outflow of resources embodying
economic benefits that will be required to settle the obligation (both legal or constructive).
A provision is recognized when the Company has a present obligation as a result of past events, it is
probable that an outflow of resources will be required to settle the obligation and a reliable estimate can
be made of the amount of the obligation.
Contingent liabilities are not recognized because their existence will be confirmed only by the occurrence
or non-occurrence of one or more uncertain future events not wholly within the control of the Company.
Contingent liabilities are assessed continually to determine whether an outflow of resource embodying
economic benefits has become probable. If it becomes probable that an outflow of future economic
benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized
in the financial statements of the period in which the change in probability occurs.

Interconnect
The Company provides and enters into contracts for interconnect services and the revenue is recognized
on the basis of the reasonable estimation of the expected amount. Such estimation is regularly reviewed,
however for some operators, final agreements and invoicing is determined on a yearly basis or even more
frequently.

f. Significant management judgements
In the process of applying the accounting policies, management had to make a judgment concerning the
value of intangible assets and property, plant and equipment, apart from those involving estimations,
which has the most significant effect on the amounts recognized in the financial statement.
The Company has concluded that there are no indicators of impairment of property, plant and equipment
and intangible assets at year-end and there are no indicators that fair values of property, plant and
equipment and intangible assets differ materially from their carrying values.

g. Early adoption of IFRSs and IFRICs not yet effective
The Company has not early adopted any standards or interpretations issued and not yet effective.
The following amended IFRSs will be adopted in future periods as required by International
Financial Reporting Standards:

Amendment to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for first time adopters.

IAS 24 – Related Party Disclosures
Applicable for periods beginning after 1 January 2011. Amendments to IAS 24 define in more detail and
simplify definition of a related party. Furthermore the amended standard reduces the scope of disclosures
of transactions of a government owned entity with the government and other government owned entities.

IAS 32 Financial Instruments: Presentation, Classification of the Option to Purchase Shares Denominated
in a Foreign Currency
Applicable for periods beginning on or after 1 January 2010. The amended Standard allows an entity
issuing puttable financial instruments denominated in foreign currency not to account for these rights as
derivatives but rather to recognize the effects in the profit or loss. These rights are classified as equity if
they fulfil a number of specified criteria.

IFRIC 14 Prepayments of a minimum funding requirement (Amendment)


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The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with
retrospective application. The amendment provides guidance on assessing the recoverable amount of a
net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding
requirement as an asset.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments: IFRIC 19 is effective for annual
periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a
creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are
measured at their fair value. In case that this cannot be reliably measured, the instruments are measured
at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss.
The adoption of this interpretation will have no effect on the financial statements of the Company.

The following new and amended standards and interpretations will be adopted in future periods as
required by International Financial Reporting Standards and if endorsed by the EU

IFRS 9 – Financial Instruments
The Standard replaces IAS 39 and is applicable for periods beginning on 1 January 2013. The first part of
the standard introduces new requirements for classifying and measuring financial assets.

Amendment to IFRS 7 - Financial instruments - Disclosures to enhance the transparency of disclosure
requirements for the transfer of financial assets.
Issued in October 2010. The amendments will assist users to understand the implications of transfers of
financial assets and the potential risks that may remain with the transferor.

IAS 34 - Interim Financial Reporting
Effective for annual periods beginning on or after 1 January 2011. This improvement provides guidance to
illustrate how to apply disclosure principles in IAS 34 and add disclosure requirements.

IAS 12 - Deferred tax: Recovery of Underlying Assets (Amended)
The amendment is effective for annual periods beginning on or after 1 January 2012. This amendment
concerns the determination of deferred tax on investment property measured at fair value. The aim of this
amendment is to include a) a rebuttable presumption that deferred tax on investment property measured
using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be
recovered through sale and b) a requirement that deferred tax on non-depreciable assets, measured
using the revaluation model in IAS 16, should always be measured on a sale basis.

The Company is reviewing the not yet effective standards and interpretations and at this stage cannot
reasonably assess the impact of the new requirements. The Company will comply with new standards and
interpretations as and when effective.

h. Intangible assets
Intangible assets are stated at cost less accumulated amortisation less impairment losses.
Intangible assets include:
- software licences,
- software acquired separately from hardware and used for more than one year, and
- other intangible assets.

Expenditure on computer software is capitalised at cost and amortized on a straight-line basis over its
estimated useful lives, which ranges from 3 –5 years. The cost of licenses is capitalised and amortized on
a straight-line basis over the contract period of the relevant license, which is 2-5 years.
Intangible assets are subject to amortisation once the assets are available for use.
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic
benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Useful lives of significant items of intangible assets are reassessed on an annual basis and if expectations
differ significantly from earlier estimates, amortisation rates are restated. The effect is explained in the
report of the period in which the change occurred.

Furthermore, at year end, the Company checks for any indications of impairment of intangible assets and
if so, the recoverable amount of such assets is determined.



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i. Property, plant and equipment
Property, plant and equipment owned by the Company are stated at cost or revaluation less
accumulated depreciation and impairment losses.
The cost of an item of property, plant and equipment includes all expenditures that are necessary to make
the asset ready for its intended use including costs of preparing the construction site and easement fees.
The cost of an asset may include the initial assessment of costs of dismantling, removal and restoration
providing the relevant project exists. At the year-end an assessment is made of any changes in the
estimated costs.

Costs of borrowing that may be directly attributed to the acquisition, construction or production of an
asset under construction are also a part of the cost of an item of property, plant and equipment.

The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate
proportion of production overheads. Internal expenses capitalised in fixed assets are recognized in the
profit or loss on a monthly basis as a reduction of costs in line with the calculation of work orders and
projects.

When an item of property, plant and equipment comprises major components having different useful lives,
these components are accounted for as separate items of property, plant and equipment.
Subsequent to initial recognition certain classes of property, plant and equipment are carried at cost, while
land, buildings and cable and lines are carried at fair value on the revaluation day less cost of
depreciation and impairment losses. The revaluation to fair value of these assets is based on a report of
an independent appraiser. When an asset's carrying amount is increased as a result of a revaluation, the
increase is credited directly to equity as a revaluation reserves in the statement of comprehensive income
after the deduction of deferred tax liabilities.

Transfer of the amount of depreciation on the restated portion of property, plant and equipment from fixed
asset's revaluation reserves to retained earnings is carried out by the Company on an ongoing basis.

The Company assesses annually whether there are any internal or external business circumstances that
could provide significant indication that the fair value of the assets should be determined i.e. that the
assets should be impaired. Fair value is determined with the assistance of an independent appraiser
whenever, due to business circumstances, the need arises.

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are
classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an
amount equal to the lower of its fair value and the present value of the minimum lease payments at
inception of the lease, less accumulated depreciation and impairment losses. Property, plant and
equipment acquired under finance leases are depreciated over the useful life of the asset.
If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the
property, plant and equipment acquired under finance leases are depreciated over the shorter of the
useful life of the asset or the lease term.
All leases other than finance leases are regarded as operating leases. Lease payments under an
operating lease are recognized as an expense in the income statement on a straight-line basis over the
lease term.
If the operating lease contract is terminated prior to the expiration of the lease term, each lease payment
required by the lessor as a penalty for the breach of contract is recorded as expense in the period, in
which the contract is terminated.
Subsequent expenditure incurred to replace a component of an item of property, plant and equipment is
capitalised. Other subsequent expenditure is capitalized only when it increases the future economic
benefits embodied in the item of property, plant and equipment. All other expenditure is recognized in the
income statement as an expense when incurred.
In the event of subsequent expenditure on the asset, the remaining useful life of the asset is re-assessed.
If the asset has already been fully depreciated, the subsequent expenditure is treated as a new item with
new useful life.




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Government grants related to assets are presented in the balance sheet as deferred income in the
amount of the grant. They are intended to compensate the costs of depreciation of these assets. The
grant is recognized as income on a straight-line basis over the life of the depreciable asset.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives
of items of property, plant and equipment. In a fiscal year, depreciation is allocated to individual periods
on a straight-line basis.
Depreciation is calculated individually and the Company is free to determine annual depreciation rates
based on the useful life of an individual item of property, plant and equipment.


The estimated useful lives of property, plant and equipment are as follows
 Groups of property, plant and equipment                                  Useful lives in years

 - buildings                                                                     7 to 50
 - cable lines                                                                  20 to 50
 - cable network                                                                 7 to 25
 - exchange switches                                                             4 to 7
 - other equipment                                                               2 to 20


Land and assets under construction are not depreciated.
An item of property, plant and equipment under construction is recognized at cost and depreciated when
brought to working condition for its intended use.
Useful lives of significant items of property, plant and equipment are reassessed on an annual basis and if
expectations differ significantly from earlier estimates, amortisation rates are restated. The effect is
explained in the report of the period in which the change occurred.

Furthermore, at year end, the Company checks if there are any indications of impairment of an item of
property, plant and equipment and if so, the recoverable amount of such assets is determined.


j. Investments
Initially, investments are measured at fair value increased by the cost of transaction that arise directly
from the acquisition or issue of a financial instrument with exception of assets classified at fair value
through profit or loss.
Investments in subsidiaries are accounted for at cost less impairment loss in the separate financial
statements.
Investments in associates and joint ventures are carried at cost less impairment in the separate
financial statements.
Investments in debt and equity securities classified as available-for-sale financial assets are carried at fair
value.

The fair value of investments in debt and equity securities listed on the stock exchange is their quoted
price. If the financial instruments are not listed on the stock exchange and their fair value cannot be
reliably determined, they are stated at cost.
Any unrealized gains or losses arising on revaluation are recognized in the net amount directly in equity in
the statement of comprehensive income. When an investment is derecognized, accumulated gains or
losses previously recognized in equity are also derecognized and transferred to the profit or loss. The
reclassification is recognized in the statement of comprehensive income.

Available-for-sale investments are recognized (or derecognized) on the date of commitment to purchase
or sell (trade date).
Interest on debt securities is recognized in the income statement at the effective interest rate.
Loans are stated at amortized cost less impairment losses.


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The Company assesses at each balance sheet date whether financial assets or groups of financial
assets are impaired. If the value of an item of the financial assets has been significantly or permanently
reduced, an allowance of its initial value is charged to revaluation financial expenses.

At each balance sheet date it is assessed whether there is objective evidence that an impairment loss on
loans carried at amortized cost has been incurred. The amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows discounted at
the financial asset’s original effective interest rate. The carrying amount of the asset is reduced either
directly or through use of an allowance account. The amount of the loss is recognized in the income
statement as revaluation financial expenses.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment loss was recognized, the previously recognized
impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the income
statement and only to the extent that the carrying amount of the financial asset does not exceed its
amortized cost at the reversal date.

If an available-for-sale asset is impaired, an amount comprising the difference between its acquisition
cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss
previously recognized in profit or loss, is transferred from equity to the income statement with the
reclassification recognized in the statement of comprehensive income.
For debt instruments, classified as an available-for-sale financial asset, if, in a subsequent period, the
amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed
through profit or loss.
A financial asset is de-recognized when:
- the rights to receive cash flows from the asset have expired,
- the Company retains the right to receive cash flows from the asset, but has assumed
     an obligation to pay them in full without material delay to a third party under a “pass-through”
     arrangement, or
- the Company has transferred its rights to receive cash flows from the assets and either has
     transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained
     substantially all the risks and rewards of the asset, but has transferred control of the asset.

k. Derivative financial instruments
Derivative financial instruments are used to hedge the Company’s exposure to risks arising from financing
and investing activities.
Derivative financial instruments are recognized at fair value. The method of recognition of gains or losses
arising from the change in fair value depends upon whether hedge accounting has been applied or not.
When hedge accounting has been applied the recognition of gains or losses arising from the change in
fair value depends on the type of hedging:
- when a derivative instrument is designated as a hedge of the exposure to variability in cash flows
     attributable to a particular risk associated with a recognized asset or liability or a highly probable
     forecasted transaction, the portion of the gain or loss on the hedging instrument that is determined to
     be an effective hedge is recognized directly in equity in the statement of comprehensive income.
     When the forecasted transaction results in the recognition of an asset or a liability, the associated
     cumulative gains or losses that were recognized directly in equity are removed from equity and
     entered into the initial measurement of the acquisition cost or other carrying amount of the asset or
     liability. For all other cash flow hedges, amounts that have been recognized directly in equity are
     included in net profit or loss in the same period during which the hedged forecasted transaction
     affects net profit or loss. The reclassification is recognized in the statement of comprehensive income.
- the ineffective portion of the cash flow hedge is immediately recognized in the income statement.
When hedge accounting has not been applied, derivative financial instruments are accounted for at fair
value with changes in fair value recognized in the income statement.
If the hedging instrument expires, yet the forecasted transaction is still expected to occur, the cumulative
gain or loss on the hedging instruments that initially had been reported directly in equity when the hedge


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was effective remains separately in equity until the forecasted transaction occurs. If the forecasted
transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that
initially has been reported directly in equity is transferred to the income statement. The reclassification is
recognized in the statement of comprehensive income.

l. Other non-current assets
Prepaid rentals and compensations are deferred over the contract period and are progressively
transferred to rental expenses. Rentals are prepaid for a period ranging from 3 to 29 years.
Sale incentives given to subscribers are recognized in the amount by which the equipment’s cost
exceeds its selling price, under the condition that subsidies shall be covered by the average subscription
fee earned over the expected life of the subscriber contract.
Therefore, the difference between the selling price and the cost is reported within deferred costs over the
expected subscription period.
Over the period of the subscription agreement, deferred costs are amortized proportionally to the cost of
sale incentives, starting at the inception of the contractual period.
If a subscription agreement is terminated or a subscriber is disconnected from the network due to non-
payment of bills, subsidies are impaired accordingly.

m. Investment property
Investment property is stated at cost comprising purchase price and costs that may be directly attributed
to the acquisition. Subsequent to initial recognition, investment property is stated at cost less accumulated
depreciation.

Depreciation is calculated on a straight-line basis over the useful lives of the assets. Land is not
depreciated.

The estimated useful life of investment property is the same as for other similar items of property, plant
and equipment unless specifically determined in the accompanying document.

Estimated useful life of investment property
 Investment property                                                     Useful lives in years

 - buildings                                                                   20 to 50



n. Inventories
A quantity unit of inventories of materials and merchandise is stated at cost comprising purchase price
inclusive of discounts granted, import duties and other non-refundable purchase duties, as well as costs
directly attributable to the acquisition.
Inventories of materials consumed and merchandise sold are accounted for under the moving average
price method.

Low-value inventories are expensed when they are put to use. The Company maintains special records
by quantity and value.

Slow–moving inventories are written down to net realisable value. Net realisable value is the estimated
selling price in the ordinary course of business, less the estimated costs of completion and selling
expenses.
At year-end, inventories are revalued to account for impairment if their carrying value exceeds their net
realisable value.

o. Trade and other receivables
Trade receivables are recognized at cost less any impairment losses.




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Allowances for trade receivables due from local customers are based on the maturity of individual
receivables, while the amount of allowance for individual classes of trade receivables is based on the
assessed likelihood of their recovery.

Allowances for foreign trade receivables are made individually based on the list of receivables prepared
by the Sector for Operators, Foreign Operators Services, quarterly and at the year-end.

Receivables due from subsidiaries and those for which individual agreement has been concluded, are not
included in receivables due from local and foreign customers for which allowances are made.

In certain cases, allowances may be made of individual receivables. Other receivables include short-term
accrued income and short-term deferred costs associated with international services and deferred costs of
advanced payment of rent and postal stationery.


p. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with maturities of
up to three months with insignificant risk of change in fair value.

r. Dividends
Dividends are recognized as a liability in the period in which they are declared.

s. Non-current deferred income
Non-current deferred income comprises co-locations billed in advance and lease of optics as well as
government grants for fixed assets which are recognized in the amount of non-refundable monetary
assets received.

Non-current deferred income from co-locations and leases are transferred to operating revenue over
contractually agreed term of lease or co-location. Government grants are used to cover depreciation costs
of assets acquired with the grant and are expensed by transferring them to operating revenue in line with
the computed depreciation.

t. Provisions
A provision is recognized in the financial statements when the Company has a present legal or
constructive obligation as a result of a past event, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation. If material, the provisions are determined by discounting the expected future
cash flows.

Provisions for probable liabilities from legal actions are formed on the basis of the estimation of the
actions' outcome in consultation with legal advisors.

Provisions for termination benefits and anniversary bonuses
In accordance with the statutory requirements, the collective agreement, and the internal rules and
regulations, the Company is obligated to pay jubilee benefits and termination benefits upon retirement.
Provisions were calculated in 2010 using the discount rate of 4.125%, while personnel turnover rate is
considered in terms of age intervals and ranges from 0% to 1.3% (2009: discount rate of 4.625%,
personnel turnover rate from 0% to 3%).

Provisions are formed in the amount of estimated future payments of termination benefits and jubilee
benefits discounted at the balance sheet date. A calculation is made per individual employees taking into
account the cost of termination benefit upon retirement and the cost of all expected anniversary benefits
by the time of retirement, using the projected unit credit method. At each year-end, the amount of
provisions is assessed and either increased or decreased accordingly.

The Company has no other pension liabilities.

u. Interest bearing borrowings
Interest-bearing borrowings are recognized initially at amounts from relevant documents that evidence the
receipt of cash or payment of an operating debt, which is their fair value.




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Subsequent to initial recognition interest bearing borrowings are stated at amortized cost with any
differences between cost and the redemption value being recognized in the income statement over the
terms of the loans on an effective interest rate basis.

If the actual or agreed rate of interest does not significantly differ from the effective rate of interest, interest
bearing borrowings are reported in the balance sheet at initial value reduced by any repayments.

v. Trade and other liabilities
Trade and other payables are initially stated at cost. Subsequent to initial recognition, trade and other
payables are stated at amortized cost.

z. short-term deferred items
Short-term deferred income includes accrued subscription fees carried in the amounts invoiced a
month in advance, and short-term deferred revenue from international services assessed on the basis
of services rendered for which calculations have not yet been confirmed.

Accrued costs comprise costs of holidays not taken, accrued payroll costs, awards and costs of
international services assessed on the basis of services rendered for which invoices have not yet been
issued.

aa. Revenue
Revenue includes the sales value of goods sold and services rendered in the accounting period.

Revenue from services is recognized when services are rendered and there are no significant
uncertainties regarding the recovery of the consideration due.

Revenue consists principally of monthly subscription fees, connection fees, revenue from call charges and
charges for other services, revenue from the provision of interconnection services, revenue from network
lease and revenue from sale of merchandise.

Revenue from monthly subscription fees is recognized in the period to which it relates.

Revenue from connection fees is recognized at the time of conclusion of the agreement with the
customer.

Revenue from call charges and other services rendered to the users is recognized in the period in which
calls are made or services are rendered.

Revenue from interconnection services and network lease is recognized in the period in which services
are provided.

Revenue from sale of merchandise is recognized when the sale is made.

Revenue from voice services with added value is recognized in net amounts in the period in which
services are provided.

Under the customer loyalty programme, customer loyalty credits are accounted for as a separate
component of the sales transaction in which they are granted.

ab. Finance income
Interest income is recognized in the income statement as the interest accrues (using the effective interest
method) to the net carrying amount of the financial assets.

Dividend income is recognized in the income statement on the date dividends are declared.

ac. Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognized in the income
statement except to the extent that it relates to items recognized directly in equity, in which case it is
recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the
balance sheet date, and any adjustments to tax payable in respect of previous years.



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Deferred tax is provided using the balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amounts of assets and liabilities, using tax rates enacted at the
balance sheet date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profit will be
available against which the deductible temporary differences can be utilised.

A deferred tax asset or liability is recognized irrespective of the time period in which temporary differences
are settled.

Deferred tax is charged or credited directly to equity, if the tax relates to items that are credited or
charged, in the same or a different period, directly to equity.

ad. Statement of cash flows

The statement of cash flows is compiled under the indirect method based on data from the balance sheet
as at 31 December 2010 and 31 December 2009, profit and loss items for the financial year 2010, and
additional information necessary to make adjustments of cash inflows and outflows. All significant
adjustments were taken into account in the statement of cash flows for the year ended 31 December 2010
(dividend offsetting was not eliminated and the netting of revolving loans granted and received was
made).


2. Revenue

                                                                                                   EUR '000
                                                                               2010                    2009
Voice telephony                                                             115,119                 133,289
     Voice transfer through IP network
                                                                               5,845                   4,847
Internet and broadband access                                                83,537                  75,689
Interconnections                                                             25,703                  27,344
      International operator services
                                                                             66,189                  70,159
Bandwidth lease and data transmission                                        49,432                  46,813
    Unbundled access and collocations
                                                                             10,343                  14,563
Voice services with added value                                                3,768                   2,612
Sale of advertising space                                                       827                      32
Other services                                                                 9,618                 10,790
Sale of merchandise and materials                                            10,417                    9,578
Other revenue                                                                   370                     774
Total revenue                                                               381,168                 396,490


                                                                                                   EUR '000
                                                                                2010                   2009
Revenue from sale of services in domestic market                             304,562                316,753
Revenue from sale of services in foreign markets                              66,189                 70,159

Revenue from sale of merchandise and materials in domestic
market                                                                        10,417                  9,578
Total revenue                                                                381,168                396,490




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3. Other operating income

                                                                                 EUR '000
                                                                      2010          2009
Government grants                                                      160           189
Gains on disposal of fixed assets                                      218             0
Other revaluation operating income                                      21             0
Other income                                                           964          1.785
Total other operating income                                          1,363          1,74


4. Costs of services

                                                                                 EUR '000
                                                                      2010          2009
Communication and transport services, and rent                        4.750         4.939
Maintenance                                                          21.720        23.797
Telecommunication services                                           85.924        95.650
Costs of leased lines                                                 5.367         4.688
Sale incentives                                                       6.195         6.415
Professional services                                                 5.729         8.313
Insurance, marketing and entertainment                                6.955         8.500
Sales commission                                                      1.583         1.662
Banking services                                                       702          1.575
Multimedia services                                                  32.735        29.464
Other services                                                        5.725         6.589
Total costs of services                                             177.385       191.592


5. Staff costs
                                                                                 EUR '000
                                                                      2010          2009
Wages and salaries                                                   51,072        52,347
Social security contributions                                        11,649        11,382
- There of: pension contributions                                     5,132         4,823
Other staff costs                                                    14,492        10,580
Total                                                                77,213        74,309

In 2010, on average 1,796 (2009: 1,861) of staff were employed in the Company.
.
6. Other operating expenses

                                                                                 EUR '000
                                                                      2010          2009
Provisions (Note 24)                                                  6,264          207
Loss from sale of property, plant and equipment                           0         1,387
Impairment charge of current assets                                  15,484         6,150
Other expenses                                                        1,284         4,434
Total                                                                23,032        12,178



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7. Finance income

                                                                                            EUR '000
                                                                         2010                  2009
Dividend income                                                         41,749                57,760
Interest income                                                         16,767                15,453
Exchange rate gains                                                         58                    0
Total finance income                                                    58,574                73,213

8. Finance expenses

                                                                                            EUR '000
                                                                         2010                  2009
Finance expenses from bonds issued                                      15,122                  456
Interest expense                                                         5,918                24,865
Exchange rate losses                                                         0                    41
Change in fair value of derivative financial instruments                   891                 3,153
Investment impairment                                                  265,955                    0
Other finance expenses                                                   8,078                    0
Total finance expenses                                                 295,964                28,515

In the second half of 2010, Telekom Slovenije, d.d checked fair values of its investments in the following
subsidiaries: One, One to one, On.net d.o.o. Skopje and Digi Plus Multimedia dooel Skopje in Macedonia;
Ipko Telecommunications d.o.o. in Kosovo; Primo Communications d.o.o. in Albania, Aneks d.o.o. in the
Republic of Serbia and Najdi, informacijske storitve in Slovenia.

The Company recognized impairment of its investments in subsidiaries to the amount of the difference
between the carrying amount and the recoverable amount of the investments, and recognized the
impairment in the income statement as a revaluation financial expense. The amount of impairment of
individual investments is disclosed in Note 13 Investments in subsidiaries, associates and joint
ventures. Other finance expenses refer to the impairment of a loan granted to the company One in the
amount of EUR 7,889 thousand and EUR 189 thousand of interest on finance lease.

9. Income tax

Income tax expense recognized in the profit or loss:

                                                                                            EUR '000

                                                                         2010          2009 adjusted
Current tax expense                                                     -4,707                -3,678
Deferred tax income/expense                                              4,987                 1,823
Income tax expense in the profit or loss                                   280                -1,855

Reconciliation of actual and computed tax expense taking into account effective tax rate:

                                                                                            EUR '000

                                                                         2010          2009 adjusted
Profit/loss before tax under IFRS                                     -235,692                64,086
Income tax using the domestic corporate tax rate of 20%
(21% in 2009)                                                           47,138               -13,458




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Tax relief for dividends                                                  7,932              11,523
Tax incentives used in the current period                                   683                 862
Elimination of tax incentives used in previous years                          0                  -26
Change in tax rate                                                            0                  -37
Impairment of non-current investments                                 -54,660                     0
Non-deductible expenses                                                    -813                -719
Other items                                                                   0                   0
Total income tax                                                            280               -1,855

Effective tax rate applicable in 2010 was 0.12% (2009 adjusted: 2,89%).

In accordance with Slovenian income tax regulations, the Company is entitled to an annual tax incentive
in an amount equal to 20% of investments in research and development, and 30% of the amount invested
in equipment to a maximum of EUR 30,000.

Deferred tax recognized in the income statement is attributable to the following items:


                                                                                           EUR '000

                                                                           2010       2009 adjusted
Property, plant and equipment                                             1,562               1,996
Investments                                                                 110                   0
Provisions                                                                  608                -127
Receivables                                                               2,735                  -18
Accrued costs                                                               -28                  -28
Deferred tax assets/liabilities                                           4,987               1,823


Deferred tax recognized in equity

                                                                                           EUR '000

                                                                           2010       2009 adjusted

Change in fixed assets revaluation reserve                                -7,925                  0

Change in fair value of available-for sale investments                      -18                -119
Change in fair value of financial instruments designated as
hedges                                                                     -195                  -20
Restatement of deferred tax liabilities                                       0                   0

Deferred tax assets/liabilities                                           -8,138               -139


10. Earnings per share

Earnings per share are calculated by dividing the profit attributable to equity holders of the Company by
the weighted average number of ordinary shares in issue during the year.

The weighted average of ordinary shares in issue during the year is calculated by reference to shares in
issue during the period, considering any potential redemptions and sales in that period and the period
during which these shares generated profit. Diluted earnings per share also include all potential ordinary
shares that originated in exchangeable bonds, options and forward contracts. When calculated, earnings
and the number of shares are adjusted for effects of all adjustable potential ordinary shares that would
occur if they would be swapped for ordinary shares in the accounting period.



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                                                                                                           EUR '000
                                                                                   2010            2009 adjusted
Net profit attributable to holders of ordinary shares of
the parent company                                                            -235,412                       62,231
Adjusted net profit attributable to holders of ordinary
shares of the parent company                                                  -235,412                       62,231
Weighted average number of ordinary shares for net
earnings per share                                                           6,505,478                     6,505,478
Adjusted average number of ordinary shares for net
earnings per share                                                           6,505,478                     6,505,478

11. Intangible assets

Movement in intangible assets

                                                                                                               EUR '000

                                                                                 Other
                                                                            intangible    Intangibles in
2010                                   Goodwill   Licences     Software         assets     construction            Total

COST
Balance on 1 Jan 2010                        0     11,818          31,410          86           10,040           53,354
Additions                                    0          0              0            0             8,222           8,222
Transfer to use                              0      2,971          14,379           0          -17,350                  0
Disposal                                     0          -6            -95           0                 0            -101
Balance on 31 Dec 2010                       0     14,783          45,694          86               912          61,475
ACCUMULATED
AMORTIZATION
Balance on 1 Jan 2010                        0      5,397          18,996          70                 0          24,463
Additions                                    0        257              0            0                 0                257
Disposal                                     0          -5            -93           0                 0                -98
Amortization                                 0      2,238           5,879           6                 0           8,123
Balance on 31 Dec 2010                       0      7,887          24,782          76                 0          32,745

CARRYING AMOUNT
Balance on 1 Jan 2010                        0      6,421          12,414          16           10,040           28,891
Balance on 31 Dec 2010                       0      6,896          20,912          10               912          28,730
Movement in intangible assets

                                                                                                               EUR '000

                                                                                 Other
                                                                            intangible    Intangibles in
2009                                   Goodwill   Licences     Software         assets     construction            Total
COST
Balance on 1 Jan 2009                        0     12,139          27,506          86             8,330          48,061
Additions                                    0          0              0            0             6,962           6,962
Transfer to use                              0        954           4,298           0            -5,252                 0
Disposal                                     0      -1,275           -394           0                 0           -1,669
Balance on 31 Dec 2009                       0     11,818          31,410          86           10,040           53,354
ACCUMULATED
AMORTIZATION
Balance on 1 Jan 2009                        0      4,669          14,720          64                 0          19,453
Disposal                                     0      -1,275           -340           0                 0           -1,615
Amortization                                 0      2,003           4,616           6                 0           6,625
Balance on 31 Dec 2009                       0      5,397          18,996          70                 0          24,463




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CARRYING AMOUNT
Balance on 1 Jan 2009                     0         7,470          12,786               22            8,330      28,608
Balance on 31 Dec 2009                    0         6,421          12,414               16           10,040      28,891

There are no restrictions in place as regards the Company's ownership of its intangible assets and neither
are any items of intangible assets pledged as collateral.

Contractual obligations for intangible assets amounted to EUR 524 thousand as at 31 December 2010
and mainly relate to the implementation of the »Revenue Assurance« and »Billing« systems.

12. Property, plant and equipment

Movement in property, plant and equipment

                                                                                                               EUR '000

                                           Land and
                                           buildings,                                                Assets
                                          cable duct          Cable     Switching          Other      under
2010                                         system         network    exchanges      equipment construction       Total
COST
Balance on 1 Jan 2010                         268,529       852,347         282,147     321,202      18,652    1,742,877
Additions                                          0               0             0            0      35,943      35,943
Revaluation                                    -2,771              0             0            0           0       -2,771
Transfer from assets under construction         6,062        13,351           2,321      20,737      -42,471          0
Disposal, write-offs                           -6,923              0           -901     -11,441        -220      -19,485
Balance on 31 Dec 2010                        264,897       865,698         283,567     330,498      11,904    1,756,564

ACCUMULATED DEPRECIATION
Balance on 1 Jan 2010                          53,590       593,878         248,099     224,257           0    1,119,824
Revaluation                                   -42,385              0             0            0           0      -42,385
Additions                                                                                    12                      12
Depreciation                                    9,749        27,542          10,218      30,758           0      78,267
Disposal, write-offs                             -701              0           -843     -10,349           0      -11,893
Balance on 31 Dec 2010                         20,253       621,420         257,474     244,678           0    1,143,825

CARYING AMOUNT
Balance on 1 Jan 2010                         214,939       258,469          34,048      96,945      18,652     623,053
Balance on 31 Dec 2010                        244,644       244,278          26,093      85,820      11,904     612,739




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Movement in property, plant and equipment

                                                                                                           EUR '000

                                           Land and
                                           buildings,                                            Assets
                                          cable duct       Cable      Switching        Other      under
2009                                         system      network     exchanges    equipment construction       Total
COST
Balance on 31 Dec 2008 – original           134,863     1,019,045      278,811      303,700      27,753    1,764,172
Change of accounting policy                               -60,872                                            -60,872
Balance on 1 Jan 2009 – adjusted            134,863      958,173       278,811      303,700      27,753    1,703,300
Additions                                          0                         0            0      64,024      64,024
Transfer from assets under construction       2,451       27,285         6,577       36,393      -72,706          0
Disposal, write-offs                          -1,417          -479       -3,241     -18,891        -419      -24,447
Transfer of cable duct system               132,632      -132,632                                                 0
Balance on 31 Dec 2009                      268,529      852,347       282,147      321,202      18,652    1,742,877

ACCUMULATED DEPRECIATION
Balance on 31 Dec 2008 – original             7,971      609,386       239,816      213,266           0    1,070,439
Change of accounting policy                                -6,101                                             -6,101
Balance on 1 Jan 2009 – adjusted              7,971      603,285       239,816      213,266           0    1,064,338
Depreciation                                  3,310       33,536        11,260       28,498           0      76,604
Disposal, write-offs                            -156          -478       -2,977     -17,507           0      -21,118
Transfer of cable duct system                42,465       -42,465                                                 0
Balance on 31 Dec 2009                       53,590      593,878       248,099      224,257           0    1,119,824

CARRYING AMOUNT
Balance on 31 Dec 2008 – original           126,892      409,659        38,995       90,434      27,753     693,733
Change of accounting policy                               -54,771                                            -54,771
Balance on 1 Jan 2009 – adjusted            126,892      354,888        38,995       90,434      27,753     638,962
Balance on 31 Dec 2009                      214,939      258,469        34,048       96,945      18,652     623,053

As from the financial year 2010, the Company changed its accounting policy of measurement of cable
network subsequent to initial recognition (with exception of the cable duct system, switching
exchanges and some other items of equipment) from the revaluation model to the cost model. The
effects and detailed explanation are provided in Section b. Summary of significant accounting policies,
Chapter 1 General information.

Land and buildings and the cable duct system are carried at fair value, whereas other items of
property, plant and equipment are stated at cost.
Land and buildings were valued by a licensed valuer to fair value as at 1 January 2007 using
comparable market prices. The licensed valuer of real estate checked the assumptions used in this
valuation as at 30 September 2010 and issued an opinion stating that additional revaluation was not
necessary.

Cable ducts were valued by a licensed valuer as at 1 January 2010 using the depreciated replacement
cost method as no comparable prices are available for these assets. As a result of this valuation, the
Company recognized a revaluation in the amount of EUR 39,627 thousand and an impairment loss in
the amount of EUR 13 thousand.

Property, plant and equipment are free of encumbrances. As at 31 December 2010, the Company reported
EUR 8,517 thousand of commitments for property, plant and equipment (31 December 2009: EUR 8,616


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thousand) which relate primarily to the construction of telecommunications network and supply of
telecommunications equipment.

As at 31 December 2010, the carrying amount of equipment under finance lease was EUR 2,193
thousand.

13. Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries

The Company holds a controlling interest in the following subsidiaries:

                                                                                    EUR '000

Subsidiary                                 2009 Enhancement        Impairment          2010


Mobitel, d.d.                            198,485              0                0     198,485
GVO, d.o.o.                                5,758              0                0       5,758
Najdi, informacijske storitve, d.o.o.     11,469              0                0      11,469
Avtenta.si d.o.o.                          1,723              0                0       1,723
Planet 9 d.o.o.                               7               6                0         13
Ipko Telecommunications d.o.o.           101,522         13,502       -108,334         6,690
On.net d.o.o. Skopje                       9,699              0            -9,699          0
Aneks d.o.o. Banja Luka                   10,353          5,070            -5,823      9,600
Primo Communications d.o.o.                7,725          2,575            -7,700      2,600
Siol d.o.o.                                 501               0                0        501
SIOL B.V. in liquidation                  92,909              0           -92,909          0
One d.o.o. Skopje                             0          40,000           -40,000          0
One to one AD Skopje                        245               0             -245           0
Digi Plus Multimedia dooel
Skopje                                      699               0             -699           0
Total investments in
subsidiaries                             441,095         61,153       -265,409       236,839

Telekom Slovenije d.d. has a 100% economic ownership in all of its subsidiaries as a result of
acquiring put options and granting call options to minority shareholders. Accordingly, the Company
recognized an increase of total EUR 21,147 thousand relating to the non-current investments in the
following subsidiaries: Ipko Telecommunications d.o.o., Aneks, d.o.o Banja Luka and Primo
Communications d.o.o..

In accordance with the contract for acquisition and sale of a business share in »Planet 9«, Telekom
Slovenije, d.d. acquired from Mobitel d.d. a 50% interest in the company thus becoming the sole
owner of Planet 9 d.o.o..

On 23 November 2010, Telekom Slovenije, d.d. invested EUR 15 million to acquire an 11.44% interest
in One d.o.o. Skopje from the then 100% shareholder SIOL B.V. in liquidation, the Netherlands. By the
end of the year, Telekom Slovenije, d.d. raised additional EUR 25 million of capital of the company
bringing its total investment to EUR 40 million, thus becoming the owner of a 25.62% interest in One
d.o.o. Skopje.

Based on the indication of impairment, the Company assessed the fair value of its non-current
investments in the following subsidiaries: Ipko Telecommunications d.o.o., On.net d.o.o. Skopje,
Aneks d.o.o Banja Luka, Primo Communications d.o.o., One d.o.o. Skopje, One to one AD Skopje,
Digi Plus Multimedia dooel Skopje and Najdi, informacijske storitve. Due to the planned integration of
the companies in Macedonia, these were valued as a group (Group One).


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The recoverable amount of the Group One is the value in use which was determined using the present
value of future cash flows method, based on the five-year projection of the company. The pre-tax
discount rate applied in the projections ranges from 17.1% in 2010 to 12.2% in the residual period.
Cash flows over the five-year period were extrapolated with an average 2% growth rate. In accordance
with the valuation, the Company recognized an impairment of its non-current investments in the
companies in Macedonia, in the amount of EUR 143,552 thousand.
The recoverable amount of the investment in Ipko d.o.o. is the value in use which was determined
using the present value of future cash flows method, based on the five-year projection of the company.
The pre-tax discount rate used in the projections ranges from 18.6% in 2010 to 12.6% in the residual
period. Cash flows over five years were extrapolated with an average 3.5% growth rate. In accordance
with the valuation, the Company recognized an impairment of its non-current investment in the
company in the amount of EUR 108,334 thousand.

The recoverable amount of the investment in Primo Communications d.o.o. is the value in use which was
determined using the present value of future cash flows method, based on the five-year projection of
the company. The pre-tax discount rate used in the projections ranges from 19.9% in 2010 to 14.9% in
the residual period. Cash flows over five years were extrapolated with an average 2% growth rate. In
accordance with the valuation, the Company recognized an impairment of its non-current investment
in Primo in the amount of EUR 7,700 thousand.

The recoverable amount of the investment in Aneks d.o.o. is the value in use which was determined
using the present value of future cash flows method, based on the five-year projection of the company.
The pre-tax discount rate used in the projections ranges from 19.4% in 2010 to 15% in the residual
period. Cash flows over five years were extrapolated with an average 2% growth rate. In accordance
with the valuation, the Company recognized an impairment of its non-current investment in Aneks in
the amount of EUR 5,823 thousand.

In the valuation of Najdi, informacijske storitve d.o.o, both profit centres that present the company's
activity were assessed in terms of their value. The value of Teledat profit centre was determined using
the present value of future cash flows method, whereas the value of Najdi.si profit centre was
determined using the comparable market prices method. According to the valuations, no impairment is
necessary of the investment in Najdi, informacijske storitve d.o.o.


Investments in joint ventures

In April 2007, Telekom Slovenije, acquired a 50% interest in Gibtelecom, a telecommunication
company in Gibraltar. Gibtelecom is a private entity that is not listed on any public stock exchanges.


Information for associates, joint ventures and subsidiaries as at 31 December 2010 (a minimum
of 20% interest)

                                                                     Ownership   Equity (EUR     Net income
Company                                      Address                       (%)           ‘000)    (EUR ‘000)
                                             1000 Ljubljana,
Mobitel, telekomunikacijske storitve, d.d.   Vilharjeva 23              100.00       405,296         35,516
GVO, Gradnja in vzdrževanje                  1000 Ljubljana,
telekomunikacijskih omrežij, d.o.o.          Cigaletova 10              100.00         15,233         5,863
                                             1000 Ljubljana,
Najdi, informacijske storitve, d.o.o.        Cigaletova 15              100.00          4,774         -5,070
Avtenta.si, Sistemska integracija in         1000 Ljubljana,
poslovne storitve, d.o.o.                    Verovškova 55              100.00          2,248         -1,037
                                             6230 Portorož,
Soline Pridelava soli, d.o.o.                Seča 115                   100.00          4,424           199
Planet 9, internetne storitve in mobilne     1000 Ljubljana
telekomunikacijske storitve, d.o.o.          Vojkova 78                 100.00          2,041           536
M-Pay, Družba za mobilno plačevanje,         2000 Maribor
storitve in trgovino, d.o.o.                 Ul. Vita Kraigherja 3       50.00            172             9


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                                          Prishtina 10000,
                                          Republik of Kosovo,
                                          Lagija Ulpiana, Rruga
Ipko Telecommunications d.o.o.            "Zija Shemsiu"nr 34        93.11*              4,585   -22,443

                                          Skopje, Makedonija
On.net, Družba za informacijske           Bul. Partizanski odredi,
sisteme, d.o.o.                           no. 70, DTC Aluminka       83.38*               430     -5,318
                                          Banja Luka, Bosna in
Aneks, Družba za inženiring in            Hercegovina, Majke
svetovanje uvoz-izvoz, d.o.o.             Jugovića 25                70.00*              7,093      183

                                          Tirana, Albanija
                                          Autostrada Tiranë-
                                          Durrës, km 1, Komuna
Primo Communications d.o.o.               Kashar                     75.00*              3,605    -2,906
                                          Zagreb, Hrvaška,
Siol, d.o.o.                              Margaretska 3              100.00               576        39


                                          AZ Amsterdam,
                                          Nizozemska
                                          Locatellikade 1
SIOL B.V.                                 Parnassustoren             100.00             43,231   -21,508

                                          Skopje, Makedonija,
                                          Kuzman Josifovski Pitu
One d.o.o. Skopje                         No 15                       25.62
Company for electronic-
telecomminication                         Skopje, Makedonija,
materials and services                    Bul. Vidoe Smilevski
One to one AD Skopje                      Bato 4                       100              -7,275    -1,435

Digi Plus Multimedia Company              Skopje, Makedonija,
Telecommunications                        Bul. Partizanski odredi,
Services, d.o.o. Skopje                   no. 70, DTC Aluminka         100                -997    -1,327

Gibtelecom Limited.                       Suite 942, Europort         50.00             27,205    9,046


* Telekom has call options to acquire the shares from non-controlling interests and non-controlling
interests have put options to sell the shares to Telekom Slovenije, d.d.

14. Other investments

                                                                                                 EUR '000

                                                                                2010                  2009
Investments in equity securities of banks                                       1,070                1,070
Investments in other equity securities                                          1,188                1,646
Loans to others                                                               190,061             225,058
Loans to employees                                                              1,656                2,018
Receivables from the sale of apartments                                           18                       38
Loans to telecommunications subscribers                                         1,493                      47

Total                                                                         195,486             229,877

All investments in equity securities are classified as available for sale. Of total invested in securities of
banks, a negligible amount are traded investments i.e. ABanka d.d. shares. Of total amount invested
in other equity securities as at 31 December 2010, EUR 1,043 thousand represents traded securities
i.e. Zavarovalnica Triglav d.d. shares. As at 31 December 2010, the Company recorded a reduction of
EUR 458 thousand in the value of these shares to the market price. Other securities are carried at cost
as they are not traded on the stock exchange and therefore, their fair value cannot be reliably
estimated.


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In June 2010, several loans granted to Ipko Telecommunications d.o.o. over the period from 2007 to
2009 were refinanced (inclusive of interest) into a new non-current loan in the amount of EUR 152,798
thousand.


15. Other non-current assets

                                                                                           EUR '000

                                                                         2010                   2009
Long-term prepaid rentals                                               10,144                 9,878
Long-term deferred sale incentives                                       1,150                   859
Other non-current assets                                                  163                    375

Total                                                                   11,457                11,112


Movements in long-term prepaid rentals and deferred sale incentives are explained below:


                                                                                           EUR '000

                                                                      Rentals        Sale incentives
Balance on 1 Jan 2009                                                    5,231                 3,087
Increase                                                                 5,531                 4,187
Transfer to expenses                                                      -884                -6,415
Balance on 31 Dec 2009                                                   9,878                   859
Increase                                                                 1,286                 6,486
Transfer to expenses                                                    -1,020                -6,195
Balance on 31 Dec 2010                                                  10,144                 1,150




16. Deferred tax assets and liabilities
                                                                                           EUR '000

                                                                         2010         2009 adjusted
Property, plant and equipment                                           -6,813                  -450
Investments and financial assets                                          109                    212
Trade receivables                                                        4,437                 1,701
Provisions                                                               3,334                 2,725
Other non-current assets                                                   92                    121

Deferred tax assets/liabilities                                          1,159                 4,309

Deferred tax liabilities increased by EUR 7,925 thousand as a result of a revaluation of cable ducts in
the amount of EUR 39,627 thousand.


17. Non-current assets held for saleNon-current assets held for sale mainly relate to land and
buildings which Telekom Slovenije, d.d. will no longer use for business purposes in accordance with
the process of rationalization and optimization of real estate and which are to be sold in the next 12
months according to the decision of the management board.

In 2010, the Company recognized an impairment loss in the amount of EUR 658 thousand as the
difference between the carrying amount and fair value, less costs of sales.


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18. Inventories

                                                                                          EUR '000

                                                                        2010                  2009
Materials                                                              4,498                 4,675
Merchandise                                                            2,519                 3,390
Total                                                                  7,017                 8,065

As at 31 December 2010, inventories were restated to their net realizable value and an impairment
loss was recorded in the amount of EUR 105 thousand (2009: EUR 190 thousand). Merchandise and
materials are valued at net realizable value in the amount of EUR 547 thousand and EUR 213
thousand respectively, while other inventories are valued at initial cost as no adjustment was
necessary in respect of these inventories.

No significant amounts of inventory surplus or deficit were recorded during the annual physical stock
count of inventories.

19. Trade and other receivables
                                                                                          EUR '000
                                                                        2010                  2009
Trade receivables                                                     46,602                47,653
Receivables from foreign operators                                    14,466                20,672
Receivables due from domestic operators                               25,979                17,603
Advances                                                                 490                   143
VAT and other tax receivables                                          2,527                 6,140
Accrued income                                                         2,614                 3,019
Current amounts of sale incentives                                     2,848                 5,358
Other receivables                                                      1,166                 1,142
Bad debt allowance                                                   -23,682               -10,481
Total                                                                 73,010                91,249


Movement of bad debt allowance

                                                                                          EUR '000
                                                                        2010                  2009
Balance on 1 Jan                                                     -10,481               -10,640
Impairment                                                           -17,488                -7,920
Impairment reversal                                                    2,349                 6,880
Utilization                                                            1,938                 1,199
Balance on 31 Dec                                                    -23,682               -10,481




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At 31 December 2010, the maturity structure of trade receivables that were past due but not
impaired was as follows:


                                                                                                    EUR '000
                              Neither past    Past due
                                  due nor          and
                    Total        impaired     impaired               Past due but not impaired


                                                          Up to 30   31 - 60    61 - 90   91 -120   More than
                                                             days      days       days      days     120 days

   2010           73,010             62,760      1,084      6,326      982        528        149        1,181
   2009           91,249             71,489      2,268      7,946     2,749     1,758        924        4,115

Trade receivables are non-interest bearing.


20. Current financial assets

                                                                                                    EUR '000
                                                                                2010                    2009
Other loans                                                                    63,284                 80,559
Other current financial assets                                                     52                      0
Bank deposits                                                                  11,000                      0
Total                                                                          74,336                 80,559

Other loans comprise EUR 61,278 thousand granted to subsidiaries inclusive of deferred interest on
long term and short term loans.


21. Cash and cash equivalents

                                                                                                    EUR '000
                                                                                2010                    2009
Cash in hand and bank balances                                                 23,248                  5,142

Deposits with banks with maturity of up to three months                         2,001                      4
Total                                                                          25,249                  5,146

Cash at banks earns interest at bank rates for positive cash balances (between 0.10% and 1.25% per
annum); night deposits earn interest at contractually agreed rates of interest of between 0.500% and
0.530% per annum (2009: 0.500% and 0.530%).


22. Capital and reserves

Shares issued
Authorised, issued and fully paid up capital amounts to EUR 272,721 thousand. It is divided into
6,535,478 ordinary non-par value shares.




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Ownership structure as at 31 December 2010

Shareholder                                                           Number of shares        Interest in %
Republic of Slovenia                                                           3,434,021              52.54
Slovenska odškodninska družba, d.d.                                             931,387               14.25
Individual shareholders (local and foreign)                                     669,741               10.25
Local legal entities                                                            433,705                6.64
Kapitalska družba, d.d.                                                         365,175                5.59
PID - DZU                                                                       180,063                2.76
Foreign legal entities                                                          155,102                2.37
Banks                                                                           118,038                1.81
Kapitalska družba – PPS                                                         115,558                1.77
Mutual funds and other funds                                                     81,308                1.23
Telekom Slovenije, d.d.                                                          30,000                0.46
Insurance undertakings                                                           10,970                0.17
BPH                                                                              10,410                0.16
Total                                                                          6,535,478           100.00


The balances and changes in the equity are shown in the Statement of Changes in Equity. The
number of issued shares did not change in the financial year under review.

Reserves
Originally, reserves were set up in accordance with the provisions of the Ownership Transformation of
Companies Act, whilst in recent years reserves have been set up in accordance with the resolution of
the Management Board. Consistent with the Companies Act, the Management Board is entitled to
appropriate one half of the profit for the period to reserves.

Composition of reserves

                                                                                           EUR '000
                                                                        2010          2009 adjusted
Capital reserves                                                     131,855                130,426
Reserves for treasury shares                                           3,671                  3,671
Statutory reserves                                                    54,544                 54,544
Other reserves                                                        61,143                272,731
Total                                                                251,213                461,372


Capital reserves and statutory reserves may be used for purposes specified in the Companies Act and
the Company’s statutes. Statutory reserves may not exceed 20% of issued capital. These reserves
are not distributable. The amount of capital reserves as at 31 December 2010 exceeds the required
percentage of issued capital.

Capital reserves include capital surplus of EUR 126,135 thousand arising on ownership transformation
and transfer of untaxed portion of revaluation reserves for property, plant and equipment in the
amount of EUR 5,720 thousand.




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Reserves for treasury shares are formed in the amount paid for these shares. These reserves are not
distributable. The Company had not acquired any additional treasury shares during the financial year
under review.

Retained earnings
Retained earnings include retained net profit from previous periods and net profit for the current
period.

According to the resolution of the Shareholders' meeting held on 1 July 2010, total retained earnings
of 2009 in the amount of EUR 61,470 thousand was appropriated as follows: EUR 19,516 thousand
(2009: EUR 39,033 thousand) was appropriated to dividend payout - a dividend of EUR 3 per share
(2009: EUR 6), while the remaining EUR 41,953 thousand was appropriated to retained earnings.

Dividend proposed
Proposed for approval at AGM:                                                    EUR    19,516,434.00
Dividend per ordinary shares:                                                    EUR             3.00


Treasury shares
In 2003, the Company acquired 30,000 treasury shares at par value of 1,252 TEUR representing
0.46% of the Company's issued capital.

Fixed asset revaluation reserve
In 2010, the fixed assets revaluation reserve increased by EUR 31,702 thousand as the result of a
revaluation of cable ducts and reduced by EUR 4,128 thousand as follows: EUR 2,698 thousand was
transferred from revaluation reserve to retained earnings on account of additional depreciation of
property, plant and equipment; furthermore, EUR 1,430 thousand was transferred from revaluation
reserves to capital reserves on account of the revaluation of property, plant and equipment.
Revaluation reserves are not distributable.

Revaluation reserves for financial instruments
Revaluation reserves for financial instruments include the revaluation of available-for-sale financial
assets and the change in the fair value of financial instruments used for hedging. Revaluation reserves
are not distributable.


In accordance with the Accounting manual of Telekom Slovenije, d.d. the Company impaired its
investment in shares of Zavarovalnica Triglav, as the fair value of the shares was more than 30%
below their market value as at 31 December 2010. The impairment loss was recognized in the income
statement as finance expenses.


23. Non-current deferred income

                                                                                           EUR '000
                                                                         2010                  2009
Co-location billed in advance                                            6,432                 6,704
Government grants                                                         797                    898
Property, plant and equipment obtained free-of charge                     403                      0
Other                                                                     945                    677

Total                                                                    8,577                 8,279

Co-location relates to payments received in advance for renting certain premises and equipment to
other operators.




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24. Provisions

                                                                                              EUR '000
                                                                Utilisation
                                                31.12.2009    and reversal      Formation    31.12.2010
Provisions for probable payments resulting
from legal actions                                   9,725               0           6,293       16,018
Provisions for termination bonuses on
retirement                                           5,773            -210              0         5,563
Other provisions                                        215            -30            123          308

Total                                               15,713            -240           6,416       21,889


Provisions for probable liabilities from legal actions
Provisions for probable payments resulting from legal actions are formed on the basis of the
estimation of the actions' outcome in consultation with legal advisors. The date of payment cannot be
determined. The legal actions relate to claims for damages from alleged abuse of the Company’s
monopoly position marketing the provision of Internet services, actions of providers of services
(competitors) due to opposition to prices, damages relating to cancellation of contracts, claims relating
to damages which occurred during the performance of the activity - trespass to property,
compensations relating to injury at work, and other claims.

The Competition Protection Office of the Republic of Slovenia began, ex officio, a process of
determining an alleged abuse of Telekom Slovenije's dominant position on inter-operators market of
broadband access. The Competition Protection Office may impose a fine up to 10% of the annual
turnover of the Company. Therefore, the Company made provisions in the amount of 0.5% of the
operating revenue generated in 2009.

Total claims brought against the Company amount to EUR 201,337 thousand, of which the major item
represents a claim of EUR 129,557 thousand from T-2, d.o.o., EUR 34,702 thousand claimed by
Sinfonika, d.d. and EUR 28,176 thousand claimed by TUŠMOBIL d.o.o.. The Company is of the
opinion that the claims have no legal basis.


Provisions for termination benefits and anniversary bonuses
Provisions for termination benefits on retirement are based on actuarial calculations. Liabilities
reported by the Company are equal to the present value of estimated future payments. The Company
has no other pension liabilities.



25. Interest bearing borrowings

This note provides information about the contractual terms of the Company's interest-bearing
borrowings. For more information relating to interest rate and foreign currency risk management refer
to Note 34 – Financial risk management.

                                                                                             EUR '000
                                                                              2010               2009
Non-current borrowings

Borrowings from foreign banks                                            182,487              215,242
- current portion of non-current borrowings                               -52,149              -32,755
- non-current portion of borrowings                                      130,338              182,487
Borrowings from local banks                                               21,250                26,000
- current portion of non-current borrowings                               -21,250               -4,750



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- non-current portion of borrowings                                                               0                     21,250
Total non-current borrowings                                                                 130,338                  203,737
Current borrowings
Borrowings from domestic banks                                                                    0                     16,000
Borrowings from group companies                                                               42,500                    11,000
Current portion of non-current borrowings                                                     73,399                    37,505
Interest                                                                                        102                        133
Total current borrowings                                                                     116,001                    64,638




Contractual terms of borrowings

                                                                                                                     EUR '000

                          Non-
                       current    Current                                                             Final
                       portion    portion             Maturity         Contractual rate of      instalment
                    31.12.2010 31.12.2010         over 5 years                   interest              due          Collateral

                                                                 3 m EURIBOR + 0.330%                  2011              None
                                                                 3 m EURIBOR + 1.900%                  2014   Bills of exchange
                                                                 3 m EURIBOR + 2.100%                  2014              None
 Non-current
   financial                                                     3 m EURIBOR + 2.900%                  2014   Bills of exchange
                     130,338         73,399         35,546
 liabilities to
     banks                                                       6 m EURIBOR – 0.025%                  2017    Bank guarantee
                                                                 3 m EURIBOR + 0.083%                  2017              None
                                                                 3 m EURIBOR – 0.018%                  2017    Bank guarantee
                                                                 3 m EURIBOR + 0.105%                  2017              None
     Current
    financial                            37,500                                   1.416%         11.3.2011               None
  liabilities to         -                2,000        -                          1.728%        30.12.2010               None
      group
  companies                               3,000                                   1.618%         26.8.2011               None

All borrowings from foreign banks are nominated in euro (EUR). One portion of these borrowings
bears a variable interest rate, and with the rest, the variable interest rate was replaced by a fixed
interest rate, by means of the financial derivatives obtained to this purpose.

The banks that have approved long term loans require that certain debt covenants specified in the
loan contracts be maintained, including: Consolidated Total Debt, Consolidated Net Tangible Worth,
EBITDA, Consolidated Total Debt/EBITDA. The non-achievement of these covenants may result in
the requirement to repay early these borrowings.
As at 31 December 2010, the Company failed to meet some of its debt covenants due to the
impairment of investments. Consequently, and in accordance with IAS 1.74, as at 31 December 2010,
all non-current borrowings whose debt covenants were not met, were reclassified to current financial
liabilities. Financial liabilities of total EUR 31,926,470.56 were reclassified.

Subsequent to the balance sheet date, the Company received written declarations from the lenders
stating that they agreed with certain covenants not being complied with and that they would not
demand early repayment of these borrowings.




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26. Other non-current financial liabilities

                                                                                         EUR '000
                                                                       2010                  2009
Bonds issued                                                        297,182               296,932
Finance lease                                                          3,174                4,610
Compensation for acquisition of additional interest in a
subsidiary                                                             7,645                    0
Total other non-current financial liabilities                       308,001               301,542

In December 2009, Telekom Slovenije, d.d. issued global bonds in the notional amount of EUR
300,000 thousand. Bonds bear interest at the rate of 4.875% and mature in December 2016. They are
measured under the amortized cost method using effective interest rate of 5.047%.

Compensation for acquisition of additional interest in a subsidiary relates to the exercise of a put
option of non-controlling interests.


27. Trade and other liabilities

                                                                                         EUR '000
                                                                       2010                  2009
Trade payables                                                       38,597                56,524
Payables to domestic operators                                       12,962                 6,652
Payables to foreign operators                                         7,399                 6,880
VAT and other taxes payable                                           3,101                 2,373
Payables to employees                                                 7,015                 5,498
Other payables                                                        1,409                 1,903
Total                                                                70,483                79,830

Trade payables are non interest bearing and are normally settled on 5 to 100 day term. Payables to
operators are non-interest bearing and are normally settled on 15 to 50 day terms.


28. Other current financial liabilities

                                                                                         EUR '000
                                                                       2010                  2009
Bonds issued                                                            -131                  -78
Compensation for additional share in a subsidiary                    13,502                32,181
Interest rate swap                                                     1,129                4,179
Finance lease                                                          1,436                1,388
Compensation for acquisition of a 50% interest in Planet 9
d.o.o.                                                                    7                     0
Total other current financial liabilities                            15,943                37,670




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29. Short-term deferred income

                                                                                               EUR '000
                                                                            2010                     2009
Subscriptions billed in advance and short term co-locations                 6,484                    6,425
Current portion of government grants for property, plant and
equipment                                                                    119                      130
Other deferred income                                                        684                      476

Total                                                                       7,287                    7,031


30. Liabilities and receivables from operating leases

The Company as the lessee

Liabilities from operating lease relate to property, plant and equipment (primarily leased lines).

                                                                                               EUR '000
Payable in                                                                  2010                     2009
- 1 year                                                                   5,052                     3,671
- 1 to 2 years                                                             9,504                     5,760
- 3 to 5 years                                                             9,349                     5,131
- more than 5 years                                                       26,157                 15,312
Total                                                                     50,062                 29,874

In the financial year 2010, the Company had EUR 5,052 thousand (2009: EUR 3,671 thousand) of
lease costs from operating lease contracts.

The Company as the lessor
Receivables from operating leases relate to lease of property, plant and equipment, primarily VPN
services, lease of fibre optics, bandwidth, unbundled access, broadband and call access on inter-
operator market, and similar.

                                                                                               EUR '000
Receivable in                                                               2010                     2009
- 1 year                                                                   3,970                     4,364
- 1 to 2 years                                                             7,942                     8,728
- 3 to 5 years                                                             7,942                     8,728
- more than 5 years                                                       19,854                 21,820
Total                                                                     39,708                 43,640


In 2010, income from operating leases recognized in the income statement amounted to EUR 3,970
thousand (2009: EUR 4,364 thousand).

31. Contingencies
                                                                                               EUR '000

                                                                            2010                     2009
Contingent liabilities from legal actions                                201,337                201,092




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At the balance sheet date, there were 45 pending legal actions brought against the Company in the
total amount of EUR 201,337 thousand (2009: EUR 201,092 thousand). Based on the opinion of its
legal advisors the Board expects the liability from said legal actions to amount to EUR 16,018
thousand (refer to Note 24).

32. Related party transactions

Related parties of the Company include the Republic of Slovenia as the majority shareholder of
Telekom Slovenije, d.d., other shareholders, the Management Board, the Supervisory Board and their
family members.

Transactions with related individuals
Natural persons (President and members of the Management Board, President and members of the
Supervisory Board) hold a total of 564 shares of the Company or a 0.01% shareholding.

In the period under review, no loans were granted to related individuals.

Cost of wages and salaries
                                                                                                             EUR '000
                                                                                          2010                  2009
Management Board                                                                         1,283                  1,157
Supervisory Board                                                                           69                    90

Total                                                                                    1,352                  1,247

Disclosures relating to Management Board, Supervisory Board and other managers on
individual contracts
                                                                                                              EUR '000
                                                                                          Loans


                                                              Receipts from
                                                             participation in
                                                           profits based on
                                                         the decision of the    Outstanding at    Repaid in      Trade
                                        Total receipts   General Assembly           31.12.2010        2010 receivables
Members of the Management
Board total                                     1,283                       -                -           -              -
        - Dremelj Bojan                           150                       -                -           -              -
        - Mitič Dušan                             185                       -                -           -              -
        - Ogris-Martič Filip                      174                       -                -           -              -
        - Puljić Željko                           167                       -                -           -              -
        - Senica Darja                            163                       -                -           -              -
        - Kranjčević Ivica                        135                       -                -           -              -
        - Boštjančič Marko                        107                       -                -           -              -
        - Vehovar Zoran                           110                       -                -           -              -
      - Peterlin Jožko                             92                       -                -           -              -
Members of the Supervisory
Board                                              69                       -                -           -              -

Other managers on individual
contracts                                       3,755                       -             164           32          6

Loans to other managers on individual contracts have been granted at interest rates ranging from
4.13% to 5.45% with repayment terms of 10 to 20 years.

The Company has not granted any advances or guarantees to the Management Board, Supervisory
Board or other managers on individual contracts.


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Break-down of receipts of members of the Management Board

                                                                                                                    EUR '000

                                                                                                          Other
                                         Annual Reimbursement      Holiday Insurance                  payments-
                          Salary          bonus       of costs         pay premiums          Benefits    PDPZ II        Total
Dremelj Bojan            111,528          26,963           330      1,099           1,515       6,248      1,985      149,668
Mitič Dušan              134,814          40,444         1,052      1,099            399        4,605      2,205      184,618
Ogris-Martič Filip       134,814          26,963         1,991      1,099           2,034       4,605      2,205      173,711
Puljić Željko             53,926         107,851           951      1,099           1,001       1,582       882       167,292
Senica Darja             152,743              0          1,554      1,099           2,314       2,475      2,646      162,831
Kranjčević Ivica         119,918              0          1,872          0           1,123      10,573      1,544      135,030
Boštjančič Marko          98,817              0          1,096          0            516        5,501      1,544      107,474
Vehovar Zoran             98,817              0          1,686          0            585        6,864      1,544      109,496
Peterlin Jožko            85,336              0          1,680          0            498        3,639      1,323       92,476

Total                    990,713         202,221        12,212      5,495           9,985      46,092     15,878    1,282,596



Salaries of members of the Management Board are not divided into fixed and variable part and the
members did not receive any shares in the profit, options or commission.

Break-down of receipts of members of the Supervisory Board

                                                                                                           EUR '000

                                                                                               Travel
                                                   Meeting fees     Committees              expenses           Total
External members from 1 Jan to 31 Dec
2010
Berginc Tomaž                                             5,005             2,503                159           7,667
Kalin Tomaž                                               3,025             3,575                   79         6,679
Kafol Ciril                                               3,025             2,145                   54         5,224
Kremljak Zvonko                                           3,850             5,500                165           9,515
Hočevar Marko                                             3,300             4,290                153           7,743
Berce Jaroslav                                            3,025             6,023                   77         9,125
Internal members from 1 Jan to 31 Dec
2010
Richter Milan                                             3,850             4,400                   59         8,309
Gorišek Martin                                            3,575             1,650                269           5,494
Sparavec Branko                                           3,575             3,300               2,703          9,578

Total                                                   32,230           33,386                 3,718         69,334

Members of the Supervisory Board did not receive any other payments.


Transactions with the Group

                                                                                                               EUR '000
                                                                                            2010                     2009
Receivables from Group companies                                                        268,205                    320,385
Mobitel, d.d.                                                                               2,925                   16,322
GVO, d.o.o.                                                                                 1,596                    1,696
Najdi Group                                                                                   201                    1,467



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Avtenta.si d.o.o.                                6,087      6,205
Soline d.o.o.                                       1          0
Planet 9 d.o.o.                                  1,381      1,334
Ipko Group                                     146,757    151,410
On.net d.o.o. Skopje                            33,305     30,669
Aneks d.o.o. Banja Luka                         12,836     10,514
Primo Communications d.o.o.                       411        281
Siol d.o.o.                                         0          6
SIOL B.V. in liquidation                           61         20
One d.o.o. Skopje                               56,154     95,219
One to one AD Skopje                             5,690      5,242
Digi Plus Multimedia dooel Skopje                 800          0
Gibtelecom Limited                                             0
Liabilities to Group companies                  70,057     40,249
Mobitel, d.d.                                   42,916     12,636
GVO, d.o.o.                                     12,334     14,207
Najdi Group                                      1,799      1,510
Avtenta.si d.o.o.                                4,741      5,781
Soline d.o.o.                                      64         59
Planet 9 d.o.o.                                  4,185      4,612
Ipko Group                                          3          0
On.net d.o.o. Skopje                              477        498
Aneks d.o.o. Banja Luka                           596        775
Primo Communications d.o.o.                       369        153
Siol d.o.o.                                        18         18
SIOL B.V. in liquidation                            0          0
One d.o.o. Skopje                                2,555         0
One to one AD Skopje                                0          0
Digi Plus Multimedia dooel Skopje                   0
Gibtelecom Limited                                  0          0



                                                         EUR '000
                                                 2010       2009
Revenues from sales to Group companies          42,685     44,691
Mobitel, d.d.                                   27,890     31,640
GVO, d.o.o.                                      4,748      5,934
Najdi Group                                       724        389
Avtenta.sI d.o.o.                                 542        418
Soline d.o.o.                                       4          4
Planet 9 d.o.o.                                  1,756      2,373
Ipko Group                                       3,362      1,726
On.net d.o.o. Skopje                              869        860
Aneks d.o.o. Banja Luka                           841        512
Primo Communications d.o.o.                       598        375
Siol d.o.o.                                         7         24


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SIOL B.V. in liquidation                                                      0                      0
One d.o.o. Skopje                                                         1,294                    376
One to one AD Skopje                                                         50                     60
Digi Plus Multimedia dooel Skopje                                             0                      0
Gibtelecom Limited                                                            0                      0

Acquisitions         of   goods          and   services   from   Group
companies                                                                95,624                 96,710
Mobitel, d.d.                                                            32,305                 31,732
GVO, d.o.o.                                                              11,929                  9,340
Najdi Group                                                               6,788                  6,756
Avtenta.sI d.o.o.                                                         3,091                  8,471
Soline d.o.o.                                                                89                     53
Planet 9 d.o.o.                                                          26,235                 22,855
Ipko Group                                                                   40                      0
On.net d.o.o. Skopje                                                      3,259                  6,271
Aneks d.o.o. Banja Luka                                                   8,213                  9,489
Primo Communications d.o.o.                                               2,003                  1,525
Siol d.o.o.                                                                 216                    216
SIOL B.V. in liquidation                                                      0                      0
One d.o.o. Skopje                                                         1,456                      2
One to one AD Skopje                                                          0                      0
Digi Plus Multimedia dooel Skopje                                             0
Gibtelecom Limited                                                            0                      0

Telekom Slovenije d.d. generates revenues and expenses from interconnect charges with Mobitel d.d..
The parent pays commission to Mobitel d.d. for the provision of services in the Mobitel centres.
Telekom Slovenije d.d. generates rental income from renting business promises, property, plant and
equipment, to GVO d.o.o., as well as revenue from the provision of support services. The Company
pays for the construction and maintenance of telecommunication capacities.
Telekom Slovenije d.d. generates income from Avtenta.si, d.o.o. for the provision of
telecommunications services on location and support services. The Company pays for computer
support services.
The Najdi Group pays for support services provided by the parent and charges the costs of services
relating to the telephone directory.

Telekom d.d. generates rental income from Planet 9, d.o.o for renting business premises, while the
Company pays costs of multimedia services and contents.
Receivables from the Ipko Group are mainly from long term and short term loans and interest.
Telekom pays for international IP services.
Receivables from On.net d.o.o. are mainly from short term loans. Telekom pays for international
telecommunication services for leased lines.
Telekom Slovenije, d.d. receivables due from Aneks, d.o.o. relate to international IP services, while the
subsidiary invoices the parent for the provision of international telephone services.

Telekom Slovenije, d.d. receivables due from SIOL, B.V. consolidated with One AD relate to a long-
term loan as do receivables due from One to one AD.



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Intragroup transactions stated are contracted on an arm's length basis.
In 2010, Telekom Slovenije, d.d. granted guarantees for the following subsidiaries: Aneks, d. o. o.
(EUR 2,050 thousand), One d. o. o. Skopje (EUR 3,200 thousand), Primo Communications d. o. o.
(EUR 122 thousand) and Avtenta.si d. o. o. (EUR 756 thousand).


Transactions with the Government of the Republic of Slovenia and entities and institutions
under its control
The Company provides telecommunications services to the Government of the Republic of Slovenia
and various entities, agencies and companies in which the Slovenian state is either the majority or
minority shareholder. All such transactions are concluded on normal commercial terms and conditions
such as are not more favourable than those available to other customers.

Total income earned from sales to the central and local governments and other public entities in the
period under review amounts to EUR 16,818 thousand (2009: EUR 23,162 thousand). The Company
does not monitor nor collect information on sales to companies owned or partially owned by the
Republic of Slovenia or entities under its control. Accordingly, the information on such sales has not
been disclosed.

33. Cost of auditor
                                                                                                 EUR '000
                                                                           2010                         2009
 Auditing of annual report                                                    76                         136
 Other assurance related services                                             24                         100
 Tax consultation                                                              2                              0
 Other non audit services                                                      7                          41
 Total                                                                      109                          277


34. Financial risk management

The Company’s principal financial instruments, other than derivatives, comprise cash and cash
equivalents, trade and other receivables, trade and other payables, investments and borrowings. The
main purpose of borrowings is to raise finance for the Company’s operations.

The Company also enters into interest rate derivatives to manage the interest rate risks arising from its
sources of finance.

It is and has been the Company’s policy that no trading in derivatives shall be undertaken. The main
risks arising from the Company’s financial instruments are interest rate risk, liquidity risk, foreign
currency risk and credit risk. The Management Board reviews and agrees policies for managing each
of these risks which are summarised below.

Foreign currency risk
Telekom Slovenije, d.d. provides its services predominantly in Slovenia. The currency risk in ordinary
activities arises in connection with international operators and foreign suppliers of services,
merchandise and property and plant and equipment. The majority of deliveries and borrowings from
foreign entities are denominated in euro, which is also the functional currency of the Company.
Therefore, the exposure to foreign currency risk is minimal.

Since the currency risk is assessed as minimal, the Company does not use any special instruments to
hedge its exposure to such risks.

Interest rate risk
Interest rate risk is the risk of the negative impact of changes in market interest rates on the results of
the Company's operations. The interest structure of the balance sheet assets and liabilities is not


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matched, since the amount of borrowings is much higher than the amount of interest-earning
investments. The negative movement (increase) of the variable Euribor interest rate represents an
exposure to interest rate risk in respect of borrowings. All non-current borrowings bear interest at a
variable interest rate based on 3M and 6M Euribor.

The adopted financial risk management policy allows Telekom Slovenije, d.d. to hedge against
interest rate risk by using interest rate swaps. The Company uses derivative financial instruments
exclusively for the purpose of risk hedging and at 31 December 2010, 27.8% of non-current loans
were hedged against interest rate risk.


The table below sets the derivative instruments used by Telekom Slovenije, d.d. for hedging
interest rate risk

                                                                                                    Fair value at
                                Date of contract            Maturity       Notional amount           31.12.2010
                                                                                      EUR              EUR '000
Interest rate swap                   24.06.2009           15.06.2014            56,642,857                 -1,129
Total                                                                           56,642,857                 -1,129

On re-measurement of fair value of derivatives not designated as hedges at the year-end, the
Company recognized a loss of EUR 357 thousand as finance expenses.

Interest rate risk table
The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with
all other variables held constant, of the Company’s profit before tax (through the impact on floating
rate). Changes in interest rates have no impact on the equity of the Company.


                            Increase/decrease in basis points    Effect on profit before tax in EUR ‘000
2010
EURO                                                   +10 bt                                      -204
EURO                                                   -10 bt                                       204
2009
EURO                                                   +10 bt                                      -241
EURO                                                   -10 bt                                      +241

Non-interest bearing financial instruments are not included in the table above as they are not subject
to interest rate risk.

Credit risk
The Company has a large number of customers, both individuals and legal persons. Since receivables
are widely spread, the Company assesses the credit risk as low. The Company has developed well-
established procedures of managing receivables and formation of allowances for receivables.
Receivable balances are monitored on an ongoing basis with the result that the Company’s exposure
to bad debts is not significant. The Company's maximum exposure to receivables is equal to their
carrying amount.

With respect to credit risk arising from the other financial assets of the Company, which comprise cash
and cash equivalents, deposits with banks, and available-for-sale financial assets, the Company's
exposure to credit risk arises from default of the counterparty. The maximum exposure is equal to the
carrying amount of these instruments.

Liquidity risk
Liquidity is subject to effective cash management and investment dynamics. Telekom Slovenije, d.d.
manages the liquidity risk by careful monitoring of the liquidity of assets and liabilities and cash flows

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from operations. Short-term deficits are bridged by current borrowings from local banks and group
companies. Short-term surpluses are placed in bank deposits. The Company maintains a balance
between continuity of funding and flexibility through the use of short term funding from banks.

As a large portion of payments made by the customers is reasonably predictable and stable, the
liquidity risk is assessed as low.

The table below summarises the maturity profile of financial liabilities of Telekom Slovenije,
d.d. as at 31 December 2010 and 31 December 2009 based on the contractual undiscounted
payments

                                                                                                            EUR '000
                                                  On   Less than 3   3 to 12                  More than 5
                                Past due      demand       months    months    1 to 5 years         years      Total
2009
Borrowings and
credits                                  0        0             0    116,001       94,792         35,546     246,339

Interest                                 0        0             0      4,308         8,620            75      13,003
Other financial
liabilities                              0        0        13,863       951        10,819        300,000     325,633

Interest on bonds                        0        0             0     14,625       58,500         14,625      87,750

Trade and other
payables                              1,873    5,588       61,037      1,985           525             0      71,008

Derivatives                              0        0             72      342            715             0       1,129
2008
Borrowings and
credits                                  0        0        32,901     31,737      144,492         59,245     268,375

Interest                                 0        0            980     2,636         6,474           259      10,349
Other financial
liabilities                              0        0            342    33,149         4,610       296,932     335,058

Interest on bonds                        0        0             0     18,281       91,406         18,281     127,969

Trade and other
payables                              9,321    7,264       63,185      2,478            35             0      82,283

Derivatives                              0        0         2,434      1,745             0             0       4,179


Capital management
The primary objective of the Company's capital management is to ensure that it maintains strong
credit rating and capital ratios in order to support its business and maximise shareholder value.

The Company monitors capital using a gearing ratio, which is net debt divided by total net debt plus
total equity. Within net debt, the Company includes interest bearing borrowings less cash and cash
equivalents, and short-term deposits.




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                                                                                                    EUR '000

                                                                        31.12.2010        31.12.2009 adjusted

Interest bearing borrowings                                                570,283                   607,587

Less cash and short-term deposits                                           -99,585                   -85,705
Net debt                                                                   470,698                   521,882
Capital                                                                    621,537                   843,915
Capital and net debt                                                      1,092,235                 1,365,797

Gearing ratio                                                                       43%                 38%

Fair value
The Company estimates that fair values of financial assets and liabilities are not significantly different
to their carrying values.

Fair value hierarchy
The following hierarchy was used for determining and disclosing the fair value of financial instruments
using valuation technique:

Level 1: quoted prices in active markets for identical assets or liabilities,

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value
are observable, either directly or indirectly,

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are
not based on observable market data and investments measured at cost.

                                                                                                          EUR
 Assets at fair value                              31.12.2010          Level 1            Level 2       Level 3

Available-for-sale financial assets
Equity securities                                          2,258         1,034                  0         1,223

 Derivatives
 Interest rate derivatives                              -1,129                  0          -1,129               0

 Assets at fair value                              31.12.2009          Level 1            Level 2       Level 3

Available-for-sale financial assets
Equity securities                                          2,716         1,493                  0         1,223

 Derivatives
 Cash flow hedges                                          -974                 0           -974                0


All Level 3 securities are carried at cost.


35. General authorization and the rights of use for radio frequency and block numbers

Fixed line operations
The provision of electronic communications networks or the provision of electronic communications
services is subject to a general authorisation. Prior to the commencement of the provision of public

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communications networks or services, notification must be given in writing to the Agency for Post and
Electronic Communications (Agency). The undertaking is not required to obtain an explicit decision or
any other administrative act by the national regulatory authority before exercising the rights stemming
from the authorisation.

Telekom Slovenije has in the past notified the Agency of the provision of the following electronic
communications services:
- Public Voice Services over a Fixed Public Telecommunications Network,
- International Telecommunications Services,
- Data Transmission Services,
- Domestic and International Leased Line Services.

Pursuant to the notification, the fee payable in the period under review amounted to EUR 496
thousand (2009: EUR 492 thousand). The amount of the fee to be paid is defined with a tariff under a
general act of the Agency.

Telekom Slovenije also has to pay fees for the rights of use for radio frequencies and for block
numbers. The fee for the rights of use for radio frequencies for the period under review amounts to
EUR 231 thousand (2009: EUR 246 thousand), and the fee for the rights of use for block numbers
amounts to EUR 246 thousand (2009: EUR 266 thousand). The amount of the fees to be paid is
defined with a tariff under a general act of the Agency.




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                           4.3.3   Independent Auditor's report




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                            5 ABBREVIATIONS OF TECHNICAL TERMS
ADSL                       Asymetric Digital Subscriber Line
APEK                       Post and Electronic Communications Agency
ARPU                       Average Revenue Per User
ATM                        Asynchronous Transfer Mode
ATO                        Intelligent voice response
B2B                        Business to Business
AUKN
B2C                        Business to Customer
BB                         BroadBand
BSS                        Business Support System
CAD                        Computer Aided Design
Capex                      Capital Expenditure
CATV                       Cable Television
CMN                        Central Management
CMS                        Converged Media Services
CO                         Central Office
CoS                        Class of Service
COTS                       Commercial Of The Shelf
CPE                        Customer Premises Equipment
CTX                        Centrex
CWDM                       Coarse wavelength division multiplexing
DCN                        Data Communication Network
DECT                       Digital enhanced cordless telecommunications
DHCP                       Dynamic Host Configuration Protocol
DPI                        Deep Packet Inspection
DSL                        Digital Subscriber Line
DSLAM                      DSL Access Multiplexer
DWDM                       Dense Wavelength Division Multiplex
EDGE                       Enchanced Data for GSM Evolution
EEKS                       Power Supply and Cooling Systems
EM                         Element Manager
EMC                        Electromagnetic Compatibility
EMS                        Electro Magnetic Radiation
EMX                        Enchanced Subscriber Multiplexer
EN                         European Norm
ETNO                       European Telecommunication Networks Operators Association
FE                         Fast Ethernet
FM                         Fault management (system)
FMC                        Fixed Mobile Convergence
FRR                        Fast ReRoute
FTTB                       Fiber To The Business
FTTC                       Fiber To The Curb
FTTEx                      Fiber To The Exchange
FTTH                       Fiber To The Home
FTTx                       Fiber to the X
GE                         Gigabit Ethernet
GGSN                       Gateway GPRS Support Node
GIS                        Geographical Information System
GPRS                       General Packet Radio Service
GRI                        Global Reporting Initiative
GSM                        Global System for Mobile communication
GURS                       Surveying and Mapping Authority
HD                         High Definition
HDTV                       High Definition Television
HSI                        High Speed Internet


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HSDPA                      High-Speed Downlink Packet Access
HSUPA                      High-Speed Uplink Packet Access
HW                         Hardware
IaaS                       Infrastrucure as a Service
IEC                        International Electrotechnical Commission
IKT                        Information and communication technologies
IMS                        IP Multimedia Subsystem
IP                         Internet Protokol
IPTV                       IP television
ISO                        International Standard Organization
ISDN                       Integrated Services Digital Netwotk
ISP                        Internet Service Provider
ITU                        International Telecommunication Union
IVR                        Intelligent voice response

KKO                        Local cable Network
KPI                        Key Permormance Indicators
LAN                        Local Area Network
LAS                        Local Agregation Switch
LTE                        Long Term Evolution
MC                         Multi Cast
MMD                        Multi Media Domain
MMOG                       Massively Multiplayer On-line Game
MNP                        Mobile Number Portability
MPLS                       Multiprotocol Label Switching
MTBF                       Mean Time Between Failures
MVNO                       Mobile Virtual Network Operator
NeoWLAN                    Wireless Local Area nNtwork
NGN                        Next Generation Networks
NGOSS                      Next Generation Operational Support systems
NPVR                       Network Based Personal Video Recorder
OCS                        Office Communication Server
OLT                        Optical Line Terminal
Opex                       Operational Expenditure
OSS                        Operational Support System
PaaS                       Platform as a Service
P2P                        Point to Point
PDH                        Plesiochronous Digital Hierachy
PM                         Performance Management System
PON                        Passive Optical Network
POP                        Point Of Presence
POTS                       Plain Old Telephone Service
PPPoE                      Point to Point Protocol over Ethernet
PRD                        Local Loop Unbundling, Full
PSTN                       Public Switched Telephone Network
PTK                        Positive Temperature Coefficient Resistor
QoE                        Quality of Experience
QoS                        Quality Of Service
RAS                        Regional Aggregation Switch
RNO                        Distribution Access Network
RR                         Radio Relay
SaaS                       Software as a Service
SBC                        Session Border Controller
SDH                        Synchronous Digital Hierarchy
SDP                        Service Delivery Platform
SDTV                       Standard Definition Television
SGSN                       Serving GPRS Support Node
SHDSL                      Singlepair High bit rate DSL
SIP                        Session Initiation Protocol

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SIST                       Slovenian Standard
SLA                        Service Level Agreement
SME                        Small and Medium Eneterprises
SNMP                       Simple Network Management Protocol
SOA                        Service Oriented Architecture
SOHO                       Small Office Home Office
SS                         Soft Switch
STB                        Set Top Box
STM                        Synhronous Transfer Mode
SRO                        Environmental Management System
SW                         Software
TCO                        Total Cost of Ownership
TDM                        Time Division Multiplex
TeMIP                      Network Supervision Product
TT                         Trouble Ticketing (system)
TTM                        Time To Market
UMA                        Universal Mobile Access
UMTS                       Universal Mobile Telecommunications System
UTRAN                      UMTS Terrestrial Radio Access Network
VCC                        Voice Call Continuity
VDSL                       Very High Bit Rate Digital Subscriber Line
VDSL2                      Very High Bit Rate Digital Subscriber Line 2
VLAN                       Virtual Local Area Network
VoD                        Video on Demand
VoIP                       Voice over IP
VPLS                       Virtual Private LAN Service
VPN                        Virtual Private Network
WAP                        Wireless application protocol
WGR                        Wavelength Grating Router
WiFi                       Wireless Fidelity
WiMAX                      Worldwide interoperability for microwave access
xDSL                       Digital Subscriber Line (all technical solutions)




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General data on the parent company Telekom Slovenije, d. d.


Company:                                               Telekom Slovenije, d. d.
Registered office:                                     Ljubljana
Address:                                               Cigaletova 15, 1000 Ljubljana
Registration number:                                   5014018
Tax identification number:                             SI 98511734
Entry in companies register:                           1/24624/00, Ljubljana District Court
Number of shares:                                      6,535,478
Ticker symbol of no-par-value shares:                  TLSG

Tel.:              +386 1 234 10 00
Fax:               +386 1 231 47 36
Website:           http://www.telekom.si
Email:             info@telekom.si

Major activities

Activity code
61.100             Wired telecommunication activities
61.200             Wireless telecommunication activities
61.900             Other telecommunication activities
63.110             Data processing, hosting and related activities
71.129             Other engineering activities and related technical consultancy
80.200             Security systems service activities

Subsidiaries in the group

Company:                              Mobitel, telekomunikacijske storitve, d. d.
Registered office:                    Ljubljana
Address:                              Vilharjeva 23, 1000 Ljubljana
Tel.:                                 +386 1 472 29 00
Fax:                                  +386 1 472 29 90
Website:                              http://www.mobitel.si
Email:                                info@mobitel.si

Company:                              Planet 9, d. o. o.
Registered office:                    Ljubljana
Address:                              Vojkova 78, 1000 Ljubljana
Website:                              http://www.planet.si

Company:                              Soline, Pridelava soli, d. o. o.
Registered office:                    Portorož
Address:                              Seča 115, 6230 Portorož
Website:                              http://www.soline.si
Email:                                kpss@soline.si

Company:                              M-Pay, d. o. o.
Registered office:                    Maribor
Address:                              Ul. Vita Kraigherja 3, 2000 Maribor
Website:                              http://www.m-pay.com

Company:                              Avtenta.si, sistemska integracija in poslovne rešitve, d. o. o.
Registered office:                    Ljubljana

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           Telekom Slovenije, d. d.


Address:                              Verovškova 55, 1000 Ljubljana
Tel.:                                 +386 1 583 68 00
Fax:                                  +386 1 583 68 01
Website:                              http://www.avtenta.si
Email:                                info@avtenta.si
Company:                              Najdi, informacijske storitve, d. o. o.
Registered office:                    Ljubljana
Address:                              Cigaletova 15

Company:                              Meganet, d. o. o.
Registered office:                    1411 Izlake
Address:                              Narof 10

Tel.:                                 +386 1 500 85 00
Fax:                                  +386 1 234 11 90
Website:                              http://www. najdi.si
Email:                                info@ najdi.si

Company:                              GVO, gradnja in vzdrževanje telekomunikacijskih omrežij, d. o. o.
Registered office:                    Ljubljana
Address:                              Cigaletova 10, 1000 Ljubljana
Tel.:                                 +386 1 234 1000 00
Fax:                                  +386 1 234 1803 01
Website:                              http://www.gvo.si
Email:                                gvo@telekom.si

Company:                              Pogodak Tražilica, d. o. o. in liquidation
Registered office:                    Zagreb, Croatia
Address:                              Martićeva 13

Company:                              Pogodak, d. o. o., Belgrade in liquidation
Registered office:                    Belgrade, Serbia
Address:                              Maršala Birjuzova 3-5

Company:                      ¸       Ipko Telecommunications, d. o. o.
Registered office:                    Priština, Kosovo
Address:                              Lagija Ulpiana, Rruga “Zija Shemsiu”, Nr. 34
Website:                              http://www.ipko.net
Email:                                info@ipko.com

Company:                              Ipko Net Albania, d. o. o.
Registered office:                    Tirana, Albania
Address:                              Donika Kastrioti, Nr. 4, Tirana

Company:                              N.B. Media Works, d. o. o.
Registered office:                    Priština, Kosovo
Address:                              Dardania SU1/1

Company:                              DSN, d. o. o.
Registered office:                    Sojevo, Kosovo
Address:                              US Bondsteel Camp

Company:                              One, d. o. o., Skopje
Registered office:                    Skopje, Macedonia
Address:                              Bulevar Kuzman Josifovski Pitu 15
Website:                              http://www.one.mk
Email:                                CAD@one.mk

Company:                              SIOL, B.V. in liquidation

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Registered office:                  Amsterdam, the Netherlands
Address:                            Locatellikade 1 Parnassustrn




Company:                            On.net, d. o. o., Skopje
Registered office:                  Skopje, Macedonia
Address:                            Bul. Partizanski odredi, no. 70, DTC Aluminka, 5th floor
Website:                            http://www.on.net.mk
Email:                              info@on.net.mk

Company:                            One to One, AD, Skopje
Registered office:                  Skopje, Macedonia
Address:                            Bul. Vidoe Smilevski Bato 4, 1st floor

Company:                            Digi Plus Multimedia Ltd., Skopje
Registered office:                  Skopje, Macedonia
Address:                            Bul. Partizanski odredi, no. 70, DTC Aluminka, 5th floor

Company:                            Aneks, d. o. o., Banja Luka
Registered office:                  Banja Luka, Bosnia and Herzegovina
Address:                            Majke Jugovića 25
Website:                            http://www.aneks.si
Email:                              office@aneks.com

Company:                            SIOL, d. o. o.
Registered office:                  Zagreb, Croatia
Address:                            Margaretska 3

Company:                            Primo Communications, d. o. o.
Registered office:                  Tirana, Albania
Address:                            Autostrada Tiranë-Durrës, km 1, Komuna Kashar
Website:                            http://www.primo.al
Email:                              sales@primo.al

Company:                            Gibtelecom Limited
Registered office:                  Gibraltar, Gibraltar
Address:                            15/21 John Mackintosh Square
Website:                            http://www.gibtele.com/
Email:                              info@gibtele.com




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