Market overview

T-HT successfully maintaining its leadership position in all market segments

In 2007, T-HT continued operating in a fully liberalised telecommunications market. Despite the competition intensifying in all market segments, T-HT sustained its leadership position in all market segments. The highlights of the past year include not only increased competition and further rapid growth in broadband services but also the initial public offering (IPO) of 32.5% of the Company’s shares. The shares have been listed on the Zagreb Stock Exchange and global depository receipts on the London Stock Exchange since 5 October 2007.
Market consolidation remained an important market theme in Croatia in 2007. An Austrian investor acquired Croatia’s two biggest cable operators in April 2007. This was followed in August 2007 by the acquisition of a local ISP by Croatia's alternative fixed line operator.  
T-HT has been successful in adapting to the changes in the competitive environment and has suffered limited loss of market share despite the increased competition. A key aspect of this success is T-HT Group’s focus on providing a superior quality of network and services and its ability to offer a comprehensive telecommunications product and service portfolio that provides every customer with the service that best suits their needs.

Macroeconomic environment - Croatia offering attractive growth potential
Croatia has an economy with attractive growth potential. According to the Croatian Central Bureau of Statistics, in the first three quarters of 2007, real GDP was 6.2% higher than in the same period on 2006, the unemployment rate has been gradually decreasing over the last seven years, the inflation rate remains low (2.9% in 2007), the exchange rate remains stable, more than 11 million tourists were recorded in 2007 (88.5% from abroad) and there are prospects of further positive effects from EU accession.

Fixed telecommunications – Fixed line still going strong. Another successful year for T-HT despite full liberalisation
Ten operators are active in the fixed telephony segment of the Croatian telecommunications market. Five other operators have licences but have not yet passed the technical inspection of the Croatian Telecommunication Agency. As a consequence of intensified competition in 2007, T-HT Group’s market share by revenue in fixed telephony fell from 91% to an estimated 88% (internal estimate). Revenue for the market as a whole from traditional voice services declined as expected due to a combination of lower prices and a fall in voice traffic (itself primarily attributable to fixed-to-mobile substitution and the increased usage of VoIP services). Despite a slightly lower market share in 2007, the Group's operations in the field of fixed telephony remained stable in 2007 due to high quality service, strengthened sales channels and tailored offers created to best suit the specific communication needs of different customer segments.

Mobile telecommunications – Croatian mobile market continues to grow. T-Mobile stays on top
Since 2005, Croatia has three mobile operators. The mobile penetration rate as at 31 December 2007 was estimated at 115%. T-Mobile maintained its position as the leading mobile operator in 2006. Its market share by revenue amounted to 52,7% as compared with 53,6% in 2006.
Increased penetration and growing minutes of usage have offset the price drop, resulting in overall market growth. In 2007, T-Mobile promoted its HSDPA mobile broadband solutions. T-Mobile expanded its offer in November with the new Web'n'walk stick – the smallest and simplest data device in the Croatian market.

Internet – Strong expansion of ADSL. T-HT leading the growing broadband market. MAXtv increasingly popular
T-HT Group has the leading position among Internet providers in Croatia with a market share in 2007 of approximately 69% by revenue (internal estimate).
The market has continued to migrate from dial-up to broadband connections. In 2007, T-Com continued its strong expansion of broadband access based on ADSL technology, reaching over 344,000 users of broadband Internet. Following its successful launch in September 2006, MAXtv became one of the trademarks of the Group’s services in the market in 2007, and the number of customers is constantly increasing. The Group’s competitors also intensified their activities in this area over the same period. In addition to relying on the Group’s ULL offering, some operators continued building their own broadband lines to business customers and introduced an ADSL service for residential customers via their own network.
Iskon, the Company’s subsidiary, confirmed its market position in 2007 as one of the leading alternative broadband operators, focusing primarily on residential ULL, advanced broadband users and SME customer segments.

Data – Market migrating to IP based services. Quality of service secures T-HT’s leading position 
T-HT Group has managed to sustain its leadership in the provision of data services in a market transitioning to IP based services. The Group’s main data service competitors have continued to develop their own fibre networks, targeting mainly business and public segments with aggressive pricing.

Wholesale – Domestic and international competition. T-HT remains the largest player with the most extensive network coverage
T-HT Group has established interconnection with both remaining mobile network operators and eight fixed network operators. T-HT provides wholesale services to four major customer segments: international operators, mobile operators, fixed operators and a variety of different service providers (such as VAS providers, ISPs and VoIP service providers). The alternative operators are building their own networks and competing by offering dark fibre and capacities. The international market in 2007 was characterized by increased competition of domestic alternatives and also by entrance of several regional players in the Croatian market who built their physical points of presence in Zagreb. However, T-HT Group has the largest and the most widespread network in Croatia and has remained by far the largest player in the wholesale market.