Crnogorski Telekom

2016 Annual Report

Crnogorski Telekom – 2016 Annual ReportContents:To Our ShareholdersAbout Crnogorski TelekomSelected Financial and Operational Data of Crnogorski Telekom for 2016Letter to Our Shareholders

Management reportManagement Report for the Financial Year 2016Crnogorski Telekom’s Management

Board of Directors Executive Management Board

Vision and StrategyRegulatory EnvironmentPromotions and Offers

Human Resources

Corporate Responsibility

Financial StatementsIndependent Auditor’s ReportStatement of Financial PositionStatement of Comprehensive IncomeStatement of Cash FlowsStatements of Changes in EquityNotes to the Financial Statements

Further Information

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Crnogorski Telekom – 2016 Annual ReportTo Our ShareholdersAbout Crnogorski TelekomCrnogorski Telekom (CT) is the largest telecommunications company in Montenegro. It provides a full range of fixed and mobile telecommunication services (voice, messaging, internet, TV, leased-line circuits, data networks and ICT solutions).

Crnogorski Telekom fully digitalised the fixed-line network in 2007 and brought broadband coverage of PSTN customers close to a 100% base by the end of 2012. In 2007, Crnogorski Telekom started an IPTV service. In 2011 CT started offering ICT solutions, promoted under the name “Integris”. Hybrid access, combining fixed and mobile broadband accesses, was launched in 2015. Full migration to IMS was completed in 2015.

CT was the second entrant into the mobile market in Montenegro. From its founding in 2000, it has always offered innovative and advanced services to the Montenegrin market and has been experiencing dynamic growth. A 3G network was launched in the summer of 2007, while 4G service was launched in 2012. In 2016, CT renewed all of the existing frequency bands and acquired significant portion of the new bands that were the subject of the Spectrum auction.

In May 2009, Crnogorski Telekom a.d., T-Mobile Crna Gora d.o.o and Internet Crna Gora d.o.o were merged into one legal entity, Crnogorski Telekom a.d.

In 2012, the T-Com and T-Mobile brands were replaced by the Telekom brand, under which all products are marketed.

On 1 April 2005, Magyar Telekom obtained a 76.53% interest in Crnogorski Telekom. Deutsche Telekom AG holds 59.21% of the Magyar Telekom shares. Deutsche Telekom and Magyar Telekom

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Crnogorski Telekom – 2016 Annual Reporthave a number of subsidiaries worldwide, with which Crnogorski Telekom has regular transactions. Details of related party transactions are given in the company’s Financial Statements, Note 29.

In January of 2017, Magyar Telekom signed a share purchase agreement with Hrvatski Telekom d.d. for the disposal of the total of its 76.53% stake in Crnogorski Telekom A.D.

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Crnogorski Telekom – 2016 Annual ReportSelected Financial and Operational data of Crnogorski Telekom

Main financial KPIs (m€) 2015 2016 Δ Δ%Revenues 98,6 91,8 -6,7 -7EBITDA w/o SI 36,8 31,1 -5,7 -15EBITDA w/o SI margin (%) 37,3 33,9 -3,5EBITDA 34,4 30,3 -4,0 -12EBITDA margin (%) 34,8 33,0 -1,8Operating profit 16,7 10,3 -6,4 -39Net profit 15,9 9,4 -6,5 -41Total Assets 190,6 183,4 -7,2 -4CAPEX 17,0 49,8 32,8 193Number of employees 588 573 -15 -3

Fixed line operations KPIs (in thousands)

Dec 31,

2015

Dec 31,

2016Δ Δ%

Fixed-voice connections, Total 148 135 -13 -9Fixed voice Market share (%) 96,2 91,5 -4,7

Fix broadband connections, Total 76 70 -6 -8BB Internet Market share (%) 77,5 60,9 -16,6

IPTV connections, Total 63 59 -4 -6Pay TV Market share (%) 38,2 31,4 -6,8

Mobile line operations KPIs (in thousands)

Dec 31,

2015

Dec 31,

2016Δ Δ%

Number of customers, Total 330 361 31 9Prepaid 175 176 1 1Postpaid, Total 155 185 30 19Mobile customers market share (%) 32,7 34,7 2,0Mobile internet customer number 119 143 24 20Mobile Internet customers market share (%) 36,7 37,9 1,3

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Crnogorski Telekom – 2016 Annual ReportMobile penetration (%) 163 168 5

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Crnogorski Telekom – 2016 Annual Report

Dear Shareholders,The year of 2016, probably the most difficult year in our Company’s recent history, has gone by very quickly. No wonder, since we have faced so many challenges, both in our business environment and in the Company itself. We have been working really a lot, being forced to deal with many new topics and take care that, many times, money and resources consuming projects were properly handled and, in my view, we were successful in that tough arena. As I said, the year has gone by very quickly and now it’s again time that the CEO shares with you the impressions of the previous year and informs you about the Crnogorski Telekom’s most significant moments in 2016 when it comes to business developments, plans for the next year and our strategy on how to achieve those ambitious plans. And I will do that now, for the first time in the capacity of CT’s CEO. Yes, there have been quite a lot of changes in the Company’s management structure. This is also the right moment to raise awareness about the tough moments we have been through and no doubt the tough moments coming, but also to share our strong belief that we still have so much to offer to our customers, to our shareholders and our employees. However, first, let me provide you an overview of the most significant points of our action focus in the previous year. In 2016 we’ve gone through many developments, in the working surrounding which had been really putting us on serious tests, with many complex and demanding projects and initiatives (first of all Spectrum Auction, launching Magenta 1 and other products we built thereon, RAN and FTTH Rollout, Hybrid Access expansion, introduction and commercial rollout of vDSL&Vectoring offering competitive speeds via copper, One.Billing & CRM system stabilization etc.) being implemented in parallel. But we’ve also achieved a lot and proved ourselves once again that the commitment, hard work and rich creative potential are some of our team’s strongest sides that always pay out.

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Crnogorski Telekom – 2016 Annual ReportSpeaking of our financial results, let me inform you that our revenues, amounting to 91.8 million EUR, were in line with the plans. We experienced YoY decrease of 6.7m or -7%, driven by Wholesale revenues (-3.2m), Fix voice (-3.7m), Prepaid (-0.5m), Fix BB (-1.1m), ICT (-0.8m) and Data (-0.4m), which was partly compensated by higher Equipment (1.9m) and Postpaid (1.1m). Furthermore, EBITDA before special influences amounted to 31.1m (-5.7m or -8%), while oFCF deteriorated by 8.7m (-46%). As the overall Telecommunication market is shrinking every year, it is getting increasingly difficult to achieve set targets and to show positive financial development. However, with all new products and services, we are developing on the favourable results of the spectrum auction and significant resources we obtained on that occasion, and savings, which in the meantime have become normal part of our daily work, we expect to achieve a more favourable financial trends in 2017. In that regard, in our Corporate Strategy, we developed a plan of related achievements in 2017 and beyond for each functional area: in Technical area we target LTE coverage expansion to 95% till the end of Q2, Vectoring expansion: homes passed to 62,000 till the end of 2017 and FTTH – to cover all urban zones till the end of 2018. As for the Commercial Area, we envisaged Fixed Strategy including increased competitiveness and focus on High speed internet, new bundled packages, using VDSL, HA and FTTH to offer higher speeds to customers, Magenta expansion to the household, emphasizing best mobile network quality, positioning Telekom as the integrated operator of choice and build on versatility of the new DVB-T2 service, TVzaSVE, offering FMS solution with mobile broadband.Speaking of the Mobile strategy, we plan to achieve market leadership by 2020, 4G Network rollout, FMS offer setup, migration of existing customers to new, more profitable portfolio.Finally, in the B2B segment, we plan that every 4th company will switch to Magenta 1, keeping leadership in KAM segment and improving market share in SOHO and SME segment. Speaking of the ICT, we plan strong push for 6 million EUR in 2017, approaching customers with customized offers.

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Crnogorski Telekom – 2016 Annual ReportIn spite of all ups and downs we had, we can conclude that business year of 2016 was a solid one, with results reflecting all inevitable challenges embodied in traditionally high regulatory requirements, more aggressive competition and customers always asking for new and innovative offers, providing more benefits at lower costs. Speaking of our 2016 achievements in more details, our primary focus was smart handling of the auction for new spectrum bands – 800 MHz and 2600 MHz, since the regulator imposed a very complex type of an auction requiring hard work and high level expertise. In this regard, I am glad to report that we have achieved significantly better results compared to our competitors, and we rightfully expect to produce equally better results in comparison to them based on the resources obtained. We were also very much concentrated on the intensive optic line rollout, further network modernization, intensifying of the rollout and expansion of Hybrid Access, reduction of negative effects of the extensive regulatory changes and stabilization of One Billing & CRM system.

Regarding the Fibre rollout status, I can gladly inform you that we ended 2016 with 14,000 customers and coverage of more than 55,000 households. This means that aproximately 70% of flats in urban areas and 29% of households on the national level is now capable of connecting to our high quality fibre network.Taking into account how much has been done in previous year, in 2017 we plan to continue with similar dynamic and cover 12,100 households and increase number of customers by 2,700. In addition to the existing 13, fibre will be introduced in 3 new cities: Kolašin, Danilovgrad and Žabljak, all this in line with strategic initiative to cover all households in urban areas by the end of 2018.

Major achievement in 2016 was CT having acquired superior spectrum package at reasonable costs in the most complex type of auction with 5 bands. Thanks to acquiring 20 MHz in 800 MHz band, we are going to strengthen our position and clearly differ from competition with massive advantage in LTE quality and

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Crnogorski Telekom – 2016 Annual Reportcoverage. Spectrum acquisition is followed by strong LTE roll out as a part of strategy which is focused on technology leadership in Montenegro. At the end of 2016, CT reached 78% of LTE outdoor population coverage. Also, we implemented and demonstrated superior LTE-Advanced network with speeds up to 300Mbps and 450Mbps by aggregating carriers in 800 MHz, 1800 MHz and 2600 MHz bands. These advanced services are available to our customers in Podgorica, Bar, Budva, Tivat, Kotor, Danilovgrad and Berane. Thus we became the first LTE-Advanced (4G+) network in Montenegro, which proved our leadership.

Speaking of our ICT business, in 2016 we delivered revenues on the level of 4.7 milion EUR which is a lower result comparing to 2015, but the good news are that the absolute EBITDA figure (profitability) was higher than in the previous year. We have also continued to further position ourselves as a reliable ICT partner for important investment projects in Montenegro in governmental, banking and tourism segment. Main clients with whom we signed new or annexed existing contracts are the Ministry of Justice, Erste bank and hotel Hilton.

We continued with another successful project - Hybrid Access. With this project, our customers could enjoy synergies of fix and mobile network. At the end of 2016, we had 1,643 customers connected, slightly below the plan (2,350). Hybrid project won an award as second placed project on DT group level for 2016. Introducing hybrid to our customers, we are significantly improving customer experience in best available way at any given time.

Now, looking forward into the future, I shall take this opportunity to commit ourselves that, regardless of the fact that the current circumstances are quite challenging, we will always be fully aware of our primary focus: to be strong, healthy and financially sustainable company, keeping our customers at the centre of everything we do, showing them how we can support them in their communication and the overall lifestyle needs by providing support when needed, flexibility where possible and a range of

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Crnogorski Telekom – 2016 Annual Reportattractive and simple products, such as the one we launched: TVzaSVE service, digital television of the newest technology, allowing our customers watch their favourite TV programs anywhere in Montenegro, which can be brought everywhere or be used for another TV set, as a service simple and available, in terms of both contracting and use.

There was another crucial initiative we have been predominantly occupied with in 2016: One Billing & CRM project. Successful implementation thereof was followed by one year stabilization period, which was formally completed on October 26, 2016. During this period, complete fix & mob products’ portfolio was refreshed and renewed and, moreover, product roadmap was fully implemented in line with time plan. CT IT team was able to develop majority of products and offers without Amdocs support, resulting with lower costs and shorter implementation time.

Last, but not the least, the year of 2016 was the year of preparation for the novelties intended by the expected change of ownership over Crnogorski Telekom. Namely, Hrvatski Telekom, leading telecommunication provider in Croatia, as you know, has signed a Share Purchase Agreement with Magyar Telekom to acquire majority shares of Crnogorski Telekom a.d. Podgorica for a total amount of EUR 123.5 million. Having in mind that Hrvatski Telekom is the leading provider of telecommunications services in Croatia, serving more than 1.0 million fixed line customers, 2.3 million mobile subscribers and around 740,000 broadband connections, we find this transaction as a good opportunity for Crnogorski Telekom to benefit from exchange of knowledge and technologies, optimization of processes and possibility of mutual market approach. Through synergy of two leading telecommunication operators in Montenegro and Croatia, we expect to improve our overall business, and to be able to offer better products and services to our customers, especially in ICT solutions.

Finally, I would like to take the opportunity to thank all of our employees for a job well done in 2016. I am really proud of how

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Crnogorski Telekom – 2016 Annual Reportwe all pushed together and invested our best efforts in the Company’s results, regardless of the fact that in some areas these were not as impressive as our shareholders are accustomed to. Dear shareholders, let me now also thank you for contribution to the success of our Company. Your trust and confidence is our key input in this challenging job we are doing, so, in the future, we will need your support in our efforts to improve our results and achieve the ambitious plan we developed by our Strategy.

Milija Miško ZekovićChief Executive Officer

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Crnogorski Telekom – 2016 Annual ReportManagement reportManagement Report for the Financial Year 2016Highlights

In 2016, revenue performance was in line with expectations. Total revenues decreased YoY by EUR 6.7 million or 7%, to a level of EUR 91.8 million. Revenue decrease was driven by lower service retail and wholesale revenues, which was partly compensated by the increase in equipment revenues.

EBITDA, before special influences, followed revenue development and decreased by 15% YoY, to EUR 31.1 million, with a margin of 33.9% (37.3% in 2015).

Net profit decreased YoY by EUR 6.5 million or 41%, to EUR 9.4 million, driven by lower operating profitability.

Capital expenditure was EUR 49.8 million. In 2016, CT invested EUR 28.8 million for the new spectrum frequencies and for the renewal of the frequencies already in use.

A dividend of EUR 19.2 million was paid out.

Revenues and Profitability

In 2016, Crnogorski Telekom focused on further extending its 4G mobile network, on fibre network rollout, launch of VDSL, on the improvement of existing services and launch of new ones, such as Magenta1 or DVB-T2 based service ”TV za sve”, in cooperation with Radio-broadcast centre. It was also a year of strong competition presence on the fixed services market. CT experienced a decrease in fixed broadband and TV customer base. In the mobile segment, CT was able to retain leadership positions in overall postpaid and in business-segment postpaid. Mobile services portfolio was completely restructured and renewed. Revenues and profitability were negatively impacted by the regulation of fixed voice and fixed broadband retail prices.

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Crnogorski Telekom – 2016 Annual ReportCT’s revenues decreased YoY by 7% and reached EUR 91.8 million. Retail revenues decreased by 4%, while wholesale revenues decreased by 22%. Compared to 2015, major revenue deviations referred to:

- Interconnection revenues (-19%), driven by decreased mobile termination rates and lower incoming traffic, as well as by lower revenue from visitors;

- Fixed-line voice retail revenues (-21%), influenced by retail price regulation and decreasing usage;

- Fixed broadband revenues (-9%), also impacted by retail price regulation;

- Mobile prepaid revenues (-5%);- Data services (-15%), due to lower ICT and traditional data

services;- Other Wholesale revenues (-44%), driven by one-time deal

in 2015.Positive revenue developments referred to:

- Postpaid revenues (+6%), influenced by the success of Magenta1;

- Equipment revenues (+26%), mainly driven by handset sales.

As revenues decrease, CT is continuously making efforts to increase efficiency and to improve the cost base. The result is a YoY decrease in Operating expenses before special influences of EUR 1.1 million or -2%. Indirect costs decreased by 0.9% YoY, while on a comparable basis (excluding extraordinary expenses), Indirect costs decreased by 2.6%

YoY revenue decrease was partly compensated by cost efficiency, which resulted in 15% YoY decrease of EBITDA before special influences, to the amount of EUR 31.1 million.

Operating profit (EBIT) decreased YoY by EUR 6.4 million to EUR 10.3 million. Net profit decreased by EUR 6.5 million to EUR 9.4 million.

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Crnogorski Telekom – 2016 Annual ReportMain Non-Financial KPIs

In 2016, the number of fixed-line connections decreased by 9%, as the usual customer churn was accelerated by strong competition activities. The number of fixed broadband connections and of IPTV connections decreased as well.

Fixed line operations KPIs (in thousands)

Dec 31,

2015

Dec 31,

2016Δ Δ%

Fixed-voice connections, Total 148 135 -13 -9Residential 130 117 -12 -10Business 19 18 -1 -3

Fixed voice Market share (%) 96,2 91,5 -4,7

Fix broadband connections, Total 76 70 -6 -8Residential 68 62 -6 -9Business 8 8 0 0

Fix BB Internet Market share (%) 77,5 60,9 -16,6

IPTV connections, Total 63 59 -4 -6Residential 61 57 -4 -6Business 2 2 0 4

Pay TV Market share (%) 38,2 31,4 -6,8

At the end of 2016, Crnogorski Telekom customers were using 361,000 SIM cards, which is an increase by 31,000 or 9% compared to the previous year. The total SIM market share increased by 2.0pp and amounted 34.7%. The prepaid SIM base was stable. The postpaid SIM base increased YoY by 30,000 or 19%, driven by the success of Magenta1. Crnogorski Telekom remained the market leader in the postpaid segment.

Mobile line operations KPIs (in thousands)

Dec 31,

2015

Dec 31,

2016Δ Δ%

Number of customers, Total 330 361 31 9Prepaid 175 176 1 1Postpaid, Total 155 185 30 19

Postpaid Residential 43 68 25 58Postpaid Business 112 117 5 5

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Crnogorski Telekom – 2016 Annual ReportMobile customers market share (%) 32,7 34,7 2,0Mobile internet customer number 119 143 24 20Mobile Internet customers market share (%) 36,7 37,9 1,3Mobile penetration (%) 163 168 5

Main Investments

In July 2016, CT launched the first DVB-T2 service in the DT Group. The service was launched in cooperation with National Radio-Broadcasting Centre, having offered initially 18 TV channels and extended those to 34 channels by the end of the year. At the end of 2016, there were 3,300 commercial customers on the platform.

In 2016, CT has successful rollout of Easy-to-Partner technical target architecture (Steckerleiste) preparing the ground for on-boarding of different partners on the system. As the 6th NatCo, CT is fully prepared and aligned with Partnering Strategy of DT group.

VDSL/Vectoring

In December 2016, we have launched BB services based on VDSL/Vectoring technology. VDSL, as a new generation for copper based connectivity, supports significantly higher BB throughput (up to 10 times compared to ADSL). It is evaluated as the most efficient tool for securing the customer base and prevent churn in BB segment. In 2017, VDSL rollout will continue with network expansion, new areas coverage and ambitious plans for customer acquisition.

Microwave

Microwave project started in 2012 has been finished in 2016. Backhaul radio microwave network used for transport between central and remote locations (2g/3g/4g RBS and business

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Crnogorski Telekom – 2016 Annual Reportcustomers) not reachable by cable infrastructure has been migrated to IP solution, aligned with company All-IP transformation strategy. As a result, we have radio transmission network of high performance, supporting all radio access technologies in mobile segment, ready for future demands in terms of quality and capacity.

MPLS Core network modernization

MPLS network of high performance is a precondition for service quality in all segments of CT offer for all customers. In 2016, we have completed installation and integration of the latest generation of IR routers in MPLS core network segment (P and PE routers on main DC locations). The result is MPLS Core in two locations (Podgorica and Bijelo Polje), as geo redundant solution, ready to accept, aggregate and route IP traffic generated by all CT customers in all categories (mobile/fix, voice/data/iptv). Additionally, MPLS nodes modernization has been completed in other locations (Kolašin, Mojkovac, Plav, Rožaje), with plans to continue with modernization in 2017 on other locations).

DWDM network modernizationDWDM technology is used as most advanced and effective method of transport of IP traffic. It is infrastructure connecting all central offices of CT in reliable and high performance network, as a mean of transport of overall traffic generated by CT customers. Project of modernization started in 2016 by installation/integration and traffic migration for half of the DWDM network elements (“North Ring”). In 2017, we will continue with the project – modernization in “South Ring”.

IP Centrex modernization

IP centrex platform was introduced in 2008 as first IP based voice platform. In 2015, implementation of Broadsoft platform as most advanced hPBX system was completed. During 2016, migration of existing business IP centrex customers was performed as well as

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Crnogorski Telekom – 2016 Annual Reportpreparation for new IP based services such as SIP trunk and Meet me conferencing.

Core Network modernization

In 2016, the project of Core modernization was signed with Ericsson. Through this project, in 2016/2017, new convergent layered architecture for HLR/AUC and HSS will be performed. Complete Mobile Core nodes, MSC Servers and MGW will be replaced on primary site in Podgorica as well as in Disaster Recovery Site in Bijelo Polje. Convergent Number Portability Database for fixed and mobile services will be collocated on same CUDB.

FTTH

FTTH rollout, as one of the most important strategic projects aiming to provide customers with opportunity to live in a fully digital lifestyle, continued throughout 2016, having ended with cca 70% coverage of flats in urban areas and 29% coverage of households (HH) at the national level. Utilization rate was more than 25%. Apart from strategic importance, FTTH is becoming one of the main tools in churn prevention strategy on the national market.

RAN

In the most complex spectrum auction (CCA), CT acquired superior package at reasonable costs. Thanks to the favourable outcome of auctions, we will strengthen our position on long term and clearly differentiated LTE advantage in quality and coverage. Spectrum acquisition was followed by strong LTE roll out and it focused on technology leadership in Montenegro. At the end of 2016, we reached 78% of LTE outdoor population coverage. Also we implemented and demonstrated superior LTE-Advanced network with speeds up to 300Mbps and 450Mbps. These

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Crnogorski Telekom – 2016 Annual Reportadvanced services are available for our customers in Podgorica, Bar, Budva, Tivat, Kotor, Danilovgrad and Berane.”

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Crnogorski Telekom – 2016 Annual Report

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Crnogorski Telekom – 2016 Annual ReportCrnogorski Telekom's Board of Directors

- János Szabo, Chairman- Susanne Krogmann- Michael Frank- Jovica Gjorgjeski- Pavle Gegaj

János Szabó

János Szabó was born in Hódmezovásárhely (Hungary) in 1961. He graduated at the Budapest University of Economics in 1986, majoring in international relations.After working in foreign affairs for three years, he continued in various finance and consultant positions in the private business sector. He became Director of Finance at Delco Remy Hungary (a subsidiary of the US-based automotive supplier) in 1995. Later he became Deputy General Manager of the operation, responsible for sales, purchasing and operations. In 1998 he moved to the position of Director of Finance for Europe, in charge of the finance activities and acquisitions of European operations. Later he became CFO and Managing Director of a joint venture between Delco Remy and Hitachi. From 2003 he was the Finance Director of the Wireline Services LOB of Magyar Telekom (later T-Com). The role was extended to the fixed-line network and IT operations in 2006. Since 2008, he has been the Director of Group Planning & Controlling of the Magyar Telekom Group. From April 2013, he holds the position of the CFO of Magyar Telekom. For the past few years he was elected member of the Board of Directors of Crnogorski Telekom, which he’s chairing since May 2013.

Susanne Krogmann

Susanne Krogmann, born 1964, holds a diploma in Economics from Georg-August-University Göttingen, Germany and studied European Integration at the College of Europe, Bruges, Belgium.

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Crnogorski Telekom – 2016 Annual ReportSusanne Krogmann started her career at Treuhandanstalt, the state-owned agency responsible for the privatization of the enterprises and assets of the former Democratic Republic of Germany. During her five years at Treuhandanstalt she worked in the controlling department and in the contract management department. For the last 2 years at Treuhandanstalt she held the position of key account manager for several companies in the chemical industry. Susanne Krogmann joined Deutsche Telekom in 1999. For more than 8 years she worked in different positions in the Regulatory and Public Affairs division, especially in the field of regulatory economics and regulatory strategy. She then took over the position of Head of the group “Corporate Responsibility Strategy and Controlling” where she developed a new Corporate Responsibility strategy for DT group. Following the increasing awareness of data security and data protection at Deutsche Telekom she later worked in a data security project with her personal focus on customer data security. Since the end of 2009 she holds the position of Vice President Corporate Governance Europe within Board Area Europe at Deutsche Telekom. She has become member of the Board of Directors of Crnogorski Telekom in 2011. Since 2012 she is also member of the Board of Directors of Makedonski Telekom and the Board of Directors of T-Mobile Macedonia (in T-Mobile Macedonia until legal merger in 2015). In 2013 Susanne Krogmann also became a member of the Supervisory Board of T-Mobile Czech Republic.

Michael Frank

Michael Frank was born in 1977. He graduated as an Industrial Engineering with Business Studies from the Technical University of Karlsruhe in 2003 before gaining an additional Master degree in International Relations from the Andrássy University Budapest in 2006. He started his career in 2004 with T-Mobile Hungary as a Regulatory Manager, then joining Detecon in 2007 as a Strategy Management Consultant with global project assignments. From 2010, he worked at Deutsche Telekom’s Headquarter as a Senior

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Crnogorski Telekom – 2016 Annual ReportManager, first in International Public & Regulatory Affairs and later in the International Business Unit. In 2013, Mr. Frank joined Magyar Telekom as Head of Portfolio Management. Since January 1, 2014, he was heading Magyar Telekom’s Corporate Strategy and Portfolio Management Department and is currently an advisor to the CEO of Magyar Telekom. Besides membership in Crnogorski Telekom’s Board of Directors, he is a member of the Board of Directors of Makedonski Telekom as well.

Jovica Gjorgjeski

Jovica Gjorgjeski was born in Skopje, Republic of Macedonia. He studied Management at the Faculty of Economics on the University of Ss. Cyril and Methodius in Skopje. He started his career in 2004 at Makedonski Telekom where until 2007 he held several positions within the finance area. Between 2007 and 2010 he held the position of General Coordinator in the Cabinet of the Chief Executive Officer of Makedonski Telekom. In 2010, Mr. Gjorgjeski joined Magyar Telekom as Country Manager for the Macedonian operations (Makedonski Telekom, T-Mobile Macedonia, Stonebridge Communications and Telemacedonia) being responsible for the business and corporate governance issues. Since 2011, he is a permanent invitee to the Board of Directors and the Audit Committee of Makedonski Telekom and the Board of Directors of T-Mobile Macedonia. During 2014, he was representing Magyar Telekom at the Shareholders' Assembly of Crnogorski Telekom, exercising all voting rights on its behalf. Since January 2015 he is member of the Board of Directors of Crnogorski Telekom.

Pavle Gegaj

Pavle Gegaj was born in 1983 in Podgorica. He graduated on Law Faculty in Podgorica in 2006, whilst he gain his additional master degree in quantitative finance and risk management on Bocconi University in Italy in 2007. From 2007 to 2013 he was engaged as assistant on quantitative methods on Political Sciences Faculty in Podgorica. Alongside, as of establishment (in 2008) until

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Crnogorski Telekom – 2016 Annual ReportDecember 2011 he was holding the positions of investments advisor and executive director in Bull&Bear broker, as well as of mid 2012 until May 2014 during which period this brokerage house became market leader with more than 50% market share. As of May 2014, he holds the position of head of custody department in Erste Bank AD Podgorica. As of July 2014 he is member of the Board of Directors of Jugopetrol AD. He was elected member of the Board of Directors on the Ordinary Shareholders’ Assembly, held on May 31st, 2016.

Until Ordinary Shareholders’ Assembly, held on May 31st, 2016, Mr. Tripko Krgovic was member of the Board of Directors of Crnogorski Telekom. The subject Assembly dismissed him, upon which he is no longer member of the Board of Directors of Crnogorski Telekom.

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Crnogorski Telekom – 2016 Annual ReportThe Executive Management Board of Crnogorski Telekom (as of 31st Dec, 2016)

- Milija Zeković, Chief Executive Officer, Chairman of the Executive Management Board and acting Chief Commercial Officer

- Vladan Peković, Chief Technology and Information Officer - Vladimir Ivanovski, Chief Financial Officer - Vladimir Beratović, Chief Corporate Affairs Officer

Milija Zeković, Chief Executive Officer, Chairman of the Executive Management Board and acting Chief Commercial Officer

Born in 1971, he holds a degree in economics from the University of Montenegro. After completing his studies in 1995, he started his career at “Kartonka”, Podgorica as Production and Sales Manager. He started working as Sales Manager in T-Mobile (formerly Monet) in 2000. In 2006, he became the Director of Sales for residential customers and small and medium enterprises. In 2008 he was appointed as the Chief Sales Officer of Crnogorski Telekom. From 2013 he held the position of Chief Commercial Officer for Business segment, until 2015, when he took the position of Chief Commercial Officer. On August 1st, 2017, he was appointed as Chief Executive Officer (Chairman of the Executive Management Board), as well as acting Chief Commercial Officer.

Vladan Peković, Chief Technology and Information Officer

Vladan Peković took over the position of Chief Technology and Information Officer in January 2014. He came from T-Mobile Poland, where he was Technology and Platforms Director and Chairman of the Supervisory Board of Networks.Before joining DT group in 2009, he gained vast experience during long-lasting international carrier working for major telco companies on projects of development, implementation and

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Crnogorski Telekom – 2016 Annual Reportmanagement of telecommunications networks in the Czech Republic, Mexico and the USA.

Vladimir Ivanovski, Chief Financial Officer

Vladimir Ivanovski started his career in finance area in Nike, Gillette and L’Oreal regional offices in Macedonia, upon which he held various managing positions in Skopska Brewery (member of Heineken and Coca Cola group) from 1998 to 2006. He joined Makedonski Telekom in 2006 where he held managing positions in Customer Finance, Treasury and Controlling departments until 2008 when he was appointed as Controlling Director. He joined Magyar Telekom in 2008 where he was holding managing positions in Magyar Telekom’s Controlling Directorate. He was appointed as Magyar Telekom’s Controlling Director in 2013 in which position he was responsible for controlling, reporting, price control, treasury and current assets management for Magyar Telekom’s companies in Hungary, Macedonia and Montenegro. He was appointed as Chief Financial Officer of Crnogorski Telekom on September 1st, 2017.

Vladimir Beratović, Chief Corporate Affairs Officer

Born in 1970 in Podgorica, he graduated in international management, and is currently undertaking postgraduate studies. His 17-year-long career in telecommunications started in the Montenegrin mobile operator Promonte (today’s Telenor). During his last 10 years at Telenor, he held various directorial positions and was a member of the top-level management. He left Telenor as Chief Corporate Affairs Officer, in charge of government relations, legal, regulatory, interconnection and wholesale and corporate communication departments. His career at Crnogorski Telekom started in September 2010 as advisor to the Chairman of the Board. He was appointed Corporate Affairs Officer in November 2010. He was holding the position of Chief Corporate Affairs Officer, which included the wholesale area.

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Crnogorski Telekom – 2016 Annual ReportUntil July 31st, 2016, Mr. Ruediger Schulz held the position of Chief Executive Officer (Chairman of the Executive Management Board), when, his engagement was terminated by mutual agreement.

Until August 31st, 2016, Mr. Manfred Knapp held the position of Chief Financial Officer, when his engagement was terminated by mutual Agreement.

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Crnogorski Telekom – 2016 Annual ReportOur VisionIn a fast changing world,we are your first choice to live in a fully digital lifestyle wherever you are, whatever you do; by aspiring to be the best in class.

Our StrategyThe ambition of Crnogorski Telekom remains the one to be the leading telecommunications company in Montenegro and to continue delivering to its customers thebest quality of service. In 2016, Crnogorski Telekom continued with successful implementation of Corporate Strategy that was defined in 2015. This strategy framework means that we are providing best customer experience based on our modern, state-of-the-art network infrastructure, and is based on the following pillars:

Technology leadership Best customer experience New businesses

Technology leadership

Crnogorski Telekom, as largest telecommunication company in Montenegro, continues with investments in both network and supporting IT systems, too, in order to strengthen its technological leadership, with focus on FTTH, 4G, Hybrid Access and the best IT systems. In fixed segment, we ended 2016 with more than 55,000 households covered with FTTH, out of which almost 14,000 households used possibility to be connected to super-fast fiber network.In mobile segment, Crnogorski Telekom successfully finished Spectrum auction in 2016 and won package that guaranteed us the superiority of our mobile network for the next 15 years. Comparative testing of all three mobile operators’ networks carried out by the international company P3 Communications

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Crnogorski Telekom – 2016 Annual Reportcertified CT as the operator with the best results for the second year in a row.Telekom will continue to invest in its network infrastructure, as a basis for superior quality of service and the best customer experience.

Best Customer Experience

After a very intensive 2015, in which we finished several important investment projects such us ALL-IP migration, introduction of new IT systems, launch of Hybrid access etc, which further strengthened our superior network, in 2016 we were focused on turning our technology leadership into best customer experience. In 2016, we launched Magenta 1, a product that was combining all of our services in one package: fixed network, internet, Extra TV and mobile network. Shortly: The best from Telekom world in one package! This product achieved great results and we finished year with almost 12% of Montenegrin households on Magenta 1.Being in an industry that is changing rapidly influences strongly the way we operate and the way we meet expectations of our customers, which are changing and increasing very fast, too. This is why we are proactively working on providing additional benefits to our customers in order to increase their satisfaction, by offering simple and innovative offers. Also, we are working on an increased availability to our customers, through as many various channels as possible, with special focus on online communication. Our new Telekom.me application is a great example of a channel that is meeting customers’ expectations, as we received excellent feedback for this app from our customers. Crnogorski Telekom also launched OTT TV application in 2016, made significant improvements on Webshop, and will continue to improve these applications and other points of touch with customers, in order to achieve best customer experience.

New Businesses

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Crnogorski Telekom – 2016 Annual ReportCrnogorski Telekom is recognized as a partner of choice for the most successful companies from other industries in the country, such as banking, hotel industry, entertainment etc. ICT services and hardware sales continue to be the important part of our business. We are proud to be the preferred choice in the ICT market, with a portfolio of valued enterprise customers that are top brands in their respective industries. Our Premium program, that is being realised in cooperation with our partner Hipotekarna banka, accomplished another successful year, with constant improvements for customers. Beside participation in the most important investment projects in the country, we are present in the software and application market, too, while constantly exploiting new possibilities of growth for our company. Being a technology leader that is creating best customer experience and is always open to opportunities for new businesses is our long-term ambition so as to be able to keep our leading position in Montenegrin telecommunications market.

Regulatory EnvironmentThe regulatory environment is characterised by implementation of the Law on Electronic Communications that is based on the EU regulatory 2009 framework, as well as number of bylaws adopted in accordance with the Law. The new regulatory framework is dedicated to ensure competitiveness in the market as well as obtaining a higher level of protection of consumer rights.

Out of all wholesale products offered to the market, based on the resolutions on SMP operators from 2010, 2013 and 2015, interest was shown only for duct rental.

The Cost Accounting and Accounting Separation obligations were implemented for both fixed and mobile services. Revised reports

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Crnogorski Telekom – 2016 Annual Reportfor 2015 based on LRIC model were approved by the National Regulatory Authority (NRA) in October 2016.

In 2013, the NRA completed second round of market analysis of seven relevant markets already analysed in 2010. Crnogorski Telekom was again identified as the Significant market player (SMP) in all seven markets. Additionally, in 2012, the NRA applied a three-criteria test on two retail markets: broadband and mobile services, to find out if those markets were susceptible to ex-ante regulation. The retail market of mobile services was found sufficiently competitive, while Crnogorski Telekom was designated as an SMP in the fixed broadband market. Upon approval of the 2015 Regulatory reports for the fixed network, the NRA, for the third consecutive year, performed retail price regulation of the following services provided at fixed locations: access to the network, broadband, as well as voice services (local, national and international calls) on a cost basis. Price adjustment implied a decrease based on the Crnogorski Telekom 2015 Cost Model.

Universal Service

Universal Service (US) was commercially launched in December 2011, but without significant interest from customers for the service. However, after introducing changes to the US regulatory framework, customers interest significantly increased, especially for voice services and internet access. Interest for the US Inquiry and Directory Service was not very high. Consequently, Montenegrin operators compensated a rather significant net cost to USOs for the period 2011–2015. Following the results of the public tender for a selection of USOs for the period 2016–2021, the NRA designated Crnogorski Telekom as the USO for access to the network, voice and internet access service. Interest for the services provided by Crnogorski Telekom as USO was higher than in the previous period. In addition to the three sites that were taken over from the previous US operator, Crnogorski Telekom is providing service in additional four locations. One of these locations, Medun near Podgrica, required upgrade from 2G to 3G

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Crnogorski Telekom – 2016 Annual Reportin order to provide services under the US scope Crnogorski Telekom was designated for. Additionally, Crnogorski Telekom is in the process of obtaining necessary preconditions for building four new sites, but it is expected the customers interest for services from three more locations.

Number Portability

The Number Portability service was commercially launched in 2011. In 2016, interest in the service significantly decreased comparing to 2015 (17,45%).This service is mainly used by mobile network subscribers. More than one third of total number of subscribers who used this service during 2016 ported the number in Crnogorski Telekom mobile network.

Regulatory Fees

Under the effective regulations, Crnogorski Telekom pays fees for market supervision and use of radio frequencies, numerations and addresses.

Radio-Frequency Spectrum At the Multi-band auction for 800/2600 MHz and 900/1800/2100 MHz organized in July 2016, Crnogorski Telekom won superior package that will ensure its position in the mobile segment for the next 15 years, as well as the basis for improvement of Crnogorski Telekom technological leadership at the market.

Sharing of Infrastructure

The Reference Interconnection Offer (RIO) defines the terms and conditions of collocation, for the purpose of interconnection realised in Crnogorski Telekom’s premises. This includes rental of space in buildings, masts and cable ducts. The RIO conditions are valid only for operators looking for interconnection/access, while usage of infrastructure by operators for other purposes is subject to commercial negotiations. Apart from the RIO, the Reference

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Crnogorski Telekom – 2016 Annual ReportUnbundling Offer defines the terms and conditions of collocation for the purpose of local loop unbundling, including also rental of collocation space in Crnogorski Telekom premises and ducts. Regulated prices for duct rental do not encourage investments in new duct deployment.

Termination of Calls

Based on the NRAs relevant SMP resolutions in termination rates were reduced in December 2016. Fixed termination rates (FTRs) were reduced from 0.74 to 0,65 cents/min (for local) and from 0.94 to 0,8 cents/min (for single transit), while the mobile termination rate (MTR) for voice traffic, after approving the 2015 Regulatory Reports of all three operators, was reduced from 1.18 cents to 1.06 cents/min.

Future Regulatory Developments

In the process of implementation of the 2013 Law on Electronic Communications, the Government, responsible ministries and the NRA will work on further regulatory framework developments through harmonisation of existing bylaws and adoption of new ones. In 2017, the NRA planned to perform four relevant market analyses proscribed by the EU Commission 2014 Recommendation as susceptible for ex ante regulation.

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Crnogorski Telekom – 2016 Annual Report

Promotions and OffersResidential Customers

Postpaid

In 2016, CT redesigned the whole postpaid offer, in order to increase competitiveness.The postpaid market was set on offers with unlimited internet out of bundle, which prevented proper monetization of data service and also put a lot of pressure on the network, influencing negatively the network quality perception. On the other side, small data packages were included in the tariffs. In CT case, internet was not included in the tariff but sold as a soft bundle which made the tariffs less competitive and not fit for 4G.It was the time to include more data traffic and to adopt a hard cut approach that would foster upsell of data out of bundle with various bundles and services. So, the new Max tariffs were launched in April. They are designed to increase profitability and to be attractive to younger data heavy users.

Prepaid

2016 was also the right time for a general redesign of our prepaid offer.A new set of options called “ILI–ILI” (“either-or”) was created, with a segmented approach: all including attractive level of data traffic, one off-net focused, one on-net focused and two data focused. The new “ILI-ILI” platform is designed to increase take-up rate, profitability and appeal towards the younger target groups.

VOLIM branded reseller relaunch

CT relaunched VOLIM, the branded reseller offer done in cooperation with Voli, the greatest retailer in the country. New

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Crnogorski Telekom – 2016 Annual Reportproposition was created to improve profitability of prepaid service and to maintain a stable customer base through this partnership offer leveraging on a new channel.The process was triggered in the retailer POS and it is loyalty based. Every time a customer buys in VOLI supermarket for more than 10 EUR, he/she shall get a small recharge on his VOLIM simcard.Offer was launched in September, and by the end of 2016, there were 14,000 customers, who helped keep our marketshare stable.

Magenta 1

Q4 2015 was a difficult period for CT due to strong competition entry. In 2016, we used the competitive advantage, our market position and the capabilities of the new billing system to launch our first convergent offer, Magenta1, fixed and mobile services all in one package.Our strong fixed MSH and our challenger position in mobile enabled a huge growth on the mobile side and very good churn prevention of our triple play base.Magenta1 was launched at the end of January, and, by end of 2016, there were 24,000 customers, 12% of households in Montenegro, on this package. We had 20,00 new postpaid SIMs and increased postpaid residential market share by 5%.

TVzaSVE

The Pay-TV market in Montenegro went through a consolidation due to mergers and acquisitions carried out recently.In such environment, CT used the opportunity for further growth by partnering with National Radio Broadcast Center. The outcome was “TVzaSVE”, a DVB-T2 based digital terrestrial offer, with 97% of population coverage, a product mainly intended for rural areas and weekend houses. The offer was complementary to our IPTV and enabled us to offer some content not present on our IPTV platform. We launched the offer mid-August and by the end of 2016 there were already 3,300 customers.

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Crnogorski Telekom – 2016 Annual Report

Business CustomersPostpaid

In 2016, we continued with push of new tariff portfolio, called “Smart Business”, in order to maintain CT’s position in this segment. Until the end of 2016, more than 17,000 customers migrated to the new packages.

Throughout the year, there was a special focus on SOHO segment. Aim was to increase CT’s share in this segment and to partially compensate for the decrease in revenues in the Key and Large Accounts segment.

Roaming

In order to protect customers using their services in roaming, CT continued with the promotion of internet data roaming tickets. Introduction of new “Travel&Surf” options further improved our position in this segment.

Fixed Broadband

Strong telesales activities during the entire year helped us maintain a stable number of fixed broadband connections at 8,100.

Magenta 1 Business

In September 2016, FMCC offer called Magenta 1 Business was introduced. They represented acquisition tool for mobile and a retention tool for fixed customers and a way to make our offer more attractive, especially for the SME and SOHO segments. As a result, we had more than 500 active customers at the end of the year.

Integris (ICT)36

Crnogorski Telekom – 2016 Annual ReportIntegris continued its good development even the YOY revenues were lower. Profitability was higher thanks to further growth of managed service revenue part. Great progress was made in the hotel/resort segment and banking segment.In December 2016, CT signed contract with Ministry of Justice for providing solution for prisoner monitoring via electronic bracelets.

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Crnogorski Telekom – 2016 Annual ReportHuman Resources

Employee satisfaction- The Survey results significantly above EU average

Crnogorski Telekom, as a part of Deutsche Telekom Group, regularly conducts Pulse Check- employee satisfaction survey. The feedback provided in this way serves us to improve the work environment which directly reflects the customer satisfaction, in which way we further improve our Brand’s value. Pulse Check survey shows in which segments we shall continue to strengthen and develop the company's strategy, and where we need to apply additional measures of improvement.

The Survey conducted in June, with response rate of 74%, recorded a significant improvement in terms of recognition that employees feel to receive while performing their daily tasks, as well as in terms of establishing a healthy balance between private and work obligations, and also understanding of changes in the Company. With intensification of communication channels, we strive to ensure the smooth flow of accurate information, which is the basis for strengthening trust within Crnogorski Telekom. Results of the Pulse Check from November 2016, with an extraordinary response rate of 82%, showed that the satisfaction of employees in Crnogorski Telekom was significantly above the EU average. Namely, we have continued to record positive trends, which applied particularly to the appropriate amount of recognition, leadership quality and the overall satisfaction with the work in the company, which furthermore proves that Crnogorski Telekom is one of the most desirable employers in the country.

We continuously work on establishing a clear connection between the survey results and concrete improvement measures that we take, following the needs and expectations of our employees. In this regard, we have organized trainings for different target

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Crnogorski Telekom – 2016 Annual Reportgroups of employees, as well as trainings designed to support the adjustment to the increasingly demanding telecommunications market and to enable delivering the best customer experience.

Investments in employees

Following our employee trainings and development strategy, throughout 2016 we continued to make significant investments when it comes to the employees’ development, focusing on relevant business skills and training offers designed for different target groups, while we paid special attention to digital trainings. Based on these guidelines, training needs that were identified at the beginning of the year and based on results obtained from the employee satisfaction survey, during 2016 we organized a significant number of face-to-face training programs.

Apart from the above mentioned, and within the available DT portfolio, a certain number of employees had obtained an access to the digital programs, which significantly increased the percentage of digital use compared to trainings organized F2F, in accordance with the priorities of Deutsche Telekom. As a result of the above, these are the important facts that marked 2016: - More than 400 employees participated in training programs, i.e. more than 75% of the organization- 12,209 training hours - 29% - 71% ratio of digital and F2F training hours (the ratio in 2015: 18% digital - 82% F2F)- Excellent feedback (evaluation rates) received from the trainings.

Crnogorski Telekom pays special attention to safety-at-work trainings, which is in accordance with statutory obligation. During 2016, approximately 170 employees passed the training in this area, while, in the same period, approximately 50 employees were certified in providing first aid, as a result of successfully completed training in this field.

As it was the case in 2015, in 2016 Crnogorski Telekom continued

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Crnogorski Telekom – 2016 Annual Reportto address the housing needs of employees, as well as to invest the significant funds in health and recreation programs, thus providing a range of benefits for employees, which resulted from a successful cooperation with the Trade Union.

Social Dialogue

Negotiations with the Trade Union, that were conducted during 2016, concluded with signing a comprehensive agreement and annex to the collective agreement in December 2016, by which the social partners have reached an understanding on topics that were the subject of the collective agreement, which provided a significant contribution to achieving the financial expectations on the matter of personal costs, stability of employment relations and better focus of all employees toward the best customer experience. Furthermore, in cooperation with the Trade Union there has been conducted revision of the regulations for allocation of housing loans, in order to ensure the legal certainty and predictability of the process, which is the common interest of everyone. Based on the agreement with the Trade Union, at the end of 2016, Crnogorski Telekom implemented program of consensual employment termination.

Transformation and change – business focus

- Organizational developmentThe constant improvement of the organizational structure has been continued in 2016, having in mind that in July 2016 the new organizational structure came into force, which resulted from the market needs and also our ambition to meet those needs in the most possible efficient manner.

- International projects

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Crnogorski Telekom – 2016 Annual ReportWe have continued to have an active role in the initiatives and activities aimed at developing cooperation and understanding within the business community and business associations framework, significantly contributing to the exchange of experiences from the scope of national regulations implementation and also giving suggestions for their improvement.

Future Operating Model – FOM project – new DT HR organization will be implemented in “light” version into Crnogorski Telekom, which, at this point, implies online trainings from DT portfolio, aimed at all employee levels in the Company.

ONE ERP – Travel management module – implementation of DT platform (My Portal) for travel requests and cash costs for all employees in the Company.

Aramis Projekat – Global Deutsche Telekom project with the aim of introducing a unique HR Service Center, for all employee questions from the scope of Human Resources.

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Crnogorski Telekom – 2016 Annual ReportCorporate ResponsibilityCorporate responsibility has been part of our corporate culture for many years. It is an integral component of all our business activities. As one of the leading companies in the country, Crnogorski Telekom aims to be involved in all areas that are important to Montenegrin society. Besides striving to offer the most advanced telecommunication services for our customers, we wish to actively contribute to the development of the community within which we do business and which we are a part of.

Crnogorski Telekom is a company that has always maintained a balance between economic, environmental and social goals, while being accountable to the community and positioning itself in a socially responsible manner. The areas on which we are focusing are: education, health and the environment, culture and community support.

“Za svako dobro”

For the third year in a row, Crnogorski Telekom organized the contest “Za svako dobro”, which supports and funds socially responsible projects of special importance for the community. The goal of the project is to support socially responsible projects that are contributing to the welfare of the community, engage important stakeholders and gain their trust, and also increase transparency in the company’s social engagement. In order to ensure transparency and the selection of the best projects, beside Telekom employees, representatives from the NGO "Fund for Active Citizenship", the Montenegrin TV station “TV Vijesti” and the local UN office participated in the selection of the winning projects.

The total amount of funding for 2016 contest was EUR 30,000.

The contest was open to all non-governmental organizations from Montenegro that could apply their projects in the fields of

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Crnogorski Telekom – 2016 Annual Reporteducation, arts and culture, environmental protection and the creation of equal opportunities for inclusion in a digital society.

Out of 33 applicants, six projects were selected and awarded with funds for implementation:

“Mediterranean garden” (Udruženje ljubitelja Gorice i prirode) - project to preserve natural beauty of Gorica hill

“Scouting for all” (Odred izviđača Njegoš) - ecological camps for socially challenged children

„Cycletown“ (Biciklo.me) - crowdsourcing web service for improvement of cycling experience in Podgorica

“Equal chance for all” (Budi human) - online crowdfunding service, donations go to people who need help for medical treatment

„Sun for you, sun for me“ (Fondacija Ognjen Rakočević) - expert support for kids with autism

„Together for speech therapy cabinet“ (Nova nada Žabljak) - expert support for kids with developmental challenges

Digital responsibility

Being the leading broadband provider in the country, Crnogorski Telekom has the responsibility of providing and promoting usage of modern technologies in order to improve quality of life of Montenegrin citizens in the digital world.

For the tenth year in a row, Crnogorski Telekom is enabling free internet access via ADSL to all preschool institutions, elementary and high schools in the country. During 2016, around 150 Montenegrin schools benefitted from this service. The project was implemented together with the Ministry of Education and Science.

In 2016, Crnogorski Telekom was very active in promoting and fostering the Montenegrin start-up community and young entrepreneurs. Together with Hub:raum, the innovation center of the Deutsche Telekom Group we promoted “Warp” program that offers all necessary tools and resources for young innovators to

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Crnogorski Telekom – 2016 Annual Reportdevelop, scale and commercialize their service from both technical and business perspective.

Telekom also supported Spark.me, one of the most famous tech/business conferences in the Balkan region thus further providing support to educational efforts in the field of digital.

During 2016, Crnogorski Telekom joined the project of Deutsche Telekom, “Sea Hero" - an innovative mobile game, the first of its kind in the world that contributes to the scientific community in the fight against dementia. Telekom’s initiative in Montenegro was supported by Clinical Centre of Montenegro, Faculty of Medicine and the Ministry of Health of Montenegro. After just two weeks after the launch, more than one million people around the world was playing this both amusing and useful game, and it, also, helped to collect data, for which the classic method of collecting would need 1,500 years.

Sports, Music and Culture Move People

Our sponsoring platform focuses on sports, music and culture – which is perfect for underlining our brand promise “Life is for sharing” and providing a wide range of memorable moments to share.

Within the company’s sponsorship strategy, sports have a special place, since this is an important area for developing a healthy, modern and advanced society. The company is the golden sponsor of the Montenegrin national football team and general sponsor of the Telekom First Montenegrin Football League. Additionally, in 2016, Telekom supported and sponsored Budućnost Basketball Club.

Music is one of the main areas within our sponsorship strategy, since music is considered to be the universal language for all generations. We sponsored numerous musical events and activities in 2016. We partnered with organizations across

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Crnogorski Telekom – 2016 Annual ReportMontenegro and supported the Southern Soul Festival in Ulcinj and After Beach Parties along the Montenegrin coast.

Environmental Protection and Energy Efficiency

In 2016, Crnogorski Telekom continued to implement a range of measures to save energy and to make its operations more energy-efficient.

More than 80% of Crnogorski Telekom employees have access to selective waste collection. Thanks to this initiative, during 2016 1,498 kg of paper, 21 kg of plastic and 5 kg of cans were collected and recycled.

In March 2016, the company participated in the Earth Hour and Earth Day global campaigns with the aim of raising awareness about climate change issues. The company is constantly promoting the use of sustainable solutions among its customers and employees such as promoting e-mail bills, online registration instead of filling in paper forms, etc.

Crnogorski Telekom owns three state-of-the art base stations that use renewable energy sources, the power of the sun and wind. The project is part of a broader company initiative to address global warming issues and protect the environment.

Community Support

Besides the donation contest “Za svako dobro”, in 2016, Telekom supported a number of initiatives dealing with the problems of socially vulnerable groups or promoting good causes for our society.

Our support to the Montenegrin health system, and Clinical Center of Montenegro, the most important public medical

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Crnogorski Telekom – 2016 Annual Reportinstitution in the country was continued with three important donations:

12,500 euro for adaptation of Center for digestive surgery 2,500 euro for laparoscopy instruments for “GAK” 1,500 euro for restoration of lobby of Institute of children

diseases 1,000 euro for reconstruction of Chemo-oncology clinic

within Institute for Child disease

In cooperation with Foundation “Budi human”, the company opened donation line 14543 to provide support to citizens of Montenegro that need help in collecting funds for medical treatments.

Volunteering

In 2016, the company continued to organize blood donor activities. In cooperation with the Montenegrin Centre for Blood Transfusion, our employees donated blood and helped raise awareness of this important social issue.

In 2016, employees organized three charity initiatives, in order to support people in need. Employees collected food on the occasion of the International Family Day. The collected goods were given to the Red Cross in Podgorica, which distributed it to families in need. Also, in April 2016, on the occasion of International Book day, employees organized collection of books for School library in Bioče. Within traditional New Year party, employees organized Charity lottery and collected funds for reconstruction of Children’s Chemo-oncology Clinic in Podgorica.

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Crnogorski Telekom – 2016 Annual ReportAwards

In November 2016, the Employee’s Union of Montenegro awarded Crnogorski Telekom with the Annual Award for Social Responsibility in 2016, in the area of community support, for the project “Za svako dobro”.

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Crnogorski Telekom – 2016 Annual ReportFurther InformationContacts

Crnogorski TelekomMoskovska 2981000 PodgoricaMontenegroTel: + 382 20 433 433Fax: + 382 20 225 752e-mail: office@telekom.mewww.telekom.me

Stock trading information:

Crnogorski Telekom stock code: TECG

Montenegroberza a.d.PodgoricaMoskovska 7781000 PodgoricaMontenegroTel/Fax: +382 20 228 502E-mail: mberza@t-com.mewww.montenegroberza.com

Published by:Crnogorski Telekom © 2017

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