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Crnogorski Telekom

2018 Annual Report

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Crnogorski Telekom – 2018 Annual Report

Content:

To Our Shareholders

About Crnogorski Telekom Letter to Our Shareholders

Management report

Management Report for the Financial Year 2018 Crnogorski Telekom’s Management

Board of Directors Chief Executive Officer and Management Committee

Vision and Strategy Regulatory Environment Promotions and Offers

Human Resources

Corporate Responsibility

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To Our Shareholders

About Crnogorski Telekom

Crnogorski Telekom (CT) is the largest telecommunications company in Montenegro. It provides a wide range of fixed and mobile telecommunication services (voice, internet, TV, FMC services, leased-line circuits, data networks, ICT and Cloud solutions).

Crnogorski Telekom fully digitalized the fixed-line network in 2007 and brought ADSL coverage to a complete customer base by the end of 2012. From 2011 CT is enhancing its fixed broadband network through roll-out of fiber network and through VDSL from 2016. In 2007, Crnogorski Telekom started an IPTV service, while in 2016 “TVzaSve”, a DVB-T2 based service, was launched in cooperation with Radio-broadcast Centre. In 2011 Crnogorski Telekom started offering ICT solutions. Full migration to IMS was completed in 2015.

Since entering the mobile market in 2000, the company 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, Crnogorski Telekom 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.

From 2012 all products are marketed under the T- brand.

In April 2005, Magyar Telekom obtained a 76.53% interest in Crnogorski Telekom, and Crnogorski Telekom became part of Deutsche Telekom Group. In January 2017, HT Holding doo, company fully owned by Hrvatski Telekom, bought the complete Magyar Telekom’s stake in Crnogorski Telekom A.D. Deutsche Telekom AG holds 51% of the Hrvatski Telekom shares. Deutsche Telekom is one of the leading telecommunication companies in the world, present in over 50 countries worldwide. With members of Deutsche Telekom Group Crnogorski Telekom has regular transactions. Details of related party transactions are given in the company’s Financial Statements, Note 29.

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Dear Shareholders,

In 2018, we achieved two main strategic goals - we stabilized revenues and increased profitability, which is a great success and a result of the commitment of all employees in the company. Crnogorski Telekom is on the right path to deliver growth in all business segments through efficiency increase and business transformation and thus remain the first choice for communication and entertainment for Montenegrin customers.

We are particularly proud of the positive developments in customer base of the fixed internet, TV and post-paid segment. After several years, we achieved growth in retail revenues and successfully implemented turnover strategy in this segment. The growth of retail revenues has almost completely offset the decrease in wholesale revenues, and total revenues show substantially better trend compared to previous years.

Operating profit before interest, taxes and depreciation (EBITDA), excluding special effects, amounted to 31.4 million, which is an increase by 6.5% compared to the previous year. The net profit amounted to 7.3 million euros and is higher by 40%, i.e. 2.1 million compared to 2017.

As a technology leader in the market, we continued to invest in infrastructure development to enable our customers to access the most advanced telecommunication services. Having in mind the growing need for mobile internet services, the company was particularly dedicated to the development of the mobile network. Currently, we cover almost the entire populated territory of Montenegro with 4G network, with speeds up to 150 Mbps, while at some locations users can access speeds of up to 400 Mbps, with 4G + technology. The reliability of Telekom's 4G network is best illustrated by the fact that more than half of the total 4G mobile internet traffic in Montenegro in 2018 passed through our network.

The company continuously invests in improving network performance. Planned investments include the modernisation of existing infrastructure as well as the future development of NB IoT and 5G technology, in order to provide our customers with access to even broader range of modern services, and enable new development opportunities for the Montenegrin economy.

In the fixed segment, thanks to the development and expansion of fiber infrastructure, more than 82 thousand households in Montenegro has access to best quality services. As a result of investments in existing copper infrastructure with advanced new technology, 68 000 households has access to Turbo DSL. Thanks to the investments, the average speed of internet packages has grown by 61%, which brings Montenegro significantly closer to the objectives of the European digital agenda for the year 2020.

In 2018 we made a significant step towards expanding fiber network outside the urban areas thanks to the agreement on the use of fiber infrastructure that we signed with Crnogorski elektrodistributivni sistem (CEDIS). This created the conditions for the provision of broadband services in suburban and rural areas, and so far, thanks to this agreement, over 10 000 households gained access to modern telecommunications services.

Our premium service Magenta 1 counts around 30.000 customers, making it the most popular integrated product on the telecommunications market. Magenta 1 offers the best combination of services in the field of mobile and fixed telephony, television and the Internet, and it is a solution created to meet all family needs when it comes to communication and entertainment. The offer is constantly upgraded with new benefits, developed to meet the needs of our customers and current usage trends.

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In the past year we have made an important step forward in the field of digitization and with the Government of Montenegro we signed a Memorandum of understanding and cooperation for digital Montenegro, which represents a framework for further development of the infrastructure and new generation networks, as well as development of ICT solutions, in order to improve the efficiency of services and the quality of life of Montenegrin citizens. With this initiative we once again confirmed that we are the first partner of the Government and the business sector in the process of digitalization.

We launched many innovative projects, e.g. Smart City solutions that have already been implemented in several Montenegrin towns. Smart parking is provided in the centre of Podgorica, smart irrigation system in cooperation with a local winery was also implemented in the capital city, while the Municipality of Herceg Novi launched a system for monitoring air quality and noise levels. First stop for charging electric cars is implemented in Sveti Stefan. We believe that this is only the first step towards modernization and creation of better living conditions in Montenegrin cities, and we are proud to say that our technologies and services can provide a better future for generations to come.

In 2018 we were recognized as leaders in the field of corporate governance in Montenegro. The prize awarded by Montenegrin stock exchange is proof of our effort and commitment to the principles of transparent and responsible business that is in the best interest of our shareholders, customers, employees and society as a whole. Through a number of projects in the field of corporate social responsibility, we continued to actively contribute to the development of local community and strive to be present in all areas that are important for the Montenegrin society.

Dear shareholders, we thank you for your trust. With your support and the great commitment of all employees in the company, we were able to achieve our goals for 2018 – to increase profitability, stabilize revenues and reverse the negative trends. Thanks to the results achieved, in 2019 we have the opportunity for greater investment in the development and implementation of new technologies and services, which opens the door for further growth, innovation and winning leadership positions in all segments. We believe that the 2019 will be a year of success and a year in which we will once again meet your expectations.

Nikola Ljushev

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Management report

Management Report for the Financial Year 2018

Highlights

In 2018 CT achieved almost flat revenue development and increase of EBITDA and Net profit.

Total revenues amounted to EUR 85.1 million, 1% YoY decrease. Revenue decrease was mainly driven by lower wholesale revenue which was partly compensated with higher retail revenues.

Net profit increased by EUR 2.1 million to EUR 7.3 million.

Investments continued on a high level: Capital expenditure was EUR 24.1 million (+30% YoY).

Dividend in amount of EUR 4.7 million was paid.

Revenues and Profitability

In 2018, Crnogorski Telekom focused on further extending its 4G mobile network, fiber network rollout and improvement of copper network through VDSL, the improvement of existing services and launch of new ones. It was a year of strong competition presence on the fixed services market. CT managed to keep stable fixed broadband customer base and to grow in TV segment (both IPTV and DVB-T2 services). In the mobile segment, CT was able to keep leadership positions in overall postpaid, business-segment postpaid and to keep strong positions in residential segment postpaid and in mobile internet. Mobile services portfolio was further enhanced and renewed.

After years of revenue and profitability deterioration, Crnogorski Telekom managed to limit revenue decrease to only 1% and to achieve profitability growth.

Crnogorski Telekom’s total revenues decreased 1% YoY and reached EUR 85.1 million. Positive revenue developments referred to:

- Postpaid revenues (+3%), influenced by the success of Magenta1 and portfolio restructure; - TV revenues (+2%), driven by the growth of customer base - Data services revenues increased 2%, driven by the 11% growth of ICT - Equipment revenues increased by 22%.

Compared to 2017, major revenue deviations referred to:

- Fixed-line voice retail revenues (-12%), influenced by customer base decrease, retail price

regulation and decreased usage;

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- Fixed broadband revenues (-6%), impacted by competition and retail price regulation; - Mobile prepaid revenues (-7%), due to, lower usage and prepaid to postpaid migration; - Interconnection and visitors revenues (-14%), driven by decreased mobile termination rates and

lower incoming traffic, as well as strong Visitors performance in 2017.

As in previous years, Crnogorski Telekom was making efforts to increase efficiency and decrease the cost base. The result was 1.9 million or 2% YoY decrease in operating expenses.

Operating profit (EBIT) amounted to EUR 7.8 million. Net profit amounted to EUR 7.3 million.

Main financial KPIs (m€) 2017 2018 Δ Δ%

Revenues 85,3 84,2 -1,1 -1,3

EBITDA w/o SI 29,5 31,4 1,9 6,4

EBITDA w/o SI margin (%) 34,5 37,2 2,7

EBITDA 28,5 30,7 2,2 7,7

EBITDA margin (%) 33,4 36,5 3,1

Operating profit 6,6 7,8 1,2 18,2

Net profit 5,1 7,3 2,2 42,9

Total Assets 191 182 -9 -4,5

CAPEX 18,6 24,1 5,5 29,5

Number of employees 552 548 -4 -0,7

Main non-financial KPIs

In 2018, the number of fixed-line connections decreased by 7%, as the customer churn was accelerated by strong competition activities. On the other hand, the number of fixed broadband connections increased by 1%, while our TV services (IPTV and TVzaSve) were both growing, by 9.000 in total (14.6%).

Fixed line operations KPIs (in thousands) Dec 31,

2017 Dec 31,

2018 Δ Δ%

Fixed-voice connections, Total 122,6 113,7 -8,9 -7,3

Residential 105,0 96,4 -8,6 -8,2

Business 17,6 17,2 -0,4 -2,3

Fixed voice Market share (%) 81,4 66,4 -15,0

Fix broadband connections, Total 69,8 70,4 0,6 0,9

Residential 61,4 61,9 0,5 0,8

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Business 8,4 8,5 0,1 1,2

BB Internet Market share (%) 49,9 44,0 -5,9

TV connections, Total 63,6 72,9 9,3 14,6

IPTV Residential 54,1 62,2 8,1 15,0

IPTV Business 2,3 2,8 0,5 21,6

TVzaSve 7,1 8,0 0,9 12,6

Pay TV Market share, incl TVzaSve (%) 31,0 31,9 0,9

At the end of 2017, Crnogorski Telekom customers were using 369.000 SIM cards, which was an increase of 17.000 or 5% compared to the previous year. It was driven mainly by the growth in postpaid, while prepaid was stable. The total SIM market share amounted to 32.6%. The postpaid SIM base increased YoY by 16.000 or 7.6%, driven by the success of Magenta1, redesigned portfolio and conversion of customers from prepaid to postpaid. Crnogorski Telekom remained the market leader in the postpaid segment.

Mobile line operations KPIs (in thousands) Dec 31,

2017

Dec 31, 2018

Δ Δ%

Number of customers, Total 352,1 369,4 17,3 4,9

Prepaid 140,8 142,0 1,2 0,9

Postpaid, Total 211,4 227,4 16,0 7,6

Postpaid Residential 82,9 95,1 12,2 14,7

Postpaid Business 128,5 132,3 3,8 3,0

Mobile customers market share (%) 33,7 32,6 -1,1

Mobile internet customer number 157,2 168,9 11,7 7,4

Mobile Internet customers market share (%) 37,6 36,6 -1,0

Mobile penetration (%) 168,5 183,0 14,5

Number of employees 552 548 -4 -0,7

Main Investments

FTTH

FTTH project, one of the most important strategic projects in CT, achieved significant growth in 2018 in both underground and Air fiber network. Availability of FTTH services is provided for over 93% flats in urban areas of 19 municipalities, and over 42% of households on the national level. Share of active users in actual FTTH

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potential is 21%. Compared with 2017, we have 9% more households covered with speeds of 30Mbps and more, as well as 7% more households covered with speeds of 100Mbps.

Further FTTH development is ensured through partnership with CEDIS and Javno Komunalno, which will enable more rapid expansion of Air FTTH in suburban zones. In 2018, we successfully implemented Air FTTH network in 10 zones of 3 municipalities, with 5 more zones ongoing, covering 8k households.

VDSL/Vectoring

VDSL Roll-Out project significantly supports our plans to retain existing customer base and attract new customers in Internet and IPTV segment. VDSL coverage increased by installing Outdoor Cabinets at 50 locations in suburban / rural areas without FTTH, which further improved quality of copper network, and with potential to support future FTTH users.

Mobile access network

CT continued with successful results in mobile access network, with significant LTE capacity & coverage expansion: 6x more CA sites, 60% more LTE 800 sites, 24 new locations. There is also optimization & quality improvement: Speech quality - improved for 35%; Call setup time (CST) – shortened for 30%.

P3 measurements for 2018 are finished and significantly improved compared to 2017 -- 888 overall points vs 713 points.

ECN2MSAN migration

This project was successfully finished after migration of 204 (100%) locations and all of our broadband customers on MSAN technology.

Within scope of this project, more than 500 ECNs were disconnected from the network. In addition, nearly 600 of new MSAN VDSL boards were installed just for this purpose.

IMS Modernization and Geo-Redundancy

In addition to the implementation of geo-redundancy of all customer bases on new convergent platforms for both fixed and mobile services, the implementation and integration of the IMS core platform at the Disaster recovery site was completed in 2018, with the upgrade of existing IMS core platforms at the primary location. Migration of customer services to new IMS core hardware and software systems, which are now completely geo-redundant, has been done, which means that in case of problem in functioning of IMS core platform in Podgorica, customer are automatically registered on the IMS core platform in DRS Bijelo Polje, where uninterrupted fixed voice service is secured.

SIP interconnection

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III phased project targeting to completely migrate to SIP interconnection the local, national and international traffic over NEW Core network element – ISBC, as prerequisite for removal of old International Exchanges.

First phase of pilot migration, local traffic between CT mobile and CT fix network, is ongoing.

Free Cooling

Project aimed for the optimization of existing HVAC (Heating, ventilation and air conditioning), in order to achieve energy savings and reduction of CO2 emmission. Performance monitoring was enabled on all sites, in order to control switching between free cooling units and existing HVAC. Technology was implemented on 55 locations as the first phase of the project.

TV Services

IPTV is one of the core services offered by Crnogorski Telekom. Therefore, changing the Extra TV interface had a significant impact on user experience. With version 2.6, during 2018, we implemented the first major change to the user interface since the service was introduced. It is about a brand new menu layout, designed by the DT hub. The project was implemented at the Group level, in cooperation with Magyar Telekom and Makedonski Telekom.

Within the rollout of a new client, the following tasks were realized:

All 63k users/STBs upgraded to latest IPTV client. New Extra TV appearance was implemented, TV content extension and Time shift. Also, new channels were introduced, among which 11 new HD channels.

ACS upgrade

ACS platform HW&SW upgraded with extension of important business use cases that highly support digitalization of processes. This should have a high impact on more agile provisioning of services.

One APP

HAL implementation is strategic digital transformation project in DT group. HAL (Harmonized API Layer) is DT

conceptual and practical solution for decoupling frontend – backend systems by introducing new API

abstraction layer in most appropriate manner. In the first phase, agreed set of APIs for OneApp mobile

application are developed in Crnogorski Telekom. OneApp is the first project developed on that middle layer.

Development of rest APIs, including payment management, is in progress. Other frontend systems, like portals

and e-commerce solutions, will use it in future.

EVENTUS – HardWare upgrade

In 2018, a new design was developed for EVENTUS.

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HW, which has been acquired, has become a part of virtualization infrastructure and, by increasing the number of servers, we have gained better performance, stability and redundancy of the virtual environment.

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Crnogorski Telekom’s Board of Directors

Siniša Đuranović, Chairman

Siniša Đuranović was born in 1972 in Zagreb. He graduated from the Law Faculty in Zagreb in 1997. From 2010 to 2013 he attended the IEDC Business School in Bled - President MBA. He started his career at the Filipovic Law Firm dealing with the privatizations of larger companies (Hrvatski Telekom, Privredna banka...), and consulting international clients and buyers and sellers in major acquisitions. He joined Hrvatski Telekom in 2000 as Assistant of Director for Regulatory Affairs. He became Director of Regulatory Affairs in 2002, and Executive Director of Regulatory Affairs and Competition Affairs in 2005. He held this position until 2009 when he was appointed as Chief Legal Advisor / Operational Director for Legal, Regulatory and Competition Affairs, relations with public institutions and business compliance. From 2002 to 2014 he was a member of the Supervisory Board of Eronet mobile communications doo Bosnia and Herzegovina and T-Mobile Hrvatska doo, vice president of Combis doo and HT Mostar doo Bosnia and Herzegovina, and president of the Supervisory Board of Iskon Internet doo. He currently hold the positions of the Wholesale Director, Chief Legal advisor and Senior Vice President of Hrvatski Telekom, and by the decision of the Executive Director is also responsible for coordination of human resources affairs. He is also currently chairing the Supervisory Board of Optima Telekom dd, and is a member of the management board of the American Chamber of Commerce in Croatia. As a member of the Board of Directors of Crnogorski Telekom, which he is chairing, he was elected at the Ordinary Shareholders’ Assembly held on May 31, 2017. He was re-elected at the Ordinary Shareholders’ Assembly held on May 30, 2018.

Marc Stehle

Marc Stehle, born 1967, holds a diploma in Economics from the University of Applied Sciences Düsseldorf, Germany. Before joining Deutsche Telekom AG in 1996 he worked for REWE AG Food Retail in Controlling, FMP Price Waterhouse Coopers in Tax and Schitag Ernst &Young GmbH in External Audit. Marc Stehle started his career at Deutsche Telekom AG in Group Controlling as a Senior Controller. In 2000, he took over the position of Vice President of Business Development Value Added Services. In 2004, Marc Stehle was appointed as Senior Vice President Controlling at Telekom Shop Vertriebsgesellschaft, the Retail Branch of DTAG. In 2008, he moved to T-Systems International, as Senior Vice President Finance and Controlling, and became CFO of T-Systems-GEI. For more than 6 years he worked in different Management and Board positions at T-Systems Group, e.g. T-Systems Iberica, Solutions for Research GmbH. In addition, he was engaged on different Supervisory Boards. Since 2015, Marc Stehle is working again for Deutsche Telekom AG as Vice President in the Controlling Segment Europe. In 2016, he became Member of the Supervisory Board Hrvatski Telekom d.d. As a member of the Board of Directors of Crnogorski Telekom, he was elected at the Ordinary Shareholders’ Assembly held on May 30, 2018.

Nataša Rapaić

Nataša Rapaić was born in 1969 in Zagreb. She graduated economics at the University of Zagreb in 1993. She was a Spanish government scholarship holder at MBA Instituto de Empresa in Madrid in 1999 and 2000. During her studies, she worked as a bookkeeper at Universal Zagreb, and from 1993 to 1997 at Milna Parket

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Zagreb where she was one of the founders. From 1997 to 1999, she worked as a market analyst at the Spanish Embassy's economy office in Zagreb when she moved to one of the largest Spanish banks - Caixa Galicia Madrid where she has covered the position of business analysts in the investment sector. From 2000 to 2003 she worked at Europraxis Consulting in Madrid. In 2003, she took the position of Operational Director of Corporate Communications and PR in Hrvatski Telekom, and in 2005 she was appointed as a member of the Executive Board of T-Com and Chief Marketing Officer, which she held until 2009. In 2010 she took the position of Operational Director - Chief Marketing Officer for Business customers, and since 2013 she is a member of the Management Board and Chief Operating Officer for Residential customers. She is a member of the Supervisory Board of the American College of Management and Technology in Dubrovnik and Iskon Zagreb, which she is chairing. As a member of the Board of Directors of Crnogorski Telekom, she was elected at the Ordinary Shareholders’ Assembly held on May 31, 2017. She was re-elected at the Ordinary Shareholders’ Assembly held on May 30, 2018.

Saša Kramar

Saša Kramar was born in Čakovec in 1968. He gained education at the Faculty of Electronic Engineering and Computing in Zagreb, along with attending Apple's training for servicing, sales and marketing. Since 2000, he has attended a number of prestigious European business schools, among others the business school in St. Galenn, Edinburgh MBA and the IEDC Management School in Bled where he was trained in sales management, strategic management for directors, customer relationship management and human resources management and corporate finance. He began his career in early 90's at the Apple Center Novel, where he spent the entire 10 years, first as an Apple service engineer and later as Apple's service and support director, sales and marketing director and finally CEO. During the first half of 2000, he briefly carried out the affairs of sales adviser at Bello doo, whilst in June he took over the position of Iskon Internet dd Sales Director. He performed this duty until 2002 when he was appointed as a member of the Management Board and Director of Sales and Marketing. In 2007 he was appointed Chairman of the Management Board and Executive Director, which he performed until June 2016 when he was appointed as a member of the Management Board and Chief Operation Officer for business customers of Hrvatski Telekom dd, which position he currently holds. As a member of the Board of Directors of Crnogorski Telekom, he was elected at the Ordinary Shareholders’ Assembly held on May 31, 2017. He was re-elected at the Ordinary Shareholders’ Assembly held on May 30, 2018.

Balša Čavlović

Balša Čavlović was born in 1985 in Podgorica. He graduated from the Faculty of Economics in Podgorica in 2008 at the Course of Business Management, where he is currently in postgraduate studies of the same course. During his studies, he was engaged in advisory activities at Fast Worker doo Podgorica, and already in 2007 he was the vice president of Montebella Company doo Podgorica, and was the executive director of Adventure doo Podgorica. From April 2008 until December 2009 he was the investment advisor for brokerage house Bull & Bear broker AD Podgorica, and in December 2009 he became executive director of Premija Plus doo Podgorica. From February 2014 to March 2015 he was re-engaged in advisory activities at the Bull & Bear broker, and from April 2014 to April 2016, he was appointed as Chairman of the Board of Directors of DZU Trend AD Podgorica. Currently he covers the positions of Chairman of the Board of Directors HTP Trend Korali AD Sutomore and Executive Director of PLC Morača AD Podgorica. As a member of the Board of Directors of

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Crnogorski Telekom, he was elected at the Ordinary Shareholders’ Assembly held on May 31, 2017. He was re-elected at the Ordinary Shareholders’ Assembly held on May 30, 2018.

By the Ordinary Shareholders’ Assembly held on May 30, 2018, Ms. Sussane Krogmann was a member of the Board of Directors. She was dismissed at the subject Assembly, upon which her membership in the Board of Directors of Crnogorski Telekom ceased.

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Chief Executive Officer and Management Committee in 2018

Nikola Ljushev, Chief Executive Officer

Nikola Ljushev, Electrical Engineer of Electronics and Telecommunication, started his career in 1997 in telecommunications, working in DT group (Telecom of Macedonia), Cosmote/OTE and Austrian Telecom Group, where he achieved such results that became extraordinary example of huge success on the European level. He is awarded leader in the field of telecommunication on the global level, and acquired further education at prestigious international education institutions, including the Harvard Business School. On t September 1, 2017 he took over a position of Executive Director of Crnogorski Telekom.

After organization restructuring in 2017, the Management Committee was established, a CEO’s counciliary body, which he/she presides.

Dušan Banović, Residential Customers Department Director

Dušan Banović was born in 1978. He graduated and obtained a master's degree at the Faculty of Electrical Engineering, University of Montenegro. He started his career in Internet Montenegro, while he was a student in 2000 and did many different functions in Technical Department. Since the Internet Montenegro became an integral unit of Telekom, he did many managerial functions in Departments for Technology and Corporative Strategy. In 2012, he was named as a Marketing Director for Business Customs and he was successfully doing it for 3 years. In 2015 he became B2B Department Director for business and operating enforceability and by the beginning of 2017 he became responsible even for the field of corporative strategy and internal communications as a Director of Business Customs and Strategy. In 2017 he took up a position of Residential Customs Department Director and became a member of the Management Committee. From 2018 he is also in charge for Customer experience.

Gordana Blagojević, Director of the Financial Department

Gordana Blagojević was born in 1982. She graduated at the Faculty of Economics, University of Montenegro in 2005. The Executive Master degree, with an emphasis on accounting and finance, she acquired at the Rotterdam Management University, Erasmus University in 2013. She has been in Crnogorski Telekom since 2009. In the period from 2009 to 2017, she performed managerial tasks in the Crnogorski Telekom Finance Department, from managers in the accounting department, through customer finance, controlling, and the Director of the Accounting Department. She was named Director of the Finance Department in May 2017, when she became a member of the Management Committee.

Miroslav Janičić, Director of the Human Resources Department

Miroslav Janičić was born in 1975. He graduated at the Faculty of Philosophy, University of Montenegro, Department of English Language and Literature in 1999. He obtained the Executive MBA degree at the IEDC Business School in Bled in 2008. He began his career in both the private and the state education department.

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This was followed by an engagement in the Organization for Security and Co-operation in Europe (OSCE) in the period from 2003 to 2005. He has been in Crnogorski Telekom since 2005. He joined the Human Resources Department of Crnogorski Telekom in mid-2010 as a HR manager. He became the HR Department Director at the beginning of 2012, and since May 2015 he has been the Director of Human Resources Department. He was named Director of the Human Resources Department in May 2017, when he became a member of the Management Committee.

Pavle Đurović, Director of the Corporate and Legal Affairs Department

Pavle Đurović was born in 1976. He graduated at the Law Faculty, University of Montenegro. He obtained diploma in international trade law at the International Postgraduate Trade Law Center in Torino. He started his career in the domestic law office Vukotic-Durutovic and continued his international office as a legal adviser in 2000 and was named Director of the International Law Office Harrisons - Solicitors in Podgorica in the same year. In this period, he was responsible for the largest M&A and privatization operations in Montenegro. He has been in Crnogorski Telekom since 2003, when he was named Director of the Legal Department. Since 2010 he has been the Secretary of the Company. He is internationally recognized member of DT Group for Corporate Affairs and Legal Affairs. In 2017, he was named Director of the Corporate and Legal Affairs Department, Secretary of the Company and member of the Management Committee.

Predrag Perković, Director of the Business Department

Predrag Perković was born in 1977. He graduated at the Faculty of Economics, University of Montenegro, and received his master's degree at the Faculty of Economics, University of Belgrade. His work engagement in Crnogorski Telekom started in 2004 in the Marketing and Sales Department. In the period from 2006 to 2008, he managed the Sales Department for large companies. He was named Director of Direct Sales in 2008, and Director of Sales Operations and Operational Excellence 2014. He was on the position of Sales Director from May 2015 to May 2017, when he was named Director of the Business Department. He is a member of the Management Committee of Crnogorski Telekom.

Valentina Radulović, Director of Technology Department

Valentina Radulović was born in 1979. She graduated at the Faculty of Science, University of Montenegro, at the Faculty of Mathematics, and obtained the title of Master of Science in Information Technology at the University of Sheffield. She began her career as a trainee at Crnogorski Telekom in 2003, after which she covered numerous responsible positions within the Technical Department. With her comprehensive approach to both technological and corporate strategic goals, she has made a significant contribution to numerous IT / NT projects and activities. She was named Director of the Technical Department on November 1, 2017, when she became a member of the Management Committee of Crnogorski Telekom.

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Our Vision

In 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 Strategy

Crnogorski Telekom is leading telecommunications provider in Montenegro, with ambition to maintain its leading position, to improve its business performance and leverage on available resources. In order to achieve this, a new Corporate strategy is defined for 2017 and onwards. It is based on our vision to be the first choice of our customers in everything we do, with the desire to be the best.

The new strategy is based on three pillars, which are related to our three goals: Be # 1 in mobile Be # 1 in fixed Be # 1 in FMC (integrated) offers.

#1 in mobile. Mobile services are developing faster than ever and expectations of the customers are constantly increasing, therefore, our goal is to fulfill these expectations and improve the quality of our customers’ lives by providing superior network experience. We are constantly improving quality of our network, with special focus on 4G technology, that provides fast mobile internet, fast content and applications download, better sound and video quality, and in general, it improves quality of customers’ communication and lives.

Telekom significantly increased 4G capacity and coverage in 2018, and in the end of 2018, 96% of the outdoor population in Montenegro was covered with 4G signal by Crnogorski Telekom. In addition to the growth of the 4G network coverage and capacity, Telekom will continue to monitor and enhance quality of network, so that our customers have the best network, the network they deserve.

#1 in fixed. Crnogorski Telekom is leader in the fixed broadband market while it is in the second place on Pay TV market. Telekom is continuously investing in development of optical network, as a basis for providing service with great quality, with focus in urban areas. In 2018 Telekom started commercial deployment of air FTTH network, in order to reach more customers with optical network, as a precondition for super high internet speeds. When it comes to customers in suburban areas, we are continuously investing in VDSL, technology that was launched in 2016 and represents a new chapter in development of the fixed broadband for Crnogorski Telekom. As a result of all these investments, in the end of 2018, Telekom enabled access to super fast internet to more than 62% households in Montenegro.

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# 1 in convergent (integrated) offers Magenta 1 represents the best of both Telekom’s world -- mobile and fixed services, and television, in one package. With Magenta 1, customers have faster internet access, more TV channels, and a postpaid number with on-net and off-net and mobile internet. Our ambition is to further develop and strengthen our integrated products offer, therefore our Magenta 1 package is refreshed in 2018, taking into consideration and adapting to changing needs of our customers.

As one of the most innovative companies in country, Telekom is leveraging on the opportunities of the digital age and constantly developing smart services. Company launched many Smart services in 2018 such as Smart Parking, Smart bench, Air Quality Sensors, E ticketing, E mobility, and will continue with digitization of the society in years to come.

The customer remains in the focus of our business and our ambition is to provide premium experience to our customers. Combination of superior network, best IT solutions and premium brand will drive us to achieve this ambition.

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Regulatory Environment

The regulatory environment is characterized by implementation of the Law on Electronic Communications that is based on the EU regulatory 2009 framework, as well as a 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. Amendments to the Law enacted in January 2017 partly affected Crnogorski Telekom operations.

On Crnogorski Telekom, being designated as significant market player on various relevant market, were imposed numerous of regulatory obligations. Out of all wholesale products offered to the market, based on the Agency’s resolutions from 2010, 2013, 2015 and 2017, real interest of alternative operators was shown only for duct rental.

The Cost Accounting and Accounting Separation obligations were implemented for both fixed and mobile services, as an obligation imposed on Crnogorski Telekom being SMP (Significant Market Player) at some of the relevant market. Regulatory reports for 2016 based on LRIC model approved by the Agency in 2018, while 2017 Reports were subject of the harmonization with the Agency during 2018 and the process continued in 2019.

In 2017 the Agency for Electronic Communications and Postal Services performed five relevant market analyses defined in the 2014 EU Recommendation (by definition it is about the same relevant markets already analysed in 2010 and 2013). Crnogorski Telekom was again identified as the significant market player (SMP) in all five 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 2013 Regulatory Reports for the fixed network, the NRA, for the fourth 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 approved Crnogorski Telekom Cost Model for the respective year.

In 2018 the NRA applied, “Three criteria test ‘’on Retail broadband market and, finding that there is effective competition on the market, decided that subject market is no more susceptible to ex ante regulation.

Following the Regional Roaming Agreement on roaming price decrease signed in 2014 by four Balkan countries (Bosnia and Herzegovina, Macedonia Montenegro and Serbia) the Agency issued resolutions on price cap to be performed in three waves starting from July 2015 while the last one was in July 2017. Operators were obliged to decrease prices while the court procedure following Crnogorski Telekom appeal against the Resolution is still ongoing.

In order to fulfil the obligation from the Rulebook on the manner and deadlines for the implementation of security measures and the integrity of the network and services, Crnogorski Telekom successfully implemented geo-redundancy site for fix, mobile and internet service in August 2018.

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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 in 2013, customers’ interest significantly increased, especially for voice services and internet access.

Following the results of the public tender for a selection of USOs (Universal Service Operator) for the period 2016–2021, the Agency 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 taken over from the previous US operator, Crnogorski Telekom is providing service in additional six locations. In 2018 Crnogorski Telekom built three new locations (eight new subscribers connected). Part of 2016 and 2017 of Crnogorski Telekom US net cost, amounting over 34 thousands euros, was compensated by other operators.

Additionally, Crnogorski Telekom is in the process of obtaining necessary preconditions for building four new sites, but the customers’ interest for services from some more locations is expected.

Number portability

The Number Portability service was commercially launched in 2011. In 2018, interest for the service significantly increased comparing to 2017 (34.94%). This service is still more used by mobile network subscribers, however, it is becoming more and more used also by the fix segment. Almost all fix subscribers, who used the service in 2017, ported number from Crnogorski Telekom network to the other network, while more than 25% of the total number of mobile subscribers who used this service during 2018 ported the number in Crnogorski Telekom mobile network.

Regulatory fees

Under the effective regulations, Crnogorski Telekom pays annual fees for market supervision and use of radio frequencies, numerations and addresses to the Agency for Telecommunications and Postal Services as well as annual fee to the Electronic Media Agency for providing IPTV service.

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 would ensure its position in the mobile segment for the next 15 years, as well as the basis for improvement of Crnogorski Telekom technological leadership in the market. Ongoing fulfilment of special coverage obligations defined by the Resolution for 800MHz band.

Sharing of infrastructure

The Reference Interconnection Offer (RIO) defines the terms and conditions of collocation, for the purpose of interconnection realized 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 Unbundling Offer defines the terms and conditions of collocation for the purpose of local

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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 resolutions on designation of significant market player (SMP) on relevant markets, the new termination rates were defined by the NRA in May 2018. Fixed termination rates (FTRs) for local and single transit were equalised and amount 0.65 cents/min, while the mobile termination rate (MTR) for voice traffic, after approving the 2016 Regulatory Reports of all three operators, was reduced from 1.06 cents/min to 0,85cents/min. The next wave of termination rates decrease is expected in 2019.

Future Regulatory Developments

During 2019, the enactment of the special new Law is expected, in order to transpose in the Montenegrin legal framework the Directive 2014/61/EU of the European Parliament and the Council from 2014 on measures to reduce the cost of deploying high-speed electronic communications networks.

In 2019 the responsibly Ministry is expected to work on amendments to the Electronic Communication Law with aim to harmonize it with the new Law on the State Administration.

It was announced initiative for signing the new Western Balkan Agreement on Roaming price decrease (six Western Balkans countries to be involved).

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Promotions and Offers Residential Customers

Postpaid

In 2018 Crnogorski Telekom continued with postpaid growth, revenue and customer vise. Customer base increase continued in both segments, voice and Mobile Internet. User growth was continued through numerous campaigns and promotions of MAX package, as well as through Magenta 1 portfolio innovation.

Special focus in 2018 was on Mobile Internet portfolio which was redesigned in Q2 2018 and launched together with 4G image campaign. Reshaped portfolio, with Stream On option included, and followed by increased network quality perception additionally firmed our MI proposition as the most attractive on the market.

Prepaid

Challenges on prepaid market continued in 2018, with evident market shift toward postpaid and total mobile revenue growth as a final outcome. Prepaid price positioning remained stable (unattractiveness compared to postpaid) in CT portfolio, but total market as well.

Main activities relied on “Monster” portfolio and communication platform established in 2017 (with continuous enhancements of options available to customers)

Partnership with Voli, the biggest retail chain in the country continued in 2018. With each purchase of €15 and more, customer gets €2 add-on on Volim prepaid account. In Q4 2018, Voli offer was reshaped in a way that monthly subscription was introduced with 1GB DATA included.

Magenta 1

In Q2 2018 CT reshaped Magenta1 offer by addition additional Magenta1 tariff and boosting postpaid element (”the best postpaid is postpaid in Magenta1”). Promo of new portfolio was connected to Football World Championship and CT broadcast sponsoring, what assured strong visibility.

Fixed segment

CT introduced new seasonal broadband, TV and bundled offers aimed at second home owners, an important market segment for a tourist destination such as Montenegro. The new offer significantly improved customer experience, enabling one click activation and deactivation, with slight price premium. Offer had excellent results, boosting 2018 broadband revenue and RPC.

Special focus was placed on targeted, direct and segmented offer with aim to partially answer to aggressive competitors pricing, but also preserve the market price positioning.

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TVzaSVE

TVzaSVE is recognized as the most practical and mobile TV offer on the market with 97% of coverage. In 2018, CT built on inherent advantages of mobility and ease of use by introducing simple prepaid packages for TVzaSVE. The new offers enable customers to buy the TVzaSVE receiver with three months of subscription included for a market leading price. When the included months expire, the customer can top up their TVzaSVE subscription by visiting any Telekom or even retail store where mobile prepaid cards and top ups are sold (over 1.000 points of sale in the country).

As a result of numerous activities, number of customers for TVzaSVE increased by 15% YoY.

Business customers

Postpaid

Despite strong competition, during 2018 the number of customers of the Smart Business package continued to grow. At the end of 2017, Smart Business tariff portfolio was redesigned and enriched with a larger number of tariffs (including the Premium Package), additional minutes for calls, roaming and calls abroad and significantly larger internet resources for the fastest surfing in 4G network. The postpaid base was higher by 3% compared to the previous year, which ensured Crnogorski Telekom leading position with a market share of 45,2%. Focus on the SOHO segment is continued, sales activities are intensified with targeted offers for different customers’ segments.

Fix segment

During 2018 Crnogorski Telekom continuously made intensive activities to stabilize revenues from fixed services, which resulted in a stable number of connections, both in voice and broadband. Intensive sales activities in this segment were at migrating customers to the Business Duo tariffs, which combined fixed voice and internet services. At the end of 2018, number of Biznis Duo customers was over 1,750 (share of the Business Duo users in BB customer base was 21%).

Magenta 1 Business

During 2018 the activities on the popularization of the integrated (FMCC) offer of Magenta 1 Business continued. Existing offer is enriched with new tariffs in April (Magenta Net and Magenta 1 Business “Soft” as a first step to flexible concept). Special achievement was introduction of flexible Magenta 1 Business concept as a main strategic goal in FMCC development. Flexible Magenta 1 tariff allowing customers to compile ideal package based on the business needs, adding unlimited number of fix and mobile tariffs according to needs. During 2018, about 700 small and medium-sized companies (SOHO and SME) became customers of Magenta 1 packages. The total number of companies that use Magenta 1 at the end of 2018 was 1,884, which makes 28% of the SOHO / SME customer base. Also, Magenta 1 tariff was enabler to migrate BB customers to VDSL

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and Fiber technology (42% of M1 customers using tariff with VDSL or Fiber technology). Share of Magenta 1 customers in BB base of medium-sized companies (SOHO and SME) is 44%.

Popularization of Magenta 1 and the migration of business customers to this tariff package directly affect the achievement of the strategic goal of the business segment, increasing the digitalization of small and medium enterprises through the introduction of Cloud services that are part of the integrated Magenta 1 offer.

ICT

In 2018, the ICT revenue growth continued as a trend from the previous period. Revenue was generated from tailor made solutions and managed services. Contracts were realized mainly in HORECA segment as well as through continuous cooperation with the leading banks in Montenegro. A special focus was on digitalization of customer business and developing software within the solution, especially in the SMB segment. During 2018, smart solutions and NB IoT are recognized as globally prospective and fast-growing business models and in connection with this Smart Parking, e ticketing and smart bench projects has been implemented. In 2018, we continued with acceleration in sales.

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Human resources

Continued responsible managing of the organization

Organizational changes have been continued during 2018 with the goal to keep current efficiency level and further optimize the costs, that overall resulted in reduction of management structure on different Company levels. Using internal resources in terms of available human capacities, it came to the increase of personal responsibility on each level as certain organizational units were merged, with special attention to commercial and finance segment. Customers are still our main focus, which is why 2018 was also marked with the realization of the programs for increasing sales efficiency in those parts of the Company that are in direct contact with customers. Programs for increasing sales efficiency are carried out parallel with trainings in which way we are continuously improving employees’ knowledge and skills thus contributing to better customer experience.

Caring for employees

Crnogorski Telekom continued taking responsibility for its employees and devoted 2018 to improvement of employees’ perception related to their contribution on different levels in the organization itself, as well as to knowledge and skills development especially when it comes to digital training platforms but also to improvement of employees’ health.

When it comes to development of employees, switching to the unique HR Suite system, Crnogorski Telekom enables its employees to use digital formats in one place, in which was they have possibility to improve their professional and personal skills in a simple way. We implemented Let's Grow EU program successfully, which is a basis for establishing culture of growth in all EU NatCos. When it comes to local activities, we organized different programs based on the results of Pulse check survey. We continued with the Talent Management Program, covering 16 of our employees who represent local talent pool of Crnogorski Telekom. On the other side, in accordance with the business strategy of the Company, special emphasis is put on the professional development of employees who are in direct contact with customers, i.e. Call Centre agents and shop supervisors.

In collaboration with the Trade Union, we continued with the realization of health and recreation programs for employees, by which we strive to positively affect maintenance of work-life balance. As a result of responsible dealing with health and protection at work related issues, we undertook actions on raising employees’ awareness about importance of regular health prevention checkups and broadening their knowledge about conscientious relation towards their own as well as their colleagues’ safety and health.

International projects

Crnogorski Telekom implemented HR Suite system i.e. standardized HR IT system, which covers different segments when it comes to HR areas. In the first half of 2018, our focus was on the implementation of unique learning system through this tool, while in the second half of the year, our focus was on the preparation activities related to implementation of Lead to Win process i.e. a new tool for performance and potential review

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(PPR) which will apply to directors, managers, experts and heads of units in our Company in 2019. Introduction of new PPR, besides automatization of the process, has a goal to encourage cooperation inside DT Group by continuous providing of feedback with the special emphasis on taking self-responsibility for individual development.

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Corporate responsibility

As one of the leading companies in the country, Crnogorski Telekom strives to be present in all fields important for Montenegrin society. Apart from the desire to provide our customers with the highest quality telecommunication services, we see our role in an active and constant contribution to the development of the community where we operate and which we are part of.

Internet in Service of Education

Since 2007, Crnogorski Telekom has been providing broadband internet free of charge to all Montenegrin elementary and high schools, as well as pre-school institutions. During 2018, the initiative was continued, based on the agreement with the Ministry of Education which provides the educational institutions with technical capabilities to use the services of optical transmission and TurboDSL, which will enable schools to increase service stability and better data flow.

“Za svako dobro”

For the fifth year in a row, Crnogorski Telekom organized a donations’ competition "Za svako dobro" for projects particularly significant for the community that are implemented using digital technologies. Areas of support include education and culture (media literacy and use of digital technologies for education of all generations, education for young people in STEM subjects, use of digital technologies for development and promotion of culture), environmental protection, inclusion, and creation of equal opportunities for participation in the digital society. Total funding for the competition amounted to EUR 30,000 in 2018. A maximum of EUR 6,000 per project was allocated to at least five projects with special importance.

The contest was open to applications throughout September 2018. The best 10 projects were selected out of a total of 27 submissions. In order to engage more people in the initiative, online voting for the best project was conducted on the website www.zasvakodobro.me which registered 3.525 votes. One donation was awarded based on the results of online voting, while the rest of the donations were allocated based on jury opinion. The most important criteria for evaluating the projects were relevance and benefit to the community, timeliness and the quality of the project (innovation, feasibility and sustainability).

Funds were awarded to six projects. The winning projects were:

1. “Support the digital inclusion”- technical equipment for schools and kindergartens and teacher training for usage of software developed for better learning for kids with developmental challenges

2. “Little programmers 2" - programming and robotics courses for elementary school students

3. “New technologies support for kids with autism” – technical and expert support for kids with autism and their inclusion in digital society

4. “Pelican village: Life on the raft!” – Campaign for protection and promotion of the wildlife habitat of Skadar Lake and the endangered species "Pelecanus crisupus”

5. “3D classroom" - usage of 3D printing technology in education of elementary school students

6. "1 click for full info" - online support for kids fighting cancer and their families

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Volunteer Club’s Activities

In 2018, Crnogorski Telekom Volunteers’ Club continued activities with the aim of promoting the principles of social responsibility inside and outside the company. The Club joined forces with several NGOs and organized thee planting initiatives in local parks in Podgorica. The Club worked together with the Montenegrin Office for Blood Transfusion to organize a blood donation initiative for Telekom employees and management. Together with The International Women’s Club of Montenegro, the Club participated in Christmas fair and helped raise funds for several institutions in the field of education and children social care.

Sport, Music and Culture

Our sponsorship platform focuses on sports, music and culture - which is perfect for emphasizing our “Life is for Sharing”. Within the company’s sponsorship strategy, sport has a special place, considering that it is an important area for the development of a healthy, modern and advanced society. The company is a golden sponsor of the Montenegrin National Football Team and a general sponsor of the Telekom First Montenegrin Football League. In addition, the company is traditionally a sponsor of the Buducnost Basketball Club.

Crnogorski Telekom sponsored numerous music events and activities in 2018, including City Groove Festival in Podgorica, Southern Soul Festival in Ulcinj.

Teachtoday initiative

In 2018, Crnogorski Telekom introduced Teachtoday, an initiative for the promotion of safe and competent media use from Deutsche Telekom. It offers help to children and teens, parents, as well as educational professionals with materials and tips for teaching, parenting and growing up in a world where digital media is part of everyday life.

On the occasion of the international Safer Internet Day, Crnogorski Telekom organized a panel discussion about safe and creative use of digital media for kids. Montenegrin version of Teachtoday’s specialized website was presented, which contains tips on how best to protect personal information, which age is appropriate for mobile phone use, how to safely use social networks, what it means to be safe on the Internet, how to provide a safe password, how to use digital media more creatively, and similar content about digital media use that is of interest for kids, parents and teachers.

Supporting Charity Projects

Telekom seeks to contribute to addressing essential social challenges in line with available resources. During 2018, Crnogorski Telekom enabled the implementation of several projects of national importance:

Parenting line, a support service for all parents in Montenegro with the aim of reducing domestic violence

SOS line for kids, support service for children in case of violence and abuse

Donation line for Foundation “Budi human”, a crowdsourcing platform for support to children who need medical treatment that isn’t provided by national health fund.

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Further Information

Contacts Crnogorski Telekom Moskovska 29 81000 Podgorica Montenegro Tel: + 382 20 433 433 Fax: + 382 20 225 752 e-mail: [email protected] www.telekom.me Stock trading information: Crnogorski Telekom stock code: TECG Montenegroberza a.d.Podgorica Moskovska 77 81000 Podgorica Montenegro Tel/Fax: +382 20 228 502 E-mail: [email protected] www.montenegroberza.com Published by: Crnogorski Telekom © 2019

http://www.telekom.me/

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