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تـواصـل األعـمـال واألفـرادالـتـقـريـر السـنـوي 2010

Engaging business and people

Annual Report 2010

2010

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Emirates Telecom

munications Corporation – Etisalat A

nnual Report 2

010

Reports and Consolidated Financial Statements for the year ended 31 December 2010

Contents Head Office:

Etisalat BuildingIntersection of Zayed The 1st Street andSheikh Rashid Bin Saeed Al Maktoum StreetP.O. Box 3838Abu Dhabi, UAE

Telephone: +971 2 6283333Fax: +971 2 6317000Telex: 22135 ETCHO EMetisalat.ae

Regional Offices:Abu Dhabi, Dubai, Northern Emirates

2 Chairman’s Statement 4 Board of Directors and

Executive Committee6 Group Highlights8 Chief Executive Officer’s Statement10 Management Review 12 UAE Highlights14 Market View24 Network28 Etisalat Services Holding31 Human capital 32 Corporate Social Responsibility

34 Consolidated Financial Statements35 Independent Auditors’ Report

to the Shareholders36 Consolidated Income Statement37 Consolidated Statement of

Comprehensive Income 38 Consolidated Statement of

Financial Position39 Consolidated Statement of

Changes in Equity40 Consolidated Statement of Cash Flows41 Notes to the Consolidated

Financial Statements74 Notice of Meeting

التقارير والبيانات المالية الموحدة للسنة المنتهية في 31 ديسمبر 2010

المكتب الرئيسي:المحتويات

مبنى اتصاالتتقاطع شارع الشيخ زايد األول مع شارع

الشيخ راشد بن سعيد آل مكتومصندوق بريد: 3838

أبوظبي، اإلمارات العربية المتحدة

تليفــون: 6283333 9712+ فاكس: 6317000 9712+

ETCHO EM 22135 : تليكسetisalat.ae

مكاتب المناطق:أبوظبي، دبي واإلمارات الشمالية

كلمة رئيس مجلس اإلدارة 2مجلس اإلدارة واللجنة التنفيذية 4

المؤشرات الهامة 6كلمة الرئيس التنفيذي 8

تـقـريـر اإلدارة 10المؤشرات الهامة المحلية 12

لمحة عن السوق 14الشبكة 24

اتصاالت للخدمات القابضة 28الموارد البشرية 31

المسؤولية المؤسسية 32 تجاه المجتمع

البيانات المالية الموّحدة 34تقرير مدققي الحسابات المستقلين 35

بيان الدخل الموحد 36بيان الدخل الشامل الموّحد 37

بيان المركز المالي الموّحد 38بيان التغيرات في حقوق 39

الملكية الموّحدبيان التدفقات النقدية الموّحد 40

إيضاحات حول البيانات 41 المالية الموّحدة

إعالن انعقاد إجتماع الجمعية 74العمومية

135 million

Aggregate Subscribers

0.97 AED EPS

Enabling Reach

31.9 AED billion

Revenue

0.60 AED

Dividends

14.6 AED billion

Operating Profit before Federal Royalty

5.8 AED billion

CAPEX

1


Chairman’s Statement

Dear Shareholders, It is time once again to present the annual performance of Emirates Telecommunications Corporation (Etisalat), for the year ended December 31, 2010.

2

This year was a transitional year for the Corporation, in which we faced several challenges that have prepared us to operate in a new environment under diverse circumstances and a shift in global conditions. These changes, collectively with a maturing market and increased competition, have compelled Etisalat to take strategic measures to protect its leadership position, diversify its revenue base, and effectively optimise costs in order to continue enhancing the returns to you, our shareholders.

The following is an overview of the main operational and financial indicators for the year 2010:

•Aggregatesubscribers,includingsubsidiariesand associates, grew annually by 24% to reach 135 million by December 2010

•Revenuesincreasedby2%toreach AED31.9billion

• Netincomedecreased14%toAED7.6billioncorrespondingtoAED97filspershare

• NetcashpositionofAED3.9billoncomposedofAED10.3billionincashandAED6.4billionin borrowings

•Capitalspendingfortheyearwas AED5.8billion

Our main success story for the year was unequivocally the growth achieved by our international operations. This year Etisalat has witnessed positive growth in new customer acquisition, revenues, and earnings. In Egypt, for example, Etisalat Misr celebrated its 15 million customer milestone, and the subsidiary reached breakeven point after only threeyearsofoperations.Amongconsolidatedoperations where we exercise management control, the customer base has increased by 30%whilerevenuesincreased46%.Itisnotablethat our international operations today make up 23% of the Group’s top-line results.

Etisalat’s international success story continued with Mobily, our associate company in theKingdomofSaudiArabia,contributinghealthy earnings following another year of outstanding performance.

The growth was offset though by the revenue andearningsdeclineinourflagshipUAEoperation – which is natural and expected as our home market has entered an advanced stageofsaturationandmaturity.Asaresult,mobile and fixed services witnessed a modest declineinoperations.EtisalatUAEmanagementhas taken proactive measures to meet this new challenge.

In line with past years, Etisalat has maintained its very strong cash position, a strategy that is especially relevant given the recent state of financial turmoil worldwide. Our healthy balance sheet has served as a cushion against the recent financial shocks, and allowed us to comfortably finance our operations and capitalinvestments.Asatestamenttoourfinancial health, we maintained our investment-grade credit rating and positive outlook from the three major credit rating agencies (AA-byStandard&Poor’s,Aa3byMoody’s,andA+byFitch).Thiswillprovevitalinsecuring financing at favourable rates should the need arise.

In order to establish a well-balanced funding platform that is aligned with the Corporation’s funding strategy, Etisalat listed its Global MediumTermNote(GMTN)andSukukprogrammesinNovember2010.Theestablishment of the two programmes will facilitate Etisalat in accessing a large pool of global investors to diversify its funding sources and manage its debt maturity profile effectively.

We carried on our strategy of investing rationally in our network infrastructure to captureorganic,demandwithAED5.8billionincapitalexpenditure.Notably,wecontinuedto invest in our country-wide fibre optic network as part of our commitment to keep theUAEattheglobalforefrontofstate-of-the-art telecommunication services. Internationally, we invested rationally in our telecommunication networks to enhance customer experience and affirm our reputation as technology leader. Our advanced, innovative networks and products have bolstered Etisalat’s reputation as a leading global telecom player.

The Corporation maintained its prudent approach to evaluating acquisition opportunities that are in line with its strategy to expand internationally and add value to itsoperationalportfolio.Aswellasseveralstrategic stake increases to our existing assets, one of the main opportunities in 2010 wasourconditionaloffertoacquire46%and effective majority control of Mobile Telecommunications Company ‘Zain’.

We believe such an acquisition will catapult Etisalat onto the global stage and cement our foothold in the Middle East, increasing our presence to five additional countries. In addition, the Corporation is in the process of evaluating and preparing for entry into new markets such as Syria, when investment opportunities become available that would generate returns for shareholders, subscribers, and the sector.

Furthertooureffortstoincludeourshareholders in the benefits, we have proposedafinaldividendofAED0.35pershare, bringing the total dividends for the yeartoAED0.60,inlinewithourpolicyinprevious years. This represents a dividend yieldof6%attheyear-endstockprice. We are pleased that total share returns for the 12-month period ended December 31, 2010, including capital gains and dividends, were a healthy 13%.

Asamodelforcorporatecitizens,Etisalatbelieves that social responsibility towards the community is no less important than our operational and financial success. Despite the economic slowdown, the Corporation continued its full-fledged corporate social responsibility programme. Etisalat is considered among the most active socially responsible corporations in the region.

Before I conclude, I take this opportunity to reiterate my personal trust in our executive management and employees, who have performed exceptionally against the backdrop of a prevailing challenging environment, capitalising on these challenges and converting them to opportunities. Their dedication and commitment to deliver resulted in the Corporation meeting its ambitious goals.

Finally,Iwouldliketothankyouforyourcontinued faith and support in our Board of Directors and Management team. I am confident that the Corporation is on the threshold of surmounting the current challenges and will be a major catalyst for the economic recovery in all the markets where we operate.

Sincerely,

Mohammed Hassan OmranChairman and Managing Director22February2011

3


Board of Directors and Executive Committee

H.E. Saeed Mohamed Al Sharid

Member

H.E. Mohammad Hassan Omran

Chairman and Managing Director

Chairman Executive Committee

H.E. Mubarak Rashed Al Mansouri

Member

Member Executive Committee

H.E. Sheikh Ahmed Mohammad Sultan Bin Suroor Al Dhaheri

Member

Member Executive Committeee

H.E. Khalaf Bin Ahmed Al Otaiba

Vice Chairman

H.E. Hamad Mohammad Al Hurr Al Suweidi

Member

4

Mr. Isam Meccawi Suliman Akrat

Corporation Secretary

H.E. Omar Saif Mohammad Al Huraiz

Member

H.E. Ahmad Bin Eisa Bin Nasser Alserkal

Member


H.E. Abdulla Mohammad Saeed Ghobash

Member

H.E. Shoaib Mir Hashim Khoory

Member


H.E. Abdul Rahman Hassan Al Rostomani

Member

5


Group Highlights

Africa

Atlantique Telecom, Moov

Canar

Etisalat Misr

EMTS – Etisalat Nigeria

Zantel

Middle East

Etisalat, UAE

Etihad Etisalat (Mobily)

Thuraya

Etisalat Services Holding

- Etisalat Academy- Tamdeed Project- Etisalat Directory Services - Etisalat-Real Estate (E-RE)- E-Marine- Etisalat Facilities Management L.L.C (E-FM)- Emirates Data Clearing House (EDCH)- Ebtikar Card Systems

Asia

Etisalat Afghanistan

Etisalat DB

PT XL Axiata Tbk

PTCL

Etisalat Lanka

51%Mobile

8%Telephone

10%Internet

10%Interconnect

12%Data Services

9%Others

Breakdown of Revenue – Group (Year Ended December 31, 2010)

6

Revenue (AED millions) Net Profit (AED millions) Capex (AED millions)

06 07 08 09 10 06 07 08 09 10 06 07 08 09 10

8,836

7,631

8,511

7,297

5,860

6,764

5,760

3,661

3,460

1,432

31,33431,929

29,360

21,340

16,290

7


Chief Executive Officer’s Statement

I am pleased to present Emirates Telecommunications Corporation’s (Etisalat) annual performance for the year ended December 31, 2010.

8

Etisalat continued its strong track record given the challenges during 2010, exhibiting strong performance in the period under review. We are confident that Etisalat is poised to dynamically adapt to the evolving industry landscape and our business environment.

SomeofthehighlightsforUAEoperationsfor the year ended in December 31, 2010:

•Mobilesubscribersreachedatotal of7.76million

•Fixedlinesubscribersstandat1.24million

•Internetsubscriberstotalled1.32million

•AED24.3billioninrevenues

•CapitalexpendituretotalledAED2.2billion

In general, the global telecommunication industry witnessed a slowdown due to various conditions that impacted an already highly saturatedUAEmarket,wherepenetrationlevels are the highest in the region. This consequently affected overall performance. In response to this effect Etisalat has been working on innovating new packages and services such as value-added and broadband services, which should lead to balancing revenues and profits.

That being said, Etisalat faced local competition under scrupulous regulations, including increasing pressure on international tariffs from competition and Voice over Internet Protocol(VoIP)usage.Themarketalsowitnessed competition in mobile data, with a focus on smart phones, which led to voice revenue disruption in favour of data revenues – a natural phenomenon in light of the technological advancement and introduction of a new generation of services and handset equipment. Etisalat has proactively introduced selected value propositions that responded to relevant, current and future market needs, focusing its efforts on stabilising our market share – as the major service provider – after the entrance of the new competitor in the country.

To recapitulate on the major offerings launched during the year, Etisalat introduced ‘MyPlan’and‘BusinessEdge’,twonewpostpaidplans targeting individual and corporate consumers respectively. The plans offer international and national minutes and data with a variety of bundles and add-ons.

We also delivered ‘eLife’, offering customers the option of connecting through optical fibres to broadband, fixed voice and TV services, with higher speeds and bundled voice minutes allatcompetitiverates.Furthermore,Etisalatlaunched 3-D TV to its customers, making theUAEamongstthefirstfivecountriesinthe world to do so.

With ‘BusinessOne Super’, Etisalat has made high-speed broadband easily accessible to the entire SME landscape. ‘BusinessOne Super’ broadband service offers speeds ranging from 4 Mbps up to 100 Mbps, which is a landmark development in the evolution of broadbandintheUAEandacrosstheregion.We believe high-speed broadband is integral to the overall economic development of the UAE,whichconcentratesondevelopingtheinfrastructure that in turn will spur increased online business activity.

EtisalatwillofferbusinesscustomersVoIPsolutions, following the legalisation of the servicebytheUAETelecommunicationsRegulatoryAuthority.WiththegrowthinIPnetworks, there is a significant opportunity for business enterprises to leverage the advantages of an integrated network and the convergence of voice and data through aVoIPsolution.

We welcomed the positive step towards telecom infrastructure-sharing that has been authorised by the Telecommunications RegulatoryAuthority.Etisalathasoneofthebest networks in the world and has invested a lot in developing the network in order to fulfil the various service requirements for the present and the future. Etisalat will now extend the benefits of its fixed-line and broadband services to both individual and business customers who currently do not have access to Etisalat’s wide array of services. Etisalat will expand its reach within Dubai’s FreeZones,suchasDubaiInternetCity,TECOM and the new residential areas, through innovative products and services that provide a strong differentiation and superior value. To that end, Etisalat launched a strategic partnershipwithJebelAliFreeZone(JAFZA)to deliver enhanced telecom and ICT services toJAFZAtenantsintheFreeZone,withdirectaccess to Etisalat services on a priority basis.

Asamainplayer,Etisalatisinvestingprudentlyto achieve excellence in customer experience fortheUAE.Thiscommitmentwashighlightedby the further development and roll-out oftheFibre-To-The-Homenetwork.Etisalatis on track to reach its goal of covering all oftheUAEwithitsfibrenetworkby2012.

We have also begun a commercial trial of LongTermEvolution(LTE),animportantsteptowards 4G technology. Etisalat has successfully combined the protection of the environment and advanced technology by investing in optical fibre networks that enhance the energy efficiency of our networks and reduce our carbon footprint and operating cost. Accordinglywehavealsobegunaninitiativeto implement environmentally-friendly ‘green building’ policies.

Facingamaturemarketthatishighlysaturated and characterised by revenue erosion and pressure on profit margins, the top management team embarked on an ambitious cost optimisation programme to reinforce Etisalat’s competitive position. Etisalat underwent a thorough cost analysis exercise to scrutinise current expenditures and review areas for improving efficiency. Asaresult,businessprioritieshaveshiftedtowards value creation and profitability, infrastructure-sharing, outsourcing, and shared services. Etisalat has already begun implementing these steps during the last quarter of 2010 and we expect to capture the full benefit of the programme over the coming two years.

We are lucky to be part of the new digital era that enables us to deliver state-of-the-art communication services. We believe that wise leadership and vision yield positive returns. Under Etisalat top management’s guidance, the right choices and world-class execution should generate lucrative returns. We will continue determinedly to differentiate ourselves and excel through our advanced networks and innovative product offerings and value propositions in our quest to align our performance with the expectations of our shareholders, customers, and employees.

Finally,Itakethisopportunitytoextendmydeep appreciation to the Board of Directors, who gave us all the resources and support needed to make our tasks easier and more efficient. I also extend my appreciation to our employees at every level across all departments and regions for their dedication and contribution to our success.

Respectfullyyours,

Nasser Bin OboodActing Chief Executive Officer22February2011

9


Management Review

Financial Results

Etisalat continues to maintain a strong financial position supported by sustainable cash flows, a conservative balance sheet, and ample liquidity that enabled it to fund core strategic investments, despite the challenging market conditions.

The following table shows selected historical data for the year ended December 31, 2009 and 2010.

Selected Financial Data

As of December 31 or for the year ended 2009 2010 Change %

Income Statement Data

Revenue 31,334 31,929 2%Operating Profit before federal royalty 17,651 14,627 -17%Net Profit 8,836 7,631 -14%

Balance Sheet Data

Total assets 71,379 75,607 6%Total liabilities 30,989 33,042 7%Total equity 40,389 42,565 5%Net debt (1) (6,808) (3,877) -43%

Cash Flow Data

Net cash flow from operating activities 10,125 7,807 -23%Net cash flow used for investing activities (6,771) (4,853) -28%Net cash flow used for financing activities (3,407) (4,372) 28%

Earnings per share and dividends per share data

EPS (AED) 1.12 0.97 -13%DPS (AED) 0.60 0.60 0%Number of issued shares (million) 7,187 7,906 10%

Notes: 1. Net debt represents Borrowings less Cash and cash equivalents

10

ForthefiscalyearendedDecember31,2010,EtisalatrevenuestotalledAED31,929million,representinggrowthof2%comparedto2009.Operating profit before federal royalty stood atAED14,627million,animpressiveoperatingmarginof46%.Netprofitfortheyear(attributable to equity holders of the Corporation)wasAED7,631millionafterfederal royalty, taxes and net finance income. Group revenues increased slightly in spite ofthechallengesfacedbytheUAEoperationowing to Etisalat’s diversified portfolio. However,earningsmarginshavedecreasedduetoasizeableincreaseinoperationalcosts,the effect of an increase in contribution to Group results from international operations that operate in lower-margin industries comparedtotheUAE.Anumberoftheseinternational operations are still at an early stage of operation and are expected to improve their contribution as they mature.

In terms of cash flows, Etisalat generated AED7,807millioninnetcashfromoperatingactivities in 2010. Uses of cash included AED5,760milliontofundcapitalexpenditure,representingacapitalintensityratioof18%,primarily related to international network expansion and fibre network roll-out in the UAE.Comparedto2009,capitalspendingfellbyAED1,004million.

Borrowings and financing obligations increasedbyAED1,899milliontoreachAED6,400million,whilecashandequivalentsremainedsturdyatAED10,277million. This represents a healthy net cash position ofAED3,877million.Inaddition,Etisalatsuccessfully extended the Corporation’s average debt maturity through a recent refinancing of Etisalat Misr’s loan facility. During the last quarter of 2010, the Corporation listed its Global Medium Term Note(GMTN)andSukukprogrammesontheLondonStockExchangeforUSD7billionand USD 1 billion, respectively. This listing will give Etisalat more flexibility when accessing capital markets to fund potential investments at more preferential rates.

Etisalat managed to maintain its investment-grade credit rating and positive outlook from the three major credit rating agencies, despite the downturn of the local economy. In May 2010,S&PupgradedEtisalat’slong-termcreditratingtoAA-duetostrongliquidityandfinancialflexibility,whileFitchandMoody’sreaffirmed their credit rating post annual credit review. Moody’s had downgraded Etisalat’sratingtoAa3earlierintheyearduetoitsrevisedviewoftheUAEsovereignratingsand Government support. The Corporation paidAED4,492millionintotaldividends,an increase of 15% from the same period lastyear.Thisfigureiscomposedof2009finaldividendsofAED0.35pershareand2010interimdividendsofAED0.25pershare.The Board of Directors has proposed final dividendsofAED0.35pershare,bringingthetotaldividendsfortheyeartoAED0.60pershare, in line with previous years. The proposed dividend will be submitted for approval at theAnnualGeneralMeetingofShareholderson March 22, 2011.

11


Mobile Subscribers (thousand subscribers)

Fixed Line Subscribers (thousand subscribers)

Internet Subscribers(thousand subscribers)

National Calls(million minutes)

International Calls(million minutes)

06 07 08 09 10 06 07 08 09 10 06 07 08 09 10

660

875

15,650

17,770

19,410

1,153

1,331

5,520

3,769

3,989

4,158

6,372

7,285

7,741

1,285

1,325

1,3587,764

1,309

3,847

3,369

1,323

1,237

18,252

15,996

UAE Highlights

06 07 08 09 10 06 07 08 09 10

12

Breakdown of Revenue – UAE (Year Ended December 31, 2010)

48%Mobile

10%Telephone

7%Interconnect

15%Data Services

12%Internet

8%Others

13


Market View

Innovation has been key to Etisalat’s 2010 roadmap for customers and business alike, providing great new offerings and value-added services to match the growing demand for mobile and fixed line broadband.

Management Review continued

14

The year also saw the introduction of several on-net offerings in the form of preferred rates, as well as many other commercial offers meeting each customer segment’s needs.

In Egypt, Etisalat successfully re-launched the prepaidplan‘KolalNas’and‘KolalNas+’,which enables customers to call any national numberatacompetitiveflatrate.Alsolaunchedwereregionalplans‘Mohafazat’and‘Alexandria’for customers calling from local areas and the ‘Green Line’ package for high users, givingunlimitedcallsanddata.InNigeria,Etisalat revamped its flagship product ‘Easy Starter’ package, giving customers bonuses on incoming calls and preferred numbers at competitive rates, while the new proposition ‘EasyLife’ focused on competitive call prices toanynetwork.EtisalatNigeriacustomersalso had their share of the latest innovations with the Samsung Galaxy tab, the first tablet computer introduced by a mobile operator in the country.

More broadly, Etisalat continued to leverage on its footprint to offer products and services acrossseveraloperations.Forexample,competitive international call offers were introducedwithintheWestAfricanfootprintandbetweenPakistanandAfghanistan. AnewoffertargetingMiddleEasterncustomersroamingacrossArabcountrieswasalsolaunched, as was the opportunity for roaming UAEcustomerstorechargetheirprepaidaccountfromEgypt,KSAandviceversa.

Etisalat India launched commercial operations underthebrandof‘Cheers’inNewDelhiandhas further expanded into more telecom circles. The successful rebrand of Etisalat’s Sri Lankan operationoccurredinFebruary2010,launchingnew prepaid packages that have been well received in that market. It was also the first time the market was offered a whole new concept of buckets for postpaid packages in Sri Lanka.

Africa

Atlantique Telecom (AT)

ATmaintaineditsroleasthechallengerinallcountries where it operates. While initiatives aimed at reducing competitive disadvantage are still to be realised, market share rose, with Cote d’Ivoire in particular performing well owing to aggressive and timely commercial offers.

The year 2010 saw the launch of a major network expansion to be completed by the end of the first quarter 2011. This will resolve radio capacity bottlenecks (mainly Cote d’Ivoire andBenin)andexpandthecorenetwork inCoted’Ivoire,TogoandNigertoimprovegeographical and population coverage.

By the year end, population coverage had improved to 54% on average, with the number of sites on air increasing by 40% during the year.

‘Moov’ continued to excite consumers with another successful launch of the ‘Moov’in’ offer targeting the youth segment, ‘per second billing’ in three countries (Benin, Gabon and CAR),andthelaunchofBlackBerryservicesin all Moov markets.

ForthefirsttimeintheWestAfricanmarket,the Moov passport was introduced for all prepaid outbound roaming customers, where calls are charged at a local rate wherever they arewithintheATterritory.

The main contributors to market-share gains wereCoted’Ivoire(CDI)andTogo.InCDI,in-depth market segmentation studies and tailored commercial offers paid off. Togo hadbeenadverselyaffectedin2009byanetworkclosure(fromAugust2009toearlyJanuary2010)duetoalegaldisputewiththegovernment on the licence renewal terms, but it recovered well in 2010 thanks to aggressive offers. These resulted in a 20% turnover growth for the year, and a 2% rise intheEBITDAmargin.

EtisalatincreaseditsownershipinATfrom88%to100%inFebruary,demonstratingitsstrongbeliefinATandcontinuinggrowthinthis continent of high potential.

Canar

Teledensity continues to be very low in Sudan in comparison with surrounding markets in this highly populated region. Canar continued its focus on International Services, Wholesale capacity, Enterprise Solutions and Data Services. Two major data campaigns were launched, giving a stable revenue stream, whereas voice revenueremainedatsimilarlevelsas2009.

By expanding the fibre optic network inside Khartoum and introducing a new internet gateway, Canar attracted new corporate customers in the oil, banking and education sectors.Furtherenhancementsshouldensurecontinued growth as new technologies areintroducedsuchasWi-MaxandWi-Fi,catering for the SME segment and other highARPUcustomers.

InAugust,Canartookthedecisiontointroduceper second billing on international calls, and to enhance the Canar Go bundling. This is Evolution Data Optimised based wireless accesstechnology(EVDO)forbroadband,with maximum throughput of 3.1 Mbps providing mobile wireless broadband facility through data card and USB modems. It is offered to the postpaid and prepaid market segments at various entry levels.

The‘TaymanPlus’offering,targetingresidentialand SME customers, also saw a revamp introducing new monthly rental charges, favourite numbers at preferential rates, and on-net rates.

Etisalat continued to leverage on its footprint to offer products and services across several operations.

‘Moov’ continued to excite consumers with another successful launch of the ‘Moov’in’ offer targeting the youth segment,

‘per second billing’ in three countries (Benin, Gabon and CAR) and the launch of BlackBerry services in all Moov markets.

By expanding the fibre optic network inside Khartoum and introducing a new internet gateway, Canar attracted new corporate customers in the oil, banking and education sectors.

Moov Canar, Sudan

15


Etisalat Misr

Etisalat Misr’s 2010 strategy focused on driving subscriber numbers in the youth segment and expanding regionally. Sustaining a strong technological platform and roll-out, the 2G networknowcovers99%ofthepopulationandthe3Gnetworkcovers87%,placingthe2011targetof100%firmlyinreach.FurtherdeploymentofHighSpeedPacketAccess(HSPA)wasundertakenacrossmorethan160sites.Etisalat Misr is the innovation leader in the country, achieving rapid network roll-outs throughturnkeyprojects.Attentiontotimelyimplementation and quality control with its commercial launches has enabled the operation to be first-to-market in many instances.

By leveraging key strengths in mobile broadband, innovation, and the Group footprint, Etisalat Misr has consistently been associated with attributes of innovation, straightforwardness, best value and transparency. This has resulted in stronger customer loyalty through brand association, consideration and awareness. The company is now perceived as the mobile broadband leader and market driver, while its competitors are in reactive mode.

The operation was able to reinforce Etisalat’s brand positioning as the ‘Smart Choice’, adopting an aggressive leadership strategy in marketmoversacrossallsegments.Preferentialrates, such as on-net, per second billing at given times on international and local calls, as well as unlimited usage packages for mobile data and broadband were all introduced during 2010.

Postpaidcustomerssawadditionalvalueintariff schemes with monthly rewards consisting of bonus minutes. Setting up value-added servicesforkeyusers(suchasHSPA,mobileVPNsanddatacard)EtisalatMisrwasamongthe first to offer bundled services for both mobile and fixed broadband, improving point-of-sale service and bill payment processes. Increasing training for all sales and customer support staff set a new standard for customer service and care for Etisalat Misr.

With a strong technological platform and the continued strategy of being first-to-market, Etisalat Misr is gearing to further expand its presence in the Egyptian market through innovative ICT services such as m-commerce, mobile advertisement, mobile applications and mobile payments. The operation plans to become the brand of choice by further associating itself with those attributes that deliver the highest return to customers and the company.

Etisalat Nigeria (EMTS)

EtisalatNigeria’sstrategyhasalwaysbeentooffer the best quality network and innovative products and services to attract subscribers. The company has successfully asserted itself intheNigerianmarketplaceasaninnovatorin commercial products and services, and is on track to expand its customer base. The company is already seeing a positive trend initsARPUexpansion,andexpectsmorerapidgrowthinARPUin2011asitsfocusturns to innovative data-centric products. This focus on innovation is Etisalat’s key point of differentiation in the predominantly voice revenuemarket.EtisalatNigeriaretainsitsposition as market leader in terms of Brand AwarenessasreportedbytheNigerianTelecommunications Commission.

The ‘Easy Starter’ proposition was enhanced and several other on-net propositions were launched to the market. ‘Easy Starter’ added two more features, one being the ‘Bonus On Incoming Calls’, which gives the customer one minute free for every three minutes onincomingcalls,whereasthe‘You&Me’element gives customers free talk time on on-net selected numbers. Similar trade-offs were launched to increase the subscriber base andsupportARPUlevels.

NetworkexpansioncontinuedinLagosandother major cities, in addition to a pilot of 3G services in preparation for commercial launch in Q2 2011.

Asthe3Gnetworkbecomesoperationalin2011 there will be greater commercial focus on higher-value, data-centric offerings toattractconsumersanddriveupARPU.EtisalatNigeriawillcontinuetoestablish theNigerianoperationbyaddressingkeystrategic areas such as network expansion,

networkqualityofservice(QoS)management, network infrastructure expansion, and the management and capabilities needed to drive commercial propositions and enterprise efficiency.

Zantel

WitheightcompetitorsinTanzania,operatorshave been involved in a price war to acquire market share from one another. To avoid competing on price and further damaging the market, Zantel instead switched its strategy to focus on value.

Adoptingasegmentedapproach,Zantelhasfocused on customer retention and loyalty inZanzibar,growinghigh-valuesegmentsinDar es Salaam and acquiring new customers in the remainder of the country.

Through clear value propositions and brand focus, the operation offered packages with dedicated bandwidth for the SME segment and for students, which resulted in Zantel gaining broadband leadership and solid financial returns.

Further,bydrivingpropositionsfirmlybasedon strategy, Zantel acquired and retained customers with offerings such as ‘Twanga’ and‘Mzuka’,whicharedirectedtoagreatermass market and lower-end customers.

In partnership with Zain and TIGO, a joint project was started in deploying a national backbone, cross-border and metropolitan network to be co-run and co-shared. Cost-savings were made by optimising the network, outsourcing maintenance work in telecom and non-telecom parts, and further siteOPEXreductions.

Zantel is the first mobile operator to partner withEASSylandingsandoperationsand is poised to land an additional submarine cable, acting as host for the Government of Seychelles. The operation can then offer submarine capacity for both national and international operators.

Zantel became a game changer for the operators in terms of the number of points of sale, which now exceeds 1500. Increasing the coverage of the availability of UMTS, Zantel captured a larger share of the mobile broadband subscribers, both impacting the financial results and a strong financial performerintheTanzanianmarket.


Etisalat Misr is the innovation leader in the country, achiev-ing rapid network roll-outs through turnkey projects.

Etisalat Nigeria’s strategy has always been to offer the best quality network and innovative products and services to attract subscribers.

By driving propositions firmly based on strategy, Zantel acquired and retained customers with offerings such as ‘Twanga’ and ‘Mzuka’, which are directed to a greater mass market and lower-end customers.

Etisalat Misr, Egypt EMTS - Etisalat Nigeria Zantel, Tanzania

16

Etisalat competes on the quality of its service by maintaining the highest network standards for sound quality, signal strength, coverage and fewest dropped calls.

17


The continuous roll-out of the Fibre-To-The-Home (FTTH) network across the UAE enabled launches of e-Life services to new areas in the country, offering customers higher broadband speeds and TV services bundled with attractive voice rate plans.


18

Middle East

Etisalat

EtisalatUAEhasmaintaineditspositionasmarket leader as the demand for broadband and value-added services continues to grow and competes on the quality of its service by maintaining the highest network standards for sound quality, signal strength, coverage and fewest dropped calls.

Aclearfocusoncustomerloyaltyhasseenthe expansion and enhancement of the full range of product and service offerings and marketing and promotional strategies. Etisalat has also continued to develop its distribution channels, particularly in the highest customer-value segments of the retail and corporate markets.

Thecontinuousroll-outoftheFibre-To-The-Home(FTTH)networkacrosstheUAEenabled launches of e-Life services to new areas in the country, offering customers higher broadband speeds and TV services bundled with attractive voice rate plans. Inaddition,HighDefinitionTVand3Dtelevision were launched through e-Vision in another first-to-market. With near full roll-outoftheFTTHnetwork,greaterefficiencies and network cost effectiveness will help contain operating costs and capital expenditure. This will be an important factor in an increasingly competitive market with challenging macro-economic conditions.

Several offers have been launched with good response from the market, such as ‘My Plan’forthepostpaidsegment.‘MyPlan’offers free international and national minutes, data at various levels, and a wide choiceofoptionaladd-ons.The‘HomelandPlan’forprepaid,offeringattractiveratesforcustomerstoIndiaandPakistanamongothers, had a similar impact in this segment. OfferstotheUAEmarketaredesignednotonly to stem increasing competition on the international tariffs but also to combat the lossofVoiceoverIPtraffic.

The dedicated business solutions unit continued to work closely with enterprise customers to provide complete end-to-end telecommunications and ICT services involving a combination of network, hardware, software and service solutions. Newproductssuchas‘BusinessEdge’,‘MyBusinessPlan’and‘BusinessSuperOne’were launched to these groups to further meet their needs.

Etisalat’s strategy in 2010 involved building best-in-class customer experience with a strong focus on streamlining and simplifying processes and enhancing the skills of customer-facing employees. In addition, large groups of employees participated in theRegulatoryComplianceProgrammetoensure adherence to regulatory policies at all times. The customer distribution network was also expanded, adding to the number of Etisalat contact points.

Etisalat Etihad (Mobily)

Mobile penetration continues to rise in the KingdomofSaudiArabiaalongwithMobily’sgrowth in market share year on year. This is largely fuelled by the consistent launch of new innovative products and faster and wide-reaching networks built across the country. Today Mobily has the largest active HSPA+baseintheworldwith2,000,000active subscribers and total usage exceeding 90Terabytesaday.Thisisinlinewiththestrategy of pursuing broadband opportunities, which are growing at a fast rate in all customer segments. The network has thus become one of the busiest mobile data networks in the region.

Asanoperatorandawell-knownbrandnamein the Kingdom, Mobily’s strategy centres on three key pillars of growth: Efficiency; Differentiation in providing best-in-class customer experiences; Continuously introducing the latest technology and services.

Whilst offering a number of new services to consumer and enterprise segments, the key first-to-market launches included the new application store for customers to buy locallydevelopedapplications,theHajjiPhoneapplicationenablingpilgrimstoaccess all the information and steps needed to complete their pilgrimage, and the full-fledged gaming portal to create an online gaming community. Mobily prides itself in being first-to-market in many devicelaunchessuchastheiPhone,theNokiaN8,andFerrari-brandedproducts.

Mobily ended the year with growth in subscribers and revenues across all of its operating segments. The year-on-year growth percentage is a landmark among all mobile network operators, not only in the GCC but in the world.

Thuraya

Aproviderofbothaerialandnauticalsatellite solutions for remote areas, Thuraya is today the undisputed leader in the handheld satellite voice market with about 65%marketshareinitscoveragearea.Oneof the key contributors to its success has beentheThurayaXT,whichhassofarexceeded market expectations.

Mobile broadband solutions continue to grow in the satellite market as increased bandwidth becomes available for broadband usage. Thuraya has enhanced and stabilised IPservicesandimprovedtheoverallperformance of its systems on the ground.

Attheendof2009andinto2010,Thurayare-launched the brand and proposition of ‘StayClose’.Focusingonlyoncarefullyselected trade publications and online and mobile advertising, the re-launch was a great success, with the online segment of thecampaignalonecreatingover95millionimpressions and over 100,000 click-throughs.

Thuraya is now being recognised in its targeted circles, and its products can meet exacting requirements.

A clear focus on customer loyalty has seen the expansion and enhancement of the full range of product and service offerings and marketing and promotional strategies.

Today Mobily has the largest active HSPA+ base in the world with 2,000,000 active subscribers and total usage exceeding 90 Terabytes a day.

A provider of both aerial and nautical satellite solutions for remote areas, Thuraya is today the undisputed leader in the handheld satellite voice market with about 65% market share in its coverage area.

Etisalat Etihad Etisalat (Mobily), KSA Thuraya, UAE

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Asia


Moderate stabilisation of the country and some economic growth have contributed to telecommunication penetration rates in Afghanistancontinuingtorisetojustover45% in 2010.

Continued unrest is expected in parts, and reformsprovisionedintheAfghanistanNationalDevelopmentStrategy(ANDS) willbechallengingtoimplement.However,investment from the government and coalition forces is expected to increase, bringing more stability to the people and businessesofAfghanistan.

EtisalatAfghanistanundertookamajorbranding exercise to position the operation as a beacon of the future. This confirmed the Corporation’s long-term commitment to the country both as an investor and an enabler.

This is further demonstrated in the continuous technological upgrades and roll-outs undertaken to meet the changing and growing needs and requirements of the market.

Newpricingplanswereintroducedtodifferentiate the offerings for the general, youth, and other segments. The organisation also streamlined processes in its marketing and sales organisations to further drive activation and increase revenue.

Atyearend,theresultscanbeseeninasizeableliftinmarketshareandhealthyrevenuegrowth,withARPUincreasingbymore than 15%.

EtisalatAfghanistanisbestpositionedbytheend of the year in being the operator of choice for on-net as well as off-net propositions. 2010 paved the way for the company to be the market leader in value-for-money in 2011 and one of the top mobile network operators inAfghanistanbyendof2011.

Etisalat DB Telecom Pvt. Ltd

Improved network infrastructure in India has seen a sharp rise in teledensity, exceeding 51% in the past year. The launch of advanced telecom services like 3G and IPTVwillcontinuetodrivesubscribergrowth, and Etisalat DB is well poised to takeasizeableportionofthemarketinthiscountry of over 1,150 million people.

To ensure the roll-out goes as planned, in line with regulatory compliance, Etisalat DB has optimised initial investments through a strategy of sharing passive network infrastructure with the leading service and telecom infrastructure providers. The operation has also entered into Intra Circle Roamingagreementsincircleswithlargegeographic areas to speed up market coverage in the initial stages.

A100%Core(CircuitSwitched)Network hasbeencommissionedforbothAccessNetworkandfortheNationalLongDistance(NLD)/InternationalLongDistance(ILD)business.WithMobileNumberPortability(MNP)mandatedbythegovernment,Etisalat DB has implemented the solution in itsAccessNetworkfromallthreevendorsand successfully passed the tests conducted byDoT(theIndianlicensor),thusbetteringthe performance of large incumbent service providerslikeVodafoneandBharti-Airtel.

Etisalat DB launched the brand name ‘Cheers’ in March. The first promotional pack offered customers a combination of discounted on-net and off-net voice call and SMS for a period of six months. The alternative offer has 50 minutes of free voice calls and 50 free SMS forthefirst60days,afterwhichanormalrate is charged. To date the subscriber base iscloseto265,000.

Etisalat Lanka

With a full rebranding exercise, Etisalat Lanka staged its energetic launch in the local marketplace and the media in March. With the promise of being the first to offer exciting new products and solutions, the operation introduced two new prepaid price propositions for consumers. By keeping the communication bold and upfront, customers were quick to accept the new player and it being part of a much larger global company. This helped ensure the smooth transition from Tigo to Etisalat Lanka.

Amongthemostnotableproductlauncheswere the 2-for-1 offer on prepaid; new prepaid per minute price plan with floor prices introduced; a no-monthly rental on postpaid package;100DialIDDplan;and2Friendsservice. The strategy is to build the postpaid market as well as building considerable market share for products such as BlackBerry.

On the network front, work has started onthemigrationtotheNextGenerationNetwork(NGN)andchangingfromTimeDivisionMultiplexing(TDM)transmission toIPtechnology.

Etisalat Lanka plans to continue on the positive wave created with the launch as a preferred operator, offering better alternatives and strong network capabilities to this growing market with a healthy growth potential.


Etisalat Afghanistan undertook a major branding exercise to position the operation as a beacon of the future.

This confirmed the Corporation’s long-term commitment to the country both as an investor and an enabler.

Etisalat India launched commercial operations under the brand of ‘Cheers’ in New Delhi and has further expanded into more telecom circles.

Etisalat Lanka plans to continue on the positive wave created with the launch as a preferred operator.

Etisalat Afghanistan Etisalat, Lanka

20

With a full rebranding exercise, Etisalat Lanka staged its energetic launch in the local marketplace and the media in March... by keeping the communication bold and upfront, customers were quick to accept the new player and it being part of a much larger global company.

21


Pakistan Telecommunications Company Limited (PTCL)

PTCLmaintainsitscommitmenttothepeopleofPakistan,providingvoiceandbroadband services as well as some exciting new technology in 2010.

The operation gained a cutting-edge advantage in the market by launching the first-ever commercialEvolution-DataOptimisedNetwork(EVDO),whichallowsfordatatransmissionthrough radio signals.

Theproposition,EVONitro9.3,broughtaneweraofbroadbandspeedinPakistan,generatingmany upgrades of existing customers as well as new subscribers.

Inaddition,PTCLofferedothernewservicesat various speeds suitable for a wide range of consumers,andintroducedazerorentpackageonfixedlineservices.PTCLhasalsoestablisheditself as the first 3G wireless service provider in Pakistanbyupgradingtheexistingfixed-linewireless platforms in major cities with CDMA-based3Gtechnology.Otherenhancements and upgrades of the network continued in cities and remote areas.

Together, these initiatives have firmly placed PTCLasthepreferredbroadbandserviceprovider in the country and the market leader invoice,bothinsubscriptionandARPU.

ForUfone-themobilearmofPTCL-thenetwork improvements further strengthened itsValueAddedServicesportfolio,withahigherdegree of flexibility in the service offerings and an increase of 13% in network coverage.

The youth segment was offered several attractive offers during 2010 with fixed and mobile broadband, including unlimited internet access and free minutes as well as free e-learning cards and an open competition for all scholarship students. Ufone launched its third youth-oriented service, ‘Uth – Soch HaiAapKi’,withattractivevoiceandSMSrates. The Uth portfolio has taken the segment by storm and the portfolio carries 4.5 million subscribers after just over seven months.

Ufone launched the first m-commerce service using Unstructured Supplementary ServiceData(USSD),whichissupportedbyall GSM handsets. The service was launched in partnership with the largest commercial bankinPakistanandoffersanefficientlow-cost mobile payment system for people without access to banks or credit cards. This, coupled with other value-added services suchasDoubleNumberService,wheresubscribers can get two numbers on a single SIM card, adds healthy new revenue streams to the company.

In terms of future synergies between the PTCLandUfonebusinesses,the2010network and technology advancements have paved the way for combined GSM, data and voiceproducts.PartneringalsowithEtisalatAfghanistanandofferingattractiveratesbetween the two countries has quadrupled traffic since the launch, contributing to the Pakistansuccessstory.

PT XL Axiata Tbk

With cost leadership and customer intimacy atthecoreofits2010strategy,XLhasachieved a more in-depth understanding of its customers, at almost ‘street-level’.

With such insights, and a concentrated focus on dealing with customer complaints, the operation has enhanced the customer experience and improved customer advocacy with positive results and feedback.

XLfirmlyunderstandsitscustomers’preferences and meets their needs by offering relevant choices routed through a single portal with streamlined and simplified registration. The portal offers a mix of voice, SMS and data to suit customer preferences.

ThissuccesshashelpedtopositionXLas‘best-in-class’ in execution and the market leader of industry vision, strategy, and execution. It is known to be always one step ahead of competitors on network roll-out, pricing,anddistributionstrategies.AsaresultXLhasseenahealthyandsteadygrowth in revenue streams and earnings.

XLdeliveredhighervaluetoshareholdersand outpaced industry growth by targeting a higher share in the stabilising core business of voice and SMS, while also seizingopportunitiesfromtheriseofthedata service industry and other markets with high growth potential.

The operation maintained a balanced focus on top-line growth, operating profitability andassetproductivity,andwasranked8thamongst the top 50 fastest-growing companies in Indonesia by Fortunemagazine.


For Ufone - the mobile arm of PTCL - the network improvements further strengthened its Value Added Services portfolio,

with a higher degree of flexibility in the service offerings and an increase of 13% in network coverage.

XL delivered higher value to shareholders and outpaced industry growth by targeting a higher share in the stabilising core business of voice and SMS,

while also seizing opportunities from the rise of the data service industry and other markets with high growth potential.

PT XL Axiata TbkPTCL

22

The proposition, EVO Nitro 9.3, brought a new era of broadband speed in Pakistan, generating many upgrades of existing customers as well as new subscribers.

23


Network

Africa

Atlantique Telecom, Moov, West Africa

moov.com

Operationalin6countriesLicence type MobileEtisalat ownership 100%Population 57millionPenetrationrate 58%averageacrossallcountriesNumberofoperators Mobile 2-5 per countryNetworkcoverage,population 56%

EMTS – Etisalat Nigeria

etisalat.com.ng

Licence type Mobile Etisalat ownership 40%Population 155 million Penetrationrate 57%Numberofoperators Mobile 5 Networkcoverage,population 59%

Etisalat Misr, Egypt

etisalat.com.eg

Licence type Mobile and InternetEtisalat ownership 66%Population 80millionPenetrationrate 92%Numberofoperators Mobile 3Networkcoverage,population 99%

Canar, Sudan

canar.sd

Licence type FixedEtisalat ownership 89%Population 44 million Penetrationrate Fixed1%Numberofoperators Fixed2Networkcoverage,population 31%

Zantel, Tanzania

zantel.com

Licence type MobileandFixedEtisalat ownership 65%Population 41 millionPenetrationrate Mobile 43%

FixedLine0.4%Numberofoperators Mobile6

Fixed2Networkcoverage,population 42%

Middle East

Etisalat, UAE

etisalat.ae

Licence type Mobile,FixedandInternetEtisalat ownership 100%Population 5 millionPenetrationrate Mobile 241%

Fixed26% Internet27%

Numberofoperators 2Networkcoverage,population 100%

Thuraya, UAE

thuraya.com

Licence type Satellite telecommunicationEtisalat ownership 28%Population -Numberofoperators Satellite 4Networkcoverage,population -Networkcoverage,geographical 140 countries

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Etihad Etisalat (Mobily), KSA

mobily.com.sa

Licence type Mobile and InternetEtisalat ownership 28%Population 26millionPenetrationrate 194%Numberofoperators Mobile 3Networkcoverage,population 99%

Asia


etisalat.af

Licence type Mobile Etisalat ownership 100%Population 30 million Penetrationrate 52% Numberofoperators Mobile 4Networkcoverage,population 73%

Etisalat DB

Licence type MobileEtisalat ownership 45%Population 1,200 millionPenetrationrate 52%Numberofoperators Mobile 15Networkcoverage,population -

PTCL

ptcl.com.pk

Licence type Mobile,FixedandInternetEtisalat ownership 23%Population 183millionPenetrationrate Fixed3%

Mobile60%Numberofoperators Mobile 5

Fixed11Networkcoverage,population 76%

Etisalat, Lanka

etisalat.lk

Licence type MobileEtisalat ownership 100%Population 22 million Penetrationrate 67%Numberofoperators Mobile 5Networkcoverage,population 67%

PT XL Axiata Tbk

xl.co.id

Licence type MobileEtisalat ownership 13%Population 237millionPenetrationrate 76%Numberofoperators Mobile 11Networkcoverage,population 92%

25


Etisalat can offer preferential tariffs between international operations that have substantial cross-country calling and large expatriate populations. These exist in Pakistan and Afghanistan and are being planned for Sri Lanka and India.


26

Synergies and economies of scale

The great advantage of having such a diverse spread of operations is economy of scale and benefiting from the many synergies of operating and standardising numerous mobile networks.

Etisalat has been able to centralise its contracts, marketing and planning functions along with equipment and handset procurement. This enables the Corporation to effectively plan, build and manage new mobile networks, develop strong branding strategies, and introduce new product and service offerings. Significant cost savings are the result, as compared to stand-alone operators, and Etisalat gains more favourable terms from suppliers, in particular with popular handsets that are instrumental in the many market-leading offers and services.

The benefits of centralisation also extend to the procurement of network equipment and the creation of value-added services through content licensing, joint ventures with media providers and similar initiatives. Such efforts have allowed for leverage in negotiating power, sharing market intelligence, and researching and coordinating technology sourcing, investment and management.

One such example is in negotiating roaming agreements for some of its smaller operations with global companies, such as betweenAtlantiqueTelecomandVodafone.Etisalat can offer preferential tariffs between international operations that have substantial cross-country calling and large expatriate populations.TheseexistinPakistanandAfghanistanandarebeingplannedfor SriLankaandIndia.Further,Etisalatcanobtain more favourable rates for roaming in countries where it does not have operations, and can negotiate the interconnection and termination rates.

Anotherprimeexampleofconsolidationisthe Etisalat Brand Globalisation programme, which looks to strengthen the company’s name and reputation on the global stage. Nowacleardirectionhasbeensetforgrowing the Etisalat Brand Value, improving employees’ belief in the company values and increasing the effectiveness of multi-national marketing communications efforts. Execution will start in 2011.

Environmental matters

Globally, Etisalat is increasing its focus on the environment.Aswellasensuringalloperations are compliant with the various laws and regulations, Etisalat is establishing new programmes that will help fuel the green agenda for the company in the future.

Alloperationsareboundbystringentguidelines involving radiation emissions, zoning,employeehealthandsafety,noise,historic and artistic preservation, etc. Additionalobligationssurroundthegrantingof environmental permits and licences, and dealing with authorities for the necessary authorisations and notifications.

The overall objective is to comply in all material respects of environmental, health control and permit requirements, but also exceed targets where possible.

Forexample,intheUAEtheregulationsforusing radio frequencies for mobile phones follow the maximum limits outlined by the InternationalCommissionforNon-IonisingRadiationProtection.And,therearenetworkinfrastructure strategies now in place to achieve even lower radiation emission ranges.

Etisalat has been able to centralise its contracts, marketing and planning functions along with equipment and handset procurement.

Globally, Etisalat is increasing its focus on the environment. As well as ensuring all operations are compliant with the various laws and regulations,

Etisalat is establishing new programmes that will help fuel the green agenda for the company in the future.

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Etisalat Services Holding (ESH)2010 has been a successful year for Etisalat ServicesHolding,whichconsistsofeightbusiness units working as independent service providers for Etisalat and other telecommunications-related entities.

Nowinitsthirdyearofindependence,all of the business units have achieved their own momentum with sustained revenue andprofitabilitygrowth.Allhavereached,and in some cases surpassed, the EBIT for their respective industry standards as new approaches and strategic initiatives have translated into overall growth.

To help set the future direction for continued growth,ESHundertookaCompetitiveIndustryAnalysisStudy2010(CIAStudy).Thestudyarticulated market-share, global EBIT range, regional market-share and regional growth rates, as well as competitive readiness for each business unit. Comparisons were made against industry benchmarks, establishing a clear focus for ongoing improvement and achievement.

Etisalat Academy

TheEtisalatAcademyisoneofthelargestdevelopment and training centres in the GCC &MENAregion.Itcontinuestogrowinstrength as a single source provider with full in-house facilities ranging from auditoriums, training rooms and accommodation for over 260delegates.During2010,theAcademyhas continued its curriculum within business, ICT, telecommunications and leadership, and at the same time expanded into areas of psychometric assessment for recruitment, careerdevelopmentplanningandotherHRconsulting services.

TheAcademydeliveredarangeofkeypubliceventsandconferences,suchasthe9thMiddleEastHRConference&ExpoinMay;Eye on Government 1 and 2 in June and December respectively; plus major developmentprogrammesfortheUAEArmedForces(amongstothers),wheretailoredleadership and development programmes were designed and delivered.

Internationally,theAcademysignedjointventureagreementswithZTEandHuaweiand developed succession programmes for theoperationsinAfghanistan.

Tamdeed projects

With over 14 years of experience, Tamdeed leads turnkey solutions for large-scale outdoor fibre optic networks for Etisalat. It has become the leading supplier in the UAEandisakeyplayerandintegratorforindoor structured networks and in-building solutions. By the end of 2010 more than 8,400kilometresoffibrecable,withover72,000jointsand120,000terminations, hadbeencompletedinoutside-plant(OSP)projects.Inside-plant(ISP)projectsinvolvedmorethan6,000kilometresoffibrewithover 144,000 fibre optic terminations. Tamdeed has succeeded well in its plans tobringfibre-to-the-homeintheUAE,enabling more and more customers to enjoy triple and quad play services from Etisalat.

Etisalat Directory Services

With an ever-increasing volume of traffic on both internet and mobile portals, Etisalat Directory Services has continued to emphasise the online services it provides in enhancing usability and search functionalities for users. The newly launched website is fullybilingualinEnglishandArabicandadditional functionalities - especially for mobile applications - are being developed for launch in 2011. Meanwhile, the printed publication of the annual white and yellow pages continues, with distribution across the nation to key stakeholders such as hotels, information centres and libraries.

Etisalat Real Estate (E-RE)

The Corporation’s real estate portfolio includesmorethan410buildings,850GSMsiteswithshelters,480towers,and500monopoles. Other related facilities include building services and power plant with a total land area of 2 million square metres acrosstheUAE.Thesepropertiesareusedfor a wide range of business such as telecommunication exchanges, offices for staff, public offices, stores, vehicle maintenancecentres,etc.E-REhascontinued to ensure that all properties are used to maximise their business potential.

Asfacilitiesbecomeavailableforexternalusage,E-REmarketsthesethroughhigh-endestateshowssuchasAbuDhabiCityscape,Big-5exhibition,andtheArabianWorld Construction Summit.

E-Marine

Year after year, E-Marine proves its leadership of the submarine cable industry in the region and beyond, continuously striving towards fulfilling and exceeding client expectations and keeping islands, countries and continents connected. With 25 years’ experience, E-Marine ended 2010 with a number of successfully closed projects of local and international importance. One was the reconnection of the SE-ME-WE 4cableintheMediterraneaninApril,whichaffected internet services throughout the region for a few days. To its advantage, E-Marine can quickly reroute any of the three cable ships to deal with such incidents swiftly to reduce the interruption of service for customers, enterprises and countries alike before returning to projects in hand.

In 2010, E-Marine was the regional leader in providing maintenance, storage and repair servicestocustomersintheArabianGulf,IndianOcean,EastAfricaandRedSea,withnew long-term contracts in place both for theEASSycablesysteminAugustandtheIMEWEcablesysteminNovember2010.

The IMEWE cable project (India-Middle East-WesternEurope)hasadesignedcapacityof3.84terabitspersecond,andwillbe the most advanced cable connecting IndiainSouthAsiatoItalyandFranceinWestern Europe via the Middle East, with landingsenrouteinPakistan,UAE,SaudiArabia,EgyptandLebanonstretchingover13,000 kilometres of seabed.

Now in its third year of independence, all of the business units have achieved their own momentum with sustained revenue and profitability growth.

All have reached, and in some cases surpassed, the EBIT for their respective industry standards as new approaches and strategic initiatives have translated into overall growth.

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Etisalat Facilities Management L.L.C (E-FM)

Withaworkforceofapproximately1,800staff,EtisalatFacilitiesManagementextendsacrosstheUAE,coveringmorethan5,000sitelocationsinallEmirates.E-FMmaintainsand manages all types of facilities and assets for a client base that includes Etisalat, Sheikh ZayedGrandMosqueCentre,AbuDhabiAirportsCompany,andSharjahInternationalAirport.Itsfacilitiesrangefromairports,high-rise towers and data centres, to GSM sites where services such as maintenance ofpowerplantequipment,UPSsystems,generators and DC systems, cleaning and security are all provided through a single point of contact.

Builtonagoodreputation,E-FMsecurednew major customers during 2010 such as Musanada (governmental building in Western Region,AlAinandAbuDhabi),AstecoRealEstate,andKUS-TAR.

Major projects such as GSM site construction at 35 different locations was completed in a record63days,inadditiontoaspecialtaskforce developingover215sitesin90days.

Emirates Data Clearing House (EDCH)

EmiratesDataClearingHouse(EDCH)providesa complete solution to GSM operators for roamingfacilities.AsthefirstdataclearinghouseintheMiddleEast,EDCHservedmanyleadinggroups,suchasEtisalat,Zain,AtlantiqueTelecom, Warid, Wataniya and Vodacom, offering comprehensive financial clearing and settlement services for handling reconciliation of GSM roaming records and net settlement of financial accounts between its clients and their roaming partners, as well asfinancialclearingservices.EDCHcontinuedto grow market share during 2010 with the customer base increasing 20%, and growth projected to continue during 2011. Being partofatelcogroupprovidesEDCHwithinfrastructure and invaluable information on the real issues facing operators, giving EDCHanadvantageouspositioninitsmarket.

Ebtikar Card Systems

Providingphysicalsupporttointernationaltelecommunications operators to deliver airtime and value-added service to end-users, Ebtikar Card Systems continued in 2010 to be a major provider of Smart CardsolutionsforMiddleEast,AfricanandAsianoperators.Thecompanyalsobroughton new customers such as Sabafon from Yemen,ZantelfromTanzaniaandEtisalatDB Telecom from India, adding to the ever- growing list of customers not only in telecommunications but in areas as diverse as banks, airports and governmental entities.

Ebtikar was the first in the region to produce the Micro-SIM card for Etisalat, with a special dual usage design making it compatible with both a normal mobile phoneandiPad/iPhonedevices.Anotherachievement was producing the LiM (Less isMore)SIMcardwhichishalfthesizeofastandard SIM card body – cutting the amount of plastics used in its production by 50%.

29


Etisalat is a leader in telecommunications, with significant success in all facets of building, managing and operating successful telecommunication businesses – success made possible through the dedication and professionalism of our employees.


30

Human CapitalEtisalat can confidently and proudly give credit to its employees in all parts of the operations for their diligence, high levels of creativity, and energy to deliver this success time and again.

During 2010, corporate initiatives focused on creating more synergy and consistency among employees. Integrating employees across functions and countries is key to achieving these objectives. This is being achieved through an integrated programme of identifying high-potential employees and providing them with cross-functional and cross-regional job experiences, supplemented by off-the-job development. These high-potential employees will ensure effective transfer of knowledge and support the needs of the operating companies.

Top management across the operations are covered under a comprehensive leadership development strategy, coordinated at a central level and focusing on purpose and goals, and relevant learning and development through a variety of delivery strategies and methodologies. Great importance is given to mobility of management, both functionally and geographically, to successfully leverage opportunities as they arise. With harmonisation across the operations in areas such as performance evaluation and career paths, the mobility and transition of management becomes increasingly easier for both the organisation and the employee. Etisalat firmly believes that this approach to managing the operations enables maximisation of cost-effective knowledge transfer opportunities, from more mature markets to those in a different stage of development, further supporting profit growth.

Etisalat believes strongly in the continued development of its employees, especially due to the nature of telecommunications technology and markets, which are ever- changing and evolving. To this end, special focus is given to frontline staff to ensure that they are trained and equipped to enhance the customer experience and services, and to create a stronger bond and relationship between Etisalat and its customers.

Self-development and coaching opportunities are projects that are being developed in some operations, where the employee can not only utilise online libraries and courses to develop themselves (and have these accredited in their individualfiles),butalsodeveloptheirskillsand knowledge through sharing and coaching others – thereby increasing the internal knowledge pool. In a unique position, the UAEoperationhasalsoretaineditsstrongdrive on the Emiratisation programme to continue to increase the level of nationals servingtheorganisation.Etisalat(UAE)isdeeplycommittedtothebeliefthatallUAEnationals have a critical part to play in the country’s development, as well as that of the Corporation.

Astheoperationsexpandintheregionandworldwide, Etisalat remains committed to attracting the best talent in all the countries it operates in. This way, Etisalat continues to contribute to preparing and creating generations of telecom professionals whose skills define ways of working with professionalism, diligence and creativity.

Top management across the operations are covered under a comprehensive leadership development strategy, coordinated at a central level and focusing on purpose and goals,

and relevant learning and development through a variety of delivery strategies and methodologies.

31



Corporate Social Responsibility (CSR)

Enabling reach is not only accomplished by the operating companies through their roles in telecommunications deployment and development in the marketplace. We believe in global reach with people, society and environment, using our resources to provide a better life for the people and communities we serve.

32

Whether reaching many or a select few, theCSRprojectswetakeonenable,affectand change life for many in the various projects undertaken under the pillars of environment, health, education and sports, as well as emergency assistance in times of natural disasters.

IndeliveringontheCSRstrategy,eachunitidentifies projects that are important in the specific markets and where a difference can be made. This provides a plethora of activities that reflect relevant ‘on-the-ground’ projects across the various operations, some of which are highlighted here.

Like many other telecommunications companies, and given the nature of the industry, Etisalat values education and learning. It is therefore quite natural for many of the CSRinitiativestobelinkedtoeducation.EtisalatNigeria,inadditiontotheAdopt-a-Schoolprogramme, has also set up scholarships for premier students in the fields of electrical engineering, computer sciences and managementcourses.InXL,theworkwiththeKomputer untuk Seolah (Computers for Village Schools)continuesonitsfive-yearpathinsetting up computer facilities in rural schools across the country, where the target is to reach at least 300 schools within five years.

InPakistan,UfonepartneredwiththeCitizens’Foundation,whereemployeesspend at least ten weekends as mentors and advisors with groups of youngsters, giving insights into career paths and the corporate world.EtisalatAfghanistancontinueditssupport of the Women Counsel, which aims to enlighten women to improve and strengthen their socio-economic status in society through multilateral involvement in development activities.

In other education work, this time in the area ofhealthissues,EtisalatNigeriasetouttoeducate people on malaria prevention and control through an alternative channel in an entertaining radio drama series created in partnership with health institutions, as well as engaging student clubs in distributing insecticide-treated nets. Canar set out to work on cancer prevention, with a special focus on children, and will continue to do so during 2011 in an even larger campaign. The ‘Origin’ project, which addresses water problems,continuesinEtisalatMisr(Egypt)with a further addition to the scheme – Care for Children. Zantel made life special for one little girl suffering from a serious heart condition who required surgery in the UK. Under the wing of Zantel the operation was carried out and the girl is now on her way to recovery.

While the organisations streamline processes internally in order to reduce the environmental footprint in daily operations, environmentally-soundCSRinitiativesarealsointheportfolioofEtisalat.IntheUAE,therecyclingofmobilephones continues, and several projects involving planting trees around offices and other contact points have commenced in various operations. The Origin project also falls under this sector, having a dual purpose and objectives. One of the more diverse projects is recycling marketing communications material into reusable bags. This project is run in Sri Lanka by small groups of women, not only providing them with an occupation but also a worthwhile livelihood.

2010beingtheyearoftheFIFAWorldCup,Zantel also set out to share the joy of football withafulltouraroundTanzaniacelebratingthe Cup and the game. With the game being played around the world, sponsorships in MobilyandEtisalatUAEcontinued,bringinga new generation of players into the game with the intent of fostering next generation players.EtisalatAfghanistancontinuestobetheproudsponsoroftheAfghanistancricketteam, which not only took home the silver medalattheAsianGames2010butalsoturnedout to be one of the fans’ favourites at the Twenty20 games in the West Indies. In Egypt, Etisalat Misr continued its support of the Para-Olympicscommittee.

Sadly, natural disasters struck many of the areas Etisalat operates in. Thuraya was quick torespond,asalways.ApartfromsigningupwiththeUAE-basedNationalCrisisandEmergencyManagementAuthority,Thurayaalso deployed telephones in Uganda and PakistanduringthefloodingandinChinaandIndonesia following the earthquakes, where they were used as support in large-scale searchandrescueoperations.XLhassetuptwo disaster relief programmes consisting of an emergency response programme providing not only basic necessities such as food and sanitary kits, but also vital communication kits withstarterpacks,chargersetc.Postdisaster,XLhassetupanSMSdonationprogrammeand contributed to rebuilding schools in affected areas.

Late in July 2010, devastating floods inundated northernpartsofPakistan,affectingmillionsofpeople.BothPTCLandUfonewerequickto offer support and assistance in the relief work, arranging the dispatch of medical supplies and food as well as setting up medical campsinPeshawar,NowsheraandCharsaddaamongst others. Ufone assisted in setting up camps in the areas of Multan, Sukkur and Charsadda, giving shelter to some of the affected families as well as dispatching food supplies.

Onamorepersonalnote,PTCLemployeesdonated part of their salaries towards thePrimeMinister’sFundasindividualcontributions to affected people.

CSRinitiativesandprojectsundertakenduring2010 have been many and varied, reconfirming Etisalat’s strong belief in being part of society in areas important to the local entities – but more importantly, making a difference to these societies and the individuals in them.

In Pakistan, Ufone partnered with the Citizens’ Foundation, where employees spend at least ten weekends as mentors and advisors with groups of youngsters, giving insights into career paths and the corporate world.

Zantel made life special for one little girl suffering from a serious heart condition who required surgery in the UK. Under the wing of Zantel the operation was carried out and the girl is now on her way to recovery.

In the UAE, the recycling of mobile phones continues, and several projects involving planting trees around offices and other contact points have commenced in various operations.

33


35

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Emirates Telecommunications Corporation (“the Corporation”) and its subsidiaries (together “the Group”) which comprise the consolidated statement of financial position as of 31 December 2010 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2010, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory Requirements

We have obtained all the information and explanations considered necessary for the purposes of our audit. The Corporation has maintained proper books of account and has carried out physical verification of stores in accordance with properly established procedures and the financial information included in the Chairman’s statement is consistent with the books of account of the Corporation. Nothing has come to our attention, which causes us to believe that the Corporation has breached any of the applicable provisions of the UAE Federal Act No. (1) of 1991 as amended by Decretal Federal Code No. 3 of 2003, or its Articles of Association, which would materially affect its activities or financial position at 31 December 2010.

Deloitte & Touche (M.E.) PricewaterhouseCoopersAbu Dhabi, United Arab Emirates Abu Dhabi, United Arab EmiratesSaba Y. Sindaha (Reg. No. 410) Jacques E. Fakhoury (Reg. No. 379)

22 February 2011

Independent Auditors’ Report to the Shareholders

36

Mohammad Hassan Omran Khalaf Bin Ahmed Al OtaibaChairman Vice Chairman

Consolidated Income Statementfor the year ended 31 December 2010

Notes2010

AED’0002009

AED’000

Revenue 31,929,488 31,334,387

Operating expenses 5 (18,545,525) (14,365,129)Share of results of associates and joint ventures 13, 14 1,243,229 682,051

Operating profit before federal royalty 14,627,192 17,651,309Federal royalty 5 (7,630,750) (8,836,346)

Operating profit 6,996,442 8,814,963

Finance income 6 917,578 583,055Finance costs 7 (384,836) (571,493)

Profit before tax 7,529,184 8,826,525

Taxation 8 (100,406) (243,792)

Profit for the year 7,428,778 8,582,733

Non-controlling interests 201,972 253,613

Profit for the year attributable to the equity holders of the Corporation 7,630,750 8,836,346

Earnings per shareBasic and diluted 34 AED 0.97 AED 1.12

The accompanying notes on pages 41 to 73 form an integral part of these consolidated financial statements. The Independent Auditors’ report is set out on page 35.

37

2010AED’000

2009AED’000

Profit for the year 7,428,778 8,582,733

Exchange differences on translation of foreign operations (351,934) 54,183Gain on revaluation of available-for-sale investments 341 10,706

Other comprehensive income/(loss) (351,593) 64,889

Total comprehensive income for the year 7,077,185 8,647,622

Non-controlling interests 290,553 205,189

Total comprehensive income attributable to the equity holders of the Corporation 7,367,738 8,852,811

Consolidated Statement of Comprehensive Income for the year ended 31 December 2010


38

Notes

As at 31 December2010

AED’0002009

AED’000

Non-current assetsGoodwill 9 3,120,704 3,127,914Other intangible assets 9 12,429,597 13,650,474Property, plant and equipment 10 20,675,359 17,585,386Investment property 11 47,910 162,800Investments in associates and joint ventures 13, 14 16,165,069 15,722,411Other investments 15 517,140 493,507Advances to associates 16 - 912,275Loans to associates 16 2,963,422 -Finance lease receivables 17 12,673 24,753Deferred tax assets 8 361,465 136,491

56,293,339 51,816,011

Current assetsInventories 18 316,261 272,410Trade and other receivables 19 8,448,082 7,638,302Due from associates and joint ventures 16 260,624 331,173Finance lease receivables 17 12,080 11,515Cash and cash equivalents 20 10,276,744 11,309,185

19,313,791 19,562,585

Total assets 75,607,130 71,378,596

Current liabilitiesTrade and other payables 21 20,078,214 19,389,237Borrowings 22 1,195,071 1,079,387Payables related to investments and licences 23 2,956,017 2,902,961Finance lease obligations 24 66,725 56,709Provisions 25 181,961 60,086

24,477,988 23,488,380

Non-current liabilitiesTrade and other payables 21 1,089,769 2,118,289Borrowings 22 5,204,599 3,421,704Payables related to investments and licences 23 19,841 42,318Derivative financial instruments 26 382,145 333,134Deferred tax liabilities 8 772,499 538,464Finance lease obligations 24 172,137 124,781Provisions 25 88,544 39,894Provision for end of service benefits 27 834,283 882,334

8,563,817 7,500,918

Total liabilities 33,041,805 30,989,298

Net assets 42,565,325 40,389,298

EquityShare capital 28 7,906,140 7,187,400Reserves 29 28,036,163 26,636,679Retained earnings 2,773,622 2,567,530

Equity attributable to the equity holders of the Corporation 38,715,925 36,391,609Non-controlling interests 3,849,400 3,997,689

Total equity 42,565,325 40,389,298

Mohammad Hassan Omran Khalaf Bin Ahmed Al OtaibaChairman Vice Chairman


Consolidated Statement of Financial Positionas at 31 December 2010

39

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Notes2010

AED’0002009

AED’000

Operating profit 6,996,442 8,814,963Adjustments for: Depreciation 10,11 2,179,967 1,603,920 Amortisation 9 804,684 930,581 Share of results of associates and joint ventures 13, 14 (1,243,229) (682,051) Provisions and allowances 530,109 (281,922) Dividend income from other investments (10,641) (21,121) Other non cash movements 209,699 -

9,467,031 10,364,370Changes in working capital: Inventories (55,202) (90,193) Due from associates and joint ventures 70,549 (92,865) Trade and other receivables (1,997,400) (1,524,788) Trade and other payables 474,300 1,554,219

Cash generated from operations 7,959,278 10,210,743 Income taxes paid (137,492) (75,301) Payment of end of service benefits 27 (15,230) (10,747)

Net cash generated from operating activities 7,806,556 10,124,695

Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (335,041) (320,391)Acquisition of other investments (23,292) (9,053)Purchases of property, plant and equipment (5,534,732) (5,546,483)Proceeds on disposal of property, plant and equipment 88,294 34,283Purchase of other intangible assets (364,258) (1,251,666)Proceeds on disposal of intangible assets 50,611 -Dividend income received from associates and other investments 335,936 244,860Proceeds on maturity of investments classified as held-to-maturity - 128,590Advances to associates - (644,916)Finance income received 929,093 594,032

Net cash used in investing activities (4,853,389) (6,770,744)

Cash flows from financing activitiesProceeds from borrowings and finance lease obligations 2,939,899 1,431,775Repayments of borrowings and finance lease obligations (747,803) (560,361)Loans to associated undertakings (1,735,469) -Finance costs paid (288,635) (400,618)Redemption of preference shares in a subsidiary (47,469) -Dividends paid (4,492,125) (3,893,175)Contributions from non-controlling interests - 15,089

Net cash used in financing activities (4,371,602) (3,407,290)

Net decrease in cash and cash equivalents (1,418,435) (53,339)

Cash and cash equivalents at the beginning of the year 11,309,185 11,294,868Effect of foreign exchange rate changes 385,994 67,656

Cash and cash equivalents at the end of the year 20 10,276,744 11,309,185


Consolidated Statement of Cash Flowsfor the year ended 31 December 2010

4141

Notes to the Consolidated Financial Statementsfor the year ended 31 December 2010

1. General information

The Emirates Telecommunications Corporation Group (“the Group”) comprises the holding company Emirates Telecommunications Corporation (“the Corporation”) and its subsidiaries. The Corporation was incorporated in the United Arab Emirates (“UAE”), with limited liability, in 1976 by UAE Federal Government decree No. 78, which was revised by the UAE Federal Act No. (1) of 1991 and further amended by Decretal Federal Code No. 3 of 2003 concerning the regulation of the telecommunications sector in the UAE. In accordance with Federal Law No. 267/10 for 2009, the Federal Government of the UAE transferred its 60% holding in the Corporation to the Emirates Investment Authority with effect from 1 January 2008, which is ultimately controlled by the UAE Federal Government. The address of the registered office is P.O. Box 3838, Abu Dhabi, United Arab Emirates. The Corporation’s shares are listed on the Abu Dhabi Securities Exchange.

The principal activity of the Group is to provide telecommunications services, media and related equipment including the provision of related contracting and consultancy services to international telecommunications companies and consortia. These activities are carried out through the Corporation (which holds a full service licence from the UAE Telecommunications Regulatory Authority valid until 2025), its subsidiaries, associates and joint ventures.

These financial statements were approved by the Board of Directors and authorised for issue on 22 February 2011.

2. Significant accounting policies

The significant accounting policies adopted in the preparation of these consolidated financial statements are set out below.

Basis of preparationThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

The financial statements are prepared under the historical cost convention except for the revaluation of certain financial instruments and in accordance with the accounting policies set out herein.

At the date of the consolidated financial statements, the following Standards, Amendments and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

Effective for annual periods beginning on or after

IFRS 7 (revised 2010) Disclosures – Transfers of Financial Assets 1 July 2011 IFRS 9 Financial Instruments 1 January 2013 IAS 12 (revised 2010) Deferred Tax: Recovery of Underlying Assets 1 January 2012 IAS 24 (revised 2009) Related Party Disclosures 1 January 2011 IAS 32 (revised 2009) Classification of Rights Issues 1 February 2010 IFRIC 14 (revised 2009) Prepayments of a Minimum Funding Requirement 1 January 2011 IFRIC 19 Extinguishing Financial Liabilities with Equity instruments 1 July 2010 Improvements to IFRSs 2010 (all improvements except for those relating to IFRS 3 and IAS 27) 1 January 2011 Improvements to IFRSs 2010 (IFRS 3 and IAS 27) 1 July 2010

The directors are currently assessing the impact that the adoption of these Standards, Amendments and Interpretations will have on the consolidated financial statements of the Group.

Within the results for year ended 31 December 2009, interconnect and other direct costs amounting to AED 670.4 million have been reclassified from revenue to operating expenses. In addition, interconnect revenue and costs between the group entities amounting to AED 167.4 million have been eliminated. The cumulative reclassification and elimination amounting to AED 503 million has been performed to facilitate a direct comparison with results in the current period and has no impact on the profit or the statement of financial position in the current or prior period.

Basis of consolidationThese consolidated financial statements incorporate the financial statements of the Corporation and entities controlled by the Corporation up to 31 December 2010. Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group has the power to control another entity.

Non-controlling interests (previously referred to as minority interests) in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are excluded from consolidation from the date that control ceases.

Intercompany transactions, balances and any unrealised gains/losses between Group entities have been eliminated in the consolidated financial statements.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

42


2. Significant accounting policies (continued)

Basis of consolidation (continued) In the current financial year, the Group has adopted IFRS 3 Business Combinations (revised 2008) and IAS 27 Consolidated and Separate Financial Statements (revised 2008). The most significant changes to the Group’s previous accounting policies for business combinations are as follows:

• acquisitionrelatedcostswhichpreviouslywouldhavebeenincludedinthecostofabusinesscombinationareincludedinadministrativeexpenses as they are incurred;

• anypre-existingequityinterestintheentityacquiredisremeasuredtofairvalueatthedateofobtainingcontrol,withanyresultinggain or loss recognised in profit or loss;

• anychangesintheGroup’sownershipinterestsubsequenttothedateofobtainingcontrolarerecogniseddirectlyinequity,withnoadjustment to goodwill; and

• anychangestothecostofanacquisition,includingcontingentconsideration,resultingfromeventsafterthedateofacquisitionarerecognised in profit or loss. Previously, such changes resulted in an adjustment to goodwill.

The revised standards have been applied to the acquisition of minority interest shares in Atlantique Telecom S.A., Zanzibar Telecom Limited, Canar Telecommunications Co. Limited and Etisalat DB Telecom Private limited as described in Note 30.

Business combinationsThe acquisition of subsidiaries is accounted for using the purchase method. The cost of an acquisition is measured as the aggregate of the fair value, at the date of exchange, of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributed to the acquisition. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations, are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the consolidated income statement.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Associates and joint venturesAssociates and joint ventures are those companies which the Group jointly controls or over which it exercises significant influence but it does not control. Investments in associates and joint ventures are accounted for using the equity method of accounting. Investments in associates and joint ventures are carried in the consolidated statement of financial position at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associates and joint ventures less any impairment in the value of individual investments. Losses of the associates and joint ventures in excess of the Group’s interest are not recognised unless the Group has an obligation to fund such losses. The carrying values of investments in associates and joint ventures are reviewed on a regular basis and if an impairment in the value has occurred, it is written off in the period in which those circumstances are identified.

Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets of the associates at the date of acquisition is recognised as goodwill and included as part of the cost of investment. Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable net assets of the associates at the date of acquisition is credited to the consolidated income statement in the year of acquisition.

The Group’s share of associates’ and joint ventures’ net income is based on the most recent financial statements or interim financial statements drawn up to the Group’s statement of financial position date. Accounting policies of associates and joint ventures have been adjusted, where necessary, to ensure consistency with the policies adopted by the Group.

Where a Group company transacts with an associate or joint venture of the Group, unrealised gains and losses are eliminated to the extent of the Group’s interest in the relevant entity. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment.

Dilution gains and losses arising on deemed disposal of investments in associates and joint ventures are recognised in the consolidated income statement.

RevenueRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for telecommunication products and services provided in the normal course of business. Revenue is recognised net of sales taxes, discounts and rebates. Revenue from telecommunication services comprises amounts charged to customers in respect of monthly access charges, airtime usage, messaging, the provision of other mobile telecommunications services, including data services and information provision and fees for connecting users of other fixed line and mobile networks to the Group’s network.

Access charges and airtime used by contract customers are invoiced and recorded as part of a periodic billing cycle and recognised as revenue over the related access period, with unbilled revenue resulting from services already provided from the billing cycle date to the end of each period accrued and unearned revenue from services provided in periods after each accounting period deferred. Revenue from the sale of prepaid credit is deferred until such time as the customer uses the airtime, or the credit expires.

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Revenue (continued) Revenue from data services and information provision is recognised when the Group has performed the related service and, depending on the nature of the service, is recognised either at the gross amount billed to the customer or the amount receivable by the Group as commission for facilitating the service.

Incentives are provided to customers in various forms and are usually offered on signing a new contract or as part of a promotional offering. Where such incentives are provided on connection of a new customer or the upgrade of an existing customer, revenue representing the fair value of the incentive, relative to other deliverables provided to the customer as part of the same arrangement, is deferred and recognised in line with the Group’s performance of its obligations relating to the incentive.

In revenue arrangements including more than one deliverable, the arrangement consideration is allocated to each deliverable based on the fair value of the individual element. The Group generally determines the fair value of individual elements based on prices at which the deliverable is regularly sold on a standalone basis.

Contract revenue is recognised under the percentage of completion method. Profit on contracts is recognised only when the outcome of the contracts can be reliably estimated. Provision is made for foreseeable losses estimated to complete contracts.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial assets to that asset’s net carrying amount.

LeasingLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessorAmounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

Revenues from the sale of transmission capacity on terrestrial and submarine cables are recognised on a straight-line basis over the life of the contract.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

The Group as lesseeRentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Foreign currencies

Functional currenciesThe individual financial statements of each of the Group’s subsidiaries, associates and joint ventures are presented in the currency of the primary economic environment in which they operate (its functional currency). For the purpose of the financial statements, the results, financial position and cash flows of each Group company are expressed in UAE Dirhams, which is the functional currency of the Corporation, and the presentation currency for the financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency are recorded at exchange rates prevailing at the dates of the transactions. At each year end, monetary assets and liabilities that are denominated in foreign currencies are retranslated into the entity’s functional currency at rates prevailing at the statement of financial position date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

ConsolidationOn consolidation, the assets and liabilities of the Group’s foreign operations are translated into UAE Dirhams at exchange rates prevailing on the date of the consolidated statement of financial position. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are also translated at exchange rates prevailing on the statement of financial position date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising are classified as a separate component of equity. Such translation differences are recognised as income or as expense in the period in which the operation is disposed of.

Foreign exchange differencesExchange differences are recognised in the consolidated income statement in the period in which they arise except for exchange differences that relate to assets under construction for future productive use. These are included in the cost of those assets when they are regarded as an adjustment to interest costs on foreign currency borrowings. Exchange differences on transactions entered into to hedge certain foreign currency risks; and exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation are recognised in the foreign currency translation reserve and recognised in the consolidated income statement on disposal of the net investment.

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Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in the consolidated income statement in the period in which they are incurred.

Government grantsGovernment grants relating to non-monetary assets are recognised at nominal value. Grants that compensate the Group for expenses are recognised in the consolidated income statement on a systematic basis in the same period in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised in the consolidated income statement on a systematic basis over the expected useful life of the related asset upon capitalisation.

End of service benefitsPayments to defined contribution schemes are charged as an expense as they fall due. Payments made to state-managed pension schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution scheme.

Provision for employees’ end of service benefits for non-UAE nationals is made in accordance with the Projected Unit Cost method as per IAS 19 Employee Benefits taking into consideration the UAE Labour Laws. The provision is recognised based on the present value of the defined benefit obligations.

The present value of the defined benefit obligations is calculated using assumptions on the average annual rate of increase in salaries, average period of employment of non-UAE nationals and an appropriate discount rate. The assumptions used are calculated on a consistent basis for each period and reflect management’s best estimate. The discount rates are set in line with the best available estimate of market yields currently available at the statement of financial position date.

TaxationThe tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method.

Deferred tax is calculated using relevant tax rates and laws that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax is charged or credited in the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that sufficient taxable profits will be available in the future against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit nor the accounting profit.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Property, plant and equipmentProperty, plant and equipment are stated at cost, less accumulated depreciation and any impairment. Cost comprises the cost of equipment and materials, including freight and insurance, charges from contractors for installations and building works, direct labour costs and asset retirement costs.

Assets in the course of construction are carried at cost, less any impairment. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets commences when the assets are ready for their intended use.

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Property, plant and equipment (continued)

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to income during the period in which they are incurred.

Other than land (which is not depreciated), the cost of property, plant and equipment is depreciated on a straight line basis over the estimated useful lives of the assets as follows:

BuildingsPermanent – the lesser of 20 – 50 years and the period of the land lease.

Temporary – the lesser of 4 years and the period of the land lease.

Plant and equipment Years

Submarine – fibre optic cables 20 – coaxial cables 10Cable ships 15Coaxial and fibre optic cables 15Line plant 15Exchanges 5 – 10Switches 5 – 10Radios/towers 10 – 15Earth stations/VSAT 5 – 10Multiplex equipment 10Power plant 5Subscribers’ apparatus 3 – 8General plant 2 – 5

Other assets Motor vehicles 3 – 5Computers 4 – 5Furniture and fittings 4 – 10

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each statement of financial position date.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in consolidated income statement.

Investment propertyInvestment property, which is property held to earn rentals and/or for capital appreciation, is carried at cost less accumulated depreciation and impairment loss. Investment property in the course of construction is included in property, plant and equipment.

Investment properties are depreciated on a straight-line basis over the lesser of 20 years and the period of the lease.

Intangible assets

(I) GoodwillGoodwill arising on consolidation represents the excess of the cost of an acquisition over the fair value of the Group’s share of net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs) expected to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other non financial assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, associate or joint venture, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

(II) LicencesAcquired telecommunication licences are initially recorded at cost or, if part of a business combination, at fair value. Licences are amortised on a straight line basis over their estimated useful lives from when the related networks are available for use. The estimated useful lives range between 10 and 25 years and are determined primarily by reference to the unexpired licence period, the conditions for licence renewal and whether licences are dependent on specific technologies.

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Intangible assets (continued)

(III) Internally-generated intangible assetsAn internally-generated intangible asset arising from the Group’s IT development is recognised at cost only if all of the following conditions are met:

• anassetiscreatedthatcanbeidentified(suchassoftwareandnewprocesses);• itisprobablethattheassetcreatedwillgeneratefutureeconomicbenefits;and• thedevelopmentcostoftheassetcanbemeasuredreliably.

Internally-generated intangible assets are amortised on a straight-line basis over their useful lives of 3-10 years. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

(IV) Indefeasible Rights of Use (“IRU”)IRUs correspond to the right to use a portion of the capacity of a terrestrial or submarine transmission cable granted for a fixed period. IRUs are recognised at cost as an asset when the Group has the specific indefeasible right to use an identified portion of the underlying asset, generally optical fibres or dedicated wavelength bandwidth, and the duration of the right is for the major part of the underlying asset’s economic life. They are amortised on a straight line basis over the shorter of the expected period of use and the life of the contract which ranges between 10 to 15 years.

Impairment of tangible and intangible assets excluding goodwillThe Group reviews the carrying amounts of its tangible and intangible assets whenever there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life (including goodwill) is tested for impairment annually.

Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

InventoryInventory is measured at the lower of cost and net realisable value. Cost comprises direct materials and where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Allowance is made, where appropriate, for deterioration and obsolescence. Cost is determined in accordance with the weighted average cost method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Financial instrumentsFinancial assets and financial liabilities are recognised in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

(I) Fair valueThe fair values of financial assets and financial liabilities are determined as follows:

• thefairvalueoffinancialassetsandfinancialliabilitieswithstandardtermsandconditionsandtradedonactiveliquidmarketsaredetermined with reference to quoted market prices; and

• thefairvalueofotherfinancialassetsandfinancialliabilitiesaredeterminedinaccordancewithgenerallyacceptedpricingmodelsbased on discounted cash flow analysis using prices from observable current market transactions.

(II) Financial assetsAll financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

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Financial instruments (continued)

(III) Effective interest methodThe effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest rate basis for debt instruments that are held-to-maturity, are available-for-sale, or are loans and receivables.

(IV) Held-to-maturity investmentsBonds and Sukuks bonds with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis. The Group considers the credit risk of counterparties in its assessment of whether such financial instruments are impaired.

(V) Available-for-sale financial assets (“AFS”)Listed securities held by the Group that are quoted in an active market are classified as being AFS and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in equity in the investment revaluation reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in the consolidated income statement.

Dividends on AFS equity instruments are recognised in the consolidated income statement when the Group’s right to receive the dividends is established.

The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the exchange rate prevailing at the statement of financial position date. The foreign exchange gains/losses that are recognised in the consolidated income statement are determined based on the amortised cost of the monetary asset. Other foreign exchange gains/losses are recognised in equity.

The Group assesses at each statement of financial position date whether there is objective evidence that AFS assets are impaired. In the case of equity securities, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement.

(VI) Loans and receivablesTrade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Appropriate allowances for estimated irrecoverable amounts are recognised in the consolidated income statement where there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

The allowance for doubtful debts reflects estimates of losses arising from the failure or inability of the Group’s customers to make required payments. The estimates are based on the ageing of customer’s accounts and the Group’s historical write-off experience.

(VII) Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

(VIII) Financial liabilitiesFinancial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ (“FVTPL”) or other financial liabilities.

(IX) Financial guarantee contract liabilitiesFinancial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of:

• theamountoftheobligationunderthecontract,asdeterminedinaccordancewithIAS37Provisions, Contingent Liabilities and Contingent Assets; and

• theamountinitiallyrecognisedless,whereappropriate,cumulativeamortisationrecognisedinaccordancewiththerevenuerecognitionpolicies set out above.

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Financial instruments (continued)

(X) Financial liabilities at FVTPLFinancial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as such. A financial liability is classified as held for trading if it has been incurred principally for the purpose of disposal in the near future or it is a derivative that is not designated and effective as a hedging instrument. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in the consolidated income statement.

(XI) Other financial liabilitiesOther financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

(XII) Derecognition of financial liabilitiesThe Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

(XIII) Derivative financial instrumentsThe Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including forward foreign exchange contracts, interest rate swaps and cross currency swaps.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. The Group does not designate any financial instruments as hedging instruments, and accordingly all resulting gains or losses arising from the remeasurement of derivatives are recognised in the consolidated income statement immediately.

(XIV) Embedded derivativesDerivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value with changes in fair value recognised in the consolidated income statement.

(XV) Hedge accountingThe Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign exchange risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

(XVI) Put option arrangementsThe potential cash payments related to put options issued by the Group over the equity of subsidiary companies are accounted for as financial liabilities when such options may only be settled other than by exchange of a fixed amount of cash or another financial asset for a fixed number of shares in the subsidiary.

The amount that may become payable under the option on exercise is initially recognised at fair value within borrowings with a corresponding charge directly to equity. The charge to equity is recognised separately as written put options over non-controlling interests, adjacent to non-controlling interests in the net assets of consolidated subsidiaries. For options that involve a fixed amount of cash for a fixed number of shares in the subsidiary, the Group recognises the cost of writing such put options, determined as the excess of the fair value of the option over any consideration received, as a financing cost.

Such options are subsequently measured at amortised cost, using the effective interest rate method, in order to accrete the liability up to the amount payable under the option at the date at which it first becomes exercisable. The charge arising is recorded as a financing cost. In the event that the option expires unexercised, the liability is derecognised with a corresponding adjustment to equity.

(XVII) Derecognition of financial assetsThe Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset or substantially all the risk and rewards of ownership to another entity. If the Group neither transfer nor retains substantially all the risks and reward of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

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ProvisionsProvisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the statement of financial position date, and are discounted to present value where the effect is material.

Transactions with non-controlling interestsThe Group applies a policy of treating transactions with non-controlling interest holders as transactions with parties external to the Group. Disposals to non-controlling interest holders result in gains and losses for the Group and are recorded in the consolidated income statement. Purchases from non-controlling interest holders result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

DividendsDividend distributions to the Group’s shareholders are recognised as a liability in the consolidated financial statements in the period in which the dividends are approved.

3. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are described in note 2, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

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

(I) Fair value of other intangible assetsOn the acquisition of mobile network operators, the identifiable intangible assets may include licences, customer bases and brands. The fair value of these assets is determined by discounting estimated future net cash flows generated by the asset, where no active market for the assets exist. The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets.

The relative size of the Group’s intangible assets, excluding goodwill, makes the judgements surrounding the estimated useful lives critical to the Group’s financial position and performance.

The useful lives used to amortise intangible assets relate to the future performance of the assets acquired and management’s judgement of the period over which economic benefit will be derived from the asset.

(II) Impairment of goodwill and associatesDetermining whether goodwill is impaired requires an estimation of the value-in-use of the cash-generating unit to which the goodwill has been allocated. The value-in-use calculation for goodwill and associates requires the Group to calculate the net present value of the future cash flows for which certain assumptions are required, including management’s expectations of:

• longtermgrowthratesincashflows;• timingandquantumoffuturecapitalexpenditure;and• theselectionofdiscountratestoreflecttherisksinvolved.

The key assumptions used are detailed on Note 9 of the consolidated financial statements. A change in the key assumptions or forecasts might result in an impairment of goodwill and investment in associates.

(III) Property, plant and equipmentProperty, plant and equipment represents a significant proportion of the total assets of the Group. Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to the Group’s financial position and performance. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. Increasing an asset’s expected life or its residual value would result in a reduced depreciation charge in the consolidated income statement.

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4. Segmental information

Information regarding the Group’s operating segments is set out below in accordance with IFRS 8 Operating Segments. IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Group’s chief operating decision maker and used to allocate resources to the segments and to assess their performance.

a) Products and services from which reportable segments derive their revenuesThe Group is engaged in a single line of business, being the supply of telecommunications services and products. The majority of the Group’s revenues, profits and assets relate to its operations in the UAE. Outside of the UAE, the Group operates through its subsidiaries and associates in eighteen countries, the majority of which are considered by the Group to be one international operating segment. Revenue is attributed to an operating segment based on the location of the Group company reporting the revenue. Inter-segment sales are charged at arms’ length prices.

b) Segment revenues and resultsSegment results represent operating profit earned by each segment without allocation of finance income and finance costs. This is the measure reported to the Group’s Board of Directors (“Board of Directors”) and the Executive Committee for the purposes of resource allocation and assessment of segment performance.

Segment results previously separately reported the impact of certain IFRS adjustments. However, these adjustments are now no longer separately reported to the Board of Directors and are now reported within the results of each segment.

For the current and prior periods, the Group’s share of results from associates and joint ventures has been allocated to the segments based on the geographical location of the operations of the associate and joint venture investments. The allocation is in line with how results from investments in associates and joint ventures are reported to the Board of Directors.

The following is an analysis of the Group’s revenue and results by reportable segment:

UAEAED’000

InternationalAED’000

EliminationsAED’000

ConsolidatedAED’000

31 December 2010

RevenueExternal sales 24,671,114 7,258,374 - 31,929,488Inter-segment sales 92,312 173,253 (265,565) -

Total revenue 24,763,426 7,431,627 (265,565) 31,929,488

Segment result 5,930,287 1,066,155 - 6,996,442Finance income 917,578Finance costs (384,836)

Profit before tax 7,529,184Taxation (100,406)

Profit for the year 7,428,778

31 December 2009

RevenueExternal sales 26,364,892 4,969,495 - 31,334,387Inter-segment sales 91,004 129,186 (220,190) -

Total revenue 26,455,896 5,098,681 (220,190) 31,334,387

Segment result 8,187,054 627,909 - 8,814,963

Finance income 583,055Finance costs (571,493)

Profit before tax 8,826,525Taxation (243,792)

Profit for the year 8,582,733

c) Segment assetsFor the purposes of monitoring segment performance and allocating resources between segments, the Group’s Board of Directors and the Executive Committee monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments.

For the current and prior periods, the Group’s investments in associates and joint ventures have been allocated to the segments based on the geographical location of the operations of the associate and joint venture investments. The allocation is in line with how investments in associates and joint ventures are reported to the Board of Directors.

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4. Segmental information (continued)

c) Segment assets (continued)

2010AED’000

2009AED’000

UAE 53,100,425 49,413,330International 43,747,329 41,123,246

Total segment assets 96,847,754 90,536,576Eliminations (21,240,624) (19,157,980)

Consolidated total assets 75,607,130 71,378,596

d) Other segment informationDepreciation and amortisation Capital additions

2010AED’000

2009AED’000

2010AED’000

2009AED’000

UAE 1,430,204 1,293,283 2,308,920 2,512,428International 1,556,419 1,243,190 3,495,172 5,151,408Eliminations (1,972) (1,972) - -

2,984,651 2,534,501 5,804,092 7,663,836

5. Operating expenses and federal royalty

a) Operating expenses (before federal royalty)2010

AED’0002009

AED’000

Staff costs 4,126,455 3,919,638Interconnect costs 3,759,538 3,590,007Depreciation (Note 10,11) 2,179,967 1,603,920Amortisation (Note 9) 804,684 930,581Regulatory expenses 899,186 489,731Foreign exchange losses/(gains) 192,564 (62,495)Operating lease rentals 545,877 94,777Cost of equipment and other direct costs 1,211,389 753,344Repairs and maintenance 459,599 358,067General financial expenses 1,111,838 979,376Other operating expenses 3,254,428 1,708,183

Total operating expenses (before federal royalty) 18,545,525 14,365,129

b) Federal royaltyIn accordance with the Cabinet decision No. 558/1 for the year 1991, the Corporation was required to pay a federal royalty, equivalent to 40% of its annual net profit before such federal royalty, to the UAE Government for use of federal facilities. With effect from 1 June 1998, Cabinet decision No. 325/28M for 1998 increased the federal royalty payable to 50%.

The federal royalty has been treated as an operating expense in the consolidated income statement on the basis that the expenses the Corporation would otherwise have had to incur for the use of the federal facilities would have been classified as operating expenses.

6. Finance income

Income earned on financial assets is as follows:

2010AED’000

2009AED’000

Interest on bank deposits and held-to-maturity financial assets 507,192 572,078Interest on loans to associated undertakings 315,384 -Other finance income 95,002 10,977

917,578 583,055

52


7. Finance costs

2010AED’000

2009AED’000

Interest on bank overdrafts and loans 236,270 383,165Interest payable on other borrowings 48,037 9,949Unwinding of discount on payables related to investments and licences 57,516 134,754Other finance costs 43,013 43,625

384,836 571,493

Total borrowing costs 405,481 580,586Less: amounts included in the cost of qualifying assets (Note 10) (20,645) (9,093)

384,836 571,493

All interest charges are generated on the Group’s financial liabilities measured at amortised cost. Borrowing costs included in the cost of qualifying assets during the year arose on specific and general borrowing pools. Borrowing costs attributable to general borrowing pools are calculated by applying a capitalisation rate of 6.0% (2009: 7.92%) to expenditure on such assets. Borrowing costs have been capitalised in relation to loans by certain of the Group’s subsidiaries.

8. Taxation

2010AED’000

2009AED’000

Current tax (credit) / expense (26,115) 50,237Deferred tax expense 126,521 193,555

100,406 243,792

a) Current taxCorporate income tax is not levied in the UAE for telecommunication companies and accordingly the effective tax rate for the Corporation is 0% (2009: 0%). The table below reconciles the difference between the expected tax expense of nil (2009: nil) (based on the UAE effective tax rate) and the Group’s tax charge for the year.

2010AED’000

2009AED’000

Profit before tax 7,529,184 8,826,525

Tax at the UAE corporation tax rate of 0% (2009: 0%) - -Effect of different tax rates of subsidiaries operating in other jurisdictions (26,115) 50,237

Current tax (credit) / expense for the year (26,115) 50,237

b) Deferred taxThe following represent the major deferred liabilities recognised by the Group and movements thereon during the current and prior reporting period.

Accelerated taxdepreciation

AED’000

Deferred tax onoverseas earnings

AED’000Total

AED’000

At 1 January 2009 326,007 - 326,007(Charge)/credit to the consolidated income statement 193,555 - 193,555Exchange differences 18,902 - 18,902

At 31 December 2009 538,464 - 538,464(Charge)/credit to the consolidated income statement 84,271 42,250 126,521Exchange differences 107,514 - 107,514

At 31 December 2010 730,249 42,250 772,499

5353


8. Taxation (continued)

b) Deferred tax (continued)

At the 31 December 2010, the Group has unused tax losses of AED 5,622 million (2009: AED 5,428 million) available for offset against future profits. A deferred tax asset has been recognised in respect of AED 296 million (2009: AED 652 million) of such losses. No deferred tax asset has been recognised in respect of the remaining AED 5,326 million (2009: AED 4,776 million) due to the unpredictability of future taxable profit streams. Included in unrecognised tax losses are losses of AED 3,932 million (2009: AED 2,137 million) that will expire within the next three years, AED 717 million (2009: AED 1,922 million) that will expire in the next four years and AED nil (2009: AED 717 million) that will expire within the next five years. Other losses may be carried forward indefinitely.

9. Goodwill and other intangible assets

GoodwillAED’000

Other intangibleassets

AED’000Total

AED’000

CostAt 1 January 2009 2,915,190 15,191,932 18,107,122Additions 3,048 1,217,485 1,220,533Acquired on acquisition of subsidiaries 362,635 34,432 397,067Changes to provisional fair values (120,726) - (120,726)Disposals - (9,006) (9,006)Exchange differences (32,233) 64,833 32,600

At 31 December 2009 3,127,914 16,499,676 19,627,590

AmortisationAt 1 January 2009 - 1,903,404 1,903,404Charge for the year - 930,581 930,581Changes to provisional fair values - 33,793 33,793Disposals - (7,637) (7,637)Exchange differences - (10,939) (10,939)

At 31 December 2009 - 2,849,202 2,849,202

Carrying amount At 31 December 2009 3,127,914 13,650,474 16,778,388

CostAt 1 January 2010 3,127,914 16,499,676 19,627,590Additions - 259,339 259,339Disposals - (66,777) (66,777)Exchange differences (7,210) (758,353) (765,563)

At 31 December 2010 3,120,704 15,933,885 19,054,589

AmortisationAt 1 January 2010 - 2,849,202 2,849,202Charge for the year - 804,684 804,684Disposals - (4,915) (4,915)Exchange differences - (144,683) (144,683)

At 31 December 2010 - 3,504,288 3,504,288

Carrying amount At 31 December 2010 3,120,704 12,429,597 15,550,301

Other intangible assets include licences, software and IRUs having net book values of AED 11,624.4 million (2009: AED 12,817 million), AED 414.2 million (2009: AED 424 million), and AED 391 million (2009: AED 409 million), respectively.

Financial guarantees are secured against licences with a net book value of AED 250.1 million.

54


9. Goodwill and other intangible assets (continued)

a) Analysis of goodwillGoodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to benefit from that business combination. The carrying amount of goodwill (all relating to operations within the Group’s International reportable segment) is allocated as follows:

2010AED’000

2009AED’000

Atlantique Telecom, S.A. (“AT”) 1,256,802 1,268,474Etisalat DB Telecom Private Limited 1,243,337 1,242,530Canar Telecommunications Co. Limited 337,130 337,130Etisalat Misr (Etisalat) S.A.E 32,417 28,762Zanzibar Telecom Limited (“Zantel”) 44,896 44,896Etisalat Lanka (Pvt) Limited 206,122 206,122

3,120,704 3,127,914

b) ImpairmentThe Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value-in-use calculations. The Group has conducted a sensitivity analysis on the impairment test of each of the CGU’s carrying value.

The key assumptions for the value in use calculations are:

(i) Discount ratesThe discount rates applied to the cash flows of each of the Group’s operations are based on an external third party study conducted by the Group’s bankers. The study utilised market data and information from comparable listed mobile telecommunications companies and where available and appropriate, across a specific territory. The discount rates use a forward looking equity market risk premium and range between 13.1% and 19.0% (2009: 8% and 22%).

(ii) Long term cash flowsThe Group prepares cash flow forecasts derived from the most recent annual business plan approved by management for each location for the next five years. These cash flows are sometimes extrapolated beyond this period, up to a maximum of ten years, based on estimated growth rates of between 2.0% and 8.6% (2009: 4% and 5%).This rate does not exceed the average long-term growth rate for the relevant markets. Cash flows incorporate management fees to be realised from each location.

(iii) Capital expenditureThe cash flow forecasts for capital expenditure are based on past experience and include the ongoing capital expenditure required to roll out networks in emerging markets, to provide enhanced voice and data products and services and to meet the population coverage requirements of certain licences of the Group. Capital expenditure includes cash outflows for the purchase of property, plant and equipment and computer software.

5555


10. Property, plant and equipment

BuildingsAED’000

Plant and equipment

AED’000

Motor vehicles, computers,

furnitureAED’000

Assets underconstruction

AED’000Total

AED’000

CostAt 1 January 2009 3,268,436 18,571,153 1,755,462 3,826,019 27,421,070Additions 7,946 583,876 32,056 4,847,077 5,470,955Acquisition of subsidiaries 921 483,992 23,512 82,872 591,297Transfers 80,215 2,181,289 287,060 (2,548,564) -Transfer - investment property 5,400 - - - 5,400Exchange differences 8,720 (464) 1,920 21,978 32,154Disposals (1,604) (263,247) (45,032) (38,271) (348,154)

At 31 December 2009 3,370,034 21,556,599 2,054,978 6,191,111 33,172,722

Accumulated depreciationAt 1 January 2009 1,721,742 11,295,301 1,303,058 - 14,320,101Charge for the year 165,212 1,208,367 230,341 - 1,603,920Transfer - investment property (7,500) - - - (7,500)Exchange differences (677) 1,568 (1,431) - (540)Disposals (4,134) (198,400) (126,111) - (328,645)

At 31 December 2009 1,874,643 12,306,836 1,405,857 - 15,587,336

Carrying amountAt 31 December 2009 1,495,391 9,249,763 649,121 6,191,111 17,585,386

CostAt 1 January 2010 3,370,034 21,556,599 2,054,978 6,191,111 33,172,722Additions - 1,556,784 326,901 3,661,068 5,544,753Transfers 264,014 1,857,382 281,638 (2,403,034) -Transfer - investment property 120,830 - - - 120,830Exchange differences (7,313) (242,654) (82,648) 12,595 (320,020)Disposals (42,396) (289,963) (62,015) - (394,374)

At 31 December 2010 3,705,169 24,438,148 2,518,854 7,461,740 38,123,911

Accumulated depreciationAt 1 January 2010 1,874,643 12,306,836 1,405,857 - 15,587,336Charge for the year 157,385 1,697,618 318,844 - 2,173,847Transfer - investment property 12,060 - - - 12,060Impairment - - - 59,833 59,833Exchange differences (1,784) (55,270) (21,844) - (78,898)Disposals (339) (243,272) (62,015) - (305,626)

At 31 December 2010 2,041,965 13,705,912 1,640,842 59,833 17,448,552

Carrying amountAt 31 December 2010 1,663,204 10,732,236 878,012 7,401,907 20,675,359

The carrying amount of the Group’s buildings includes a nominal amount of AED 1 (2009: AED 1) in relation to land granted to the Group by the Government. There are no contingencies attached to this grant and as such no additional amounts have been included in the consolidated income statement or the consolidated statement of financial position in relation to this.

An amount of AED 20.6 million (2009: AED 9 million) is included in property, plant and equipment on account of capitalisation of borrowing costs for the year.

Borrowings are secured against property, plant and equipment with a net book value of AED 3,910 million (2009: AED 2,511 million).

56


11. Investment property

Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at depreciated cost and included separately under non-current assets in the consolidated statement of financial position.

AED’000

CostAt 31 December 2008 181,000Transfer to property, plant and equipment (5,400)

At 31 December 2009 175,600

Accumulated depreciationAt 31 December 2008 5,300Charge for the year 7,772Transfer to property, plant and equipment (272)

At 31 December 2009 12,800

Carrying amountAt 31 December 2009 162,800

CostAt 31 December 2009 175,600Transfer to property, plant and equipment (120,830)

At 31 December 2010 54,770

Accumulated depreciationAt 31 December 2009 12,800Charge for the year 6,120Transfer to property, plant and equipment (12,060)

At 31 December 2010 6,860

Carrying amountAt 31 December 2010 47,910

Fair valueAt 31 December 2010 63,233

At 31 December 2009 212,307

The fair value of the Group’s investment property at 31 December 2010 has been arrived at on the basis of a valuation carried out by internal valuers that are not independent from the Corporation.

The property rental income earned by the Group from its investment property, all of which is leased out under operating leases, amounted to AED 15.0 million (2009: AED 38.1 million).

Direct operating expenses arising on the investment property in the period amounted to AED 5.2 million (2009: AED 4.6 million).

5757


12. Subsidiaries

The Group’s principal subsidiaries at 31 December 2010 were as follows:

Name Country of incorporation Principal activityPercentage

shareholding

Emirates Telecommunications and Marine Services FZE Jebel Ali Free Zone, Dubai Telecommunications services 100%Emirates Cable TV and Multimedia LLC UAE Cable television services 100%Etisalat International Pakistan LLC UAE Holds investment in Pakistan

Telecommunication Co. Ltd 90%

E-Marine PJSC UAE Submarine cable activities 100%EDCH FZE Jebel Ali Free Zone, Dubai Data management services 100%Etisalat Services FZE Jebel Ali Free Zone, Dubai Management services 100%Etisalat Services Holding LLC Abu Dhabi Infrastructure services 100%Etisalat Software Solutions (Private) Limited India Technology solutions 100%Zanzibar Telecom Limited Tanzania Telecommunications services 65%Canar Telecommunications Co. Limited Republic of Sudan Telecommunications services 89%Etisalat International Nigeria Limited Jebel Ali Free Zone, Dubai Holds investment in Emerging Market

Telecommunications Services B.V.100%

Etisalat International Indonesia Limited Jebel Ali Free Zone, Dubai Holds investment in PT XL Axiata TBK 100%Etisalat Afghanistan Afghanistan Telecommunications services 100%Etisalat DB Telecom Private Limited India Telecommunications services 44.7%*Etisalat Misr S.A.E Egypt Telecommunications services 66%Atlantique Telecom S.A. Cote d’Ivoire Telecommunications services 100%Etisalat Benin Benin Telecommunications services 100%Etisalat Lanka (Pvt) Limited** Sri Lanka Telecommunications services 100%

* The Group accounts for the investment in Etisalat DB Telecom Private Limited as a subsidiary as it exercises control.

** Tigo Private Limited was renamed Etisalat Lanka (Pvt) Limited during the course of the year.

13. Investments in associates

a) Associated undertakings at 31 December 2010

NameCountry of incorporation Principal activity

Percentageshareholding

Pakistan Telecommunication Company Limited (“PTCL”) Pakistan Telecommunications services 26%Etihad Etisalat Company (“Mobily”) Saudi Arabia Telecommunications services 27%Thuraya Telecommunications Company PJSC (“Thuraya”) UAE Satellite communication services 28%PT XL Axiata Tbk (“PEPT”) Indonesia Telecommunications services 13%Emerging Markets Telecommunications Services Limited (“EMTS”) Nigeria Telecommunications services 40%

The latest set of consolidated financial statements used to assess the carrying value of the investment in PTCL is for the year ended 30 June 2010. The remaining period for PTCL has been assessed using unaudited interim consolidated financial information.

b) Movement in investments in associatesAED’000

Net book amount at 1 January 2009 15,162,091Dividends (223,732)Share of results 684,131

Net book amount at 31 December 2009 15,622,490Share of results 1,385,073Dividends (335,026)Loss on dilution of shareholding (149,866)Reclassification of loan (451,639)

Net book amount at 31 December 2010 16,071,032

During the year the Group recognised a loss on dilution of its shareholding in PEPT of AED 149.9 million.

58


13. Investments in associates (continued)

b) Movement in investments in associates (continued)

In the quarter ended 31 March 2010, the capital structure of Emerging Market Telecommunications Services BV (“EMTS BV”) was finalised which resulted in the presentation of an amount of AED 451.6 million under loans to associates. The loan carries an effective interest rate of 14.22% p.a. Share of losses from EMTS amounting to AED 136 million have been offset against loans due from associates as the investment in associate has already been fully written down by prior year losses.

c) Aggregated amounts relating to associates2010

AED million2009

AED million

Total assets 62,601 58,280Total liabilities (38,100) (35,902)

Net assets in associates 24,501 22,378

Total revenue 28,771 23,041

Total profit of associates 4,631 3,303

The aggregation above comprises the results and financial position of all associated undertakings as at 31 December 2010, with the exception of PTCL whose results and financial position for the year ended 30 June 2010 have been included.

d) Market value of associatesThe shares of two of the Group’s associated undertakings are quoted on public stock markets, the market value of the Group’s shareholding is as follows:

2010AED’000

2009AED’000

Mobily 10,407,538 8,225,386PEPT* 2,400,895 854,398

* Although the shares of PEPT are listed, trading in the shares is minimal, therefore in management’s view, the market value does not represent the fair value to the Group.

e) Significant influence judgements

(i) PTCLThe Corporation, through its majority owned subsidiary Etisalat International Pakistan LLC (“EIP”), owns the entire 1.326 billion Class B shares of PTCL. These Class B shares represent 26% of PTCL’s issued capital and, in accordance with PTCL’s Articles of Association, provide the Corporation with 53% of the voting rights. Under the terms of the Shareholders Agreement between EIP and the Government of Pakistan (“GOP”), EIP has the right to appoint five of the nine members of the Board of Directors of PTCL in addition to the appointment of certain key management personnel. However, management believes that there are certain control impediments, including but not limited to restrictions on the Corporation’s financial and operating decision making ability, and because of these, PTCL has been accounted for as an associate using the equity method. Management believes that some or all of these control impediments may be alleviated in the future which may result in the consolidation of PTCL.

(ii) PEPTThe Corporation holds 13.31% (2009: 13.31%) of the paid-up capital of PEPT. The Corporation exercises significant influence over PEPT by virtue of its representation on the Board of Commissioners and accordingly, it is accounted for as an associate.

14. Investments in joint ventures

a) Joint ventures at 31 December 2010Name Country of incorporation Principal activity Percentage shareholding

Ubiquitous Telecommunications Technology LLC UAE Installation and management of network systems

50%

Smart Technology Services DWC – LLC DWC Free Zone, Dubai, UAE ICT services 50%

5959


14. Investments in joint ventures (continued)

b) Movement in investments in joint ventures2010

AED’0002009

AED’000

Net book amount at 1 January 99,921 102,001Share of results (5,884) (2,080)

Net book amount at 31 December 94,037 99,921

c) Aggregated amounts relating to joint ventures2010

AED’0002009

AED’000

Aggregated amounts relating to joint venturesGroup’s share of current assets 31,570 40,445Group’s share of non-current assets 73,969 64,734Group’s share of current liabilities (11,502) (5,258)

Group’s share of net assets in joint ventures 94,037 99,921

Group’s share of income in joint ventures 26,642 6,112Group’s share of expenditure in joint ventures (32,526) (8,192)

Group’s share of results in joint ventures (loss) (5,884) (2,080)

15. Other investments

Equityinvestments

AED’000

Otherinvestments

AED’000

Bonds andSukuks

AED’000Total

AED’000

At 1 January 2009 335,289 46,609 220,440 602,338Additions - 9,053 - 9,053Investment revaluation 10,706 - - 10,706Proceeds on maturity of investment - - (128,590) (128,590)

At 31 December 2009 345,995 55,662 91,850 493,507Additions - 23,292 - 23,292Investment revaluation 341 - - 341

At 31 December 2010 346,336 78,954 91,850 517,140

Equity investments represent investments in listed equity securities that present the Group with opportunity for return through dividend income and fair value gains. These shares are not held for trading and accordingly are classified as available-for-sale. The fair values of all equity securities are based on quoted market prices.

Other investments represent non-quoted equity investments including those made by Atlantique Telecom S.A. amounting to AED 61.5 million (2009: AED 54.3 million). These investments are carried at cost as they are unquoted equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured.

On 26 November 2010, the Corporation acquired an 8.8% shareholding in SoftAtHome SA, a company focussed on next generation residential digital connectivity, for AED 12.5 million.

Due to a conflict between a subsidiary of AT (Telecel Faso) and its minority shareholder, AT has temporarily lost control over the subsidiary based on the decision made by the jurisdiction authorities. Accordingly, this has been deconsolidated from the date AT ceased to exercise control. The matter is currently under legal dispute.

Sukuks are bonds structured to conform with the principles of Islamic Sharia law and are classified as held-to-maturity financial assets. At 31 December 2010, the market value of these investments was AED 84.0 million (2009: AED 78.9 million).

60


16. Related party transactions and balances

Transactions between the Corporation and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below.

a) Federal Government and state controlled entitiesAs stated in note 1, in accordance with Federal Law No. 267/10 for 2009, the Federal Government of the UAE transferred its 60% holding in the Corporation to the Emirates Investment Authority with effect from 1 January 2008, which is ultimately controlled by the UAE Federal Government. The Group provides telecommunication services to the Federal Government (including Ministries and local bodies). These transactions are at normal commercial terms. The credit period allowed to Government customers ranges from 90 to 120 days. At 31 December 2010, trade receivables include an amount of AED 297 million (2009: AED 398 million), receivable from Federal Ministries and local bodies. See Note 5 for disclosure of the royalty payable to the Federal Government of the UAE.

In accordance with IAS 24 (revised 2009) Related Party Disclosures the Group has elected not to disclose transactions with the UAE Federal Government and other entities over which the Federal Government exerts control, joint control or significant influence. The nature of the transactions that the Group has with such related parties is the provision of telecommunication services.

b) Joint ventures and associates Associates Joint ventures

2010AED million

2009AED million

2010AED million

2009AED million

Trading transactionsTelecommunication services – sales 220.1 269.8 - -Telecommunication services – purchases 383.5 414.5 - -Management and other services 421.4 313.7 2.1 -Net amount due from related parties 246.3 347.6 1.1 0.6

Advances to associates - 912.3 - -

Loans to associatesInterest income (Note 6) 315.4 - - -Amount due from related party 3,344.9 - - -

Sales to related parties comprise management fees and the provision of telecommunication products and services (primarily voice traffic and leased circuits) by the Group. Purchases relate exclusively to the provision of telecommunication products and services by associates to the Group.

The principal management and other services provided to the Group’s associates are set out below.

(i) Etihad Etisalat CompanyPursuant to the Communications and Information Technology Commission’s (CITC) licensing requirements, EEC (then under incorporation) entered into a management agreement (“the Agreement”) with the Corporation as its operator from 14 August 2004. Amounts invoiced by the Corporation relate to annual management fees, fees for staff secondments and other services provided under the Agreement. The term of the Agreement is for a period of seven years and can be automatically renewed for successive periods of five years unless the Corporation serves a 12 month notice of termination or EEC serves a 6 month notice of termination prior to the expiry of the applicable period.

(ii) Thuraya Telecommunications Company PJSCThe Corporation provides a primary gateway facility to Thuraya including maintenance and support services. The Corporation receives annual income from Thuraya in respect of these services.

(iii) Pakistan Telecommunication Company LimitedPursuant to the shareholders agreement entered into between Etisalat International Pakistan and the Government of Pakistan dated 12 April 2006, the Corporation entered into an agreement for the provision of technical services and know-how (“the PTCL Agreement”) with PTCL with effect from 10 October 2006. Under the terms of the PTCL Agreement, the Corporation is entitled to an annual service fee of 3.5% of the gross consolidated revenue of PTCL for that year. The Agreement is valid for a period of 5 years and limits the fee to US$ 50 million per annum.

(iv) Emerging Markets Telecommunications Services LtdAmounts invoiced by the Corporation relate to annual management fees, fees for staff secondments and other services.

As described in note 13, during the year the Corporation reclassified an amount of AED 451.6 million from investments in associates to loans to associates following a capital restructuring of EMTS B.V. This amount has been added to the existing balance due from the company in respect of the on-going financing of its network development. The loan bears interest at a rate of 14.2% per annum. The Corporation advanced an additional loan of AED 1.7 billion to EMTS B.V. in the course of the year at the same interest rate.

6161


16. Related party transactions and balances (continued)

c) Remuneration of key management personnelThe remuneration of the Board of Directors, who are the key management personnel of the Group, is set out below in aggregate for the category specified in IAS 24 Related Party Disclosures.

2010AED’000

2009AED’000

Short-term benefits 28,261 51,123

17. Finance lease receivables

2010AED’000

2009AED’000

Amounts receivable under finance leases:Minimum lease payments:Within one year 13,294 13,294In the second to fifth years inclusive 13,294 26,588

26,588 39,882Less: unearned finance income (1,835) (3,614)

Present value of minimum lease payments receivable 24,753 36,268

Present value of minimum lease payments:Within one year (current) 12,080 11,515In the second to fifth years inclusive (non-current) 12,673 24,753

24,753 36,268

The Group holds a finance lease arrangement in relation to building and installations in the UAE leased out to Thuraya Telecommunications Company PJSC, an associate of the Group.

The interest rate inherent in the leases is fixed at the contract date for all of the lease term. The average effective interest rate contracted approximates to 4.9% per annum (2009: 4.9% per annum). The directors consider that the carrying amount of the Group’s finance lease receivables approximates to their fair value.

18. Inventories

2010AED’000

2009AED’000

Subscriber equipment 232,810 171,482Maintenance and consumables 83,451 100,928

316,261 272,410

19. Trade and other receivables

2010AED’000

2009AED’000

Amount receivable for the services rendered 5,287,329 4,883,612Allowance for doubtful debts (1,217,695) (865,995)

Net trade receivables 4,069,634 4,017,617Amounts due from other telecommunication administrations 2,147,034 2,185,098Prepayments 303,338 293,675Accrued income 639,507 206,254Other debtors 1,288,569 935,658

8,448,082 7,638,302

62


19. Trade and other receivables (continued)

The Group’s credit period ranges between 30 and 120 days (2009: 30 and 120 days).

The Group provides for all past due trade receivables and as such there were no past due receivables not considered for impairment as at 31 December 2010. Out of the past due receivables of AED 3,043 million (2009: AED 2,900 million), the Group provided for an amount of AED 1,218 million (2009: AED 866 million) based on its assessment of the credit quality of the amounts due. It was assessed that a portion of the past due receivables is expected to be recovered.

2010AED’000

2009AED’000

Movement in allowance for doubtful debtsOpening balance as at 1 January 865,995 1,318,983Net increase/(decrease) in allowance for doubtful debts 351,700 (452,988)

Closing balance as at 31 December 1,217,695 865,995

No interest is charged on the receivables. With respect to the amount receivable from the services rendered the Group holds AED 344 million (2009: AED 295 million) of collateral in the form of cash deposits from customers.

Within the Trade and other receivables balance for the year ended 31 December 2009, trade receivables amounting to AED 753 million have been reclassified from other debtors to amounts receivable for services rendered. The reclassification has been performed to facilitate a direct comparison with balances in the current period and has no impact on the total balance of trade and other receivables in the statement of financial position for the period.

20. Cash and cash equivalents

2010AED’000

2009AED’000

Cash and cash equivalents 10,276,744 11,309,185

Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. These are denominated primarily in UAE Dirham, with financial institutions and banks. The carrying amount of these assets approximates to their fair value.

Interest is earned on these deposits at prevailing market rates. Cash and cash equivalents include an amount of AED 2,633 million (2009: AED 1,892 million) representing bank and cash balances of the Corporation’s subsidiaries maintained overseas.

21. Trade and other payables

2010AED’000

2009AED’000

Included within current liabilities: Federal royalty 7,630,750 8,836,346 Trade payables 2,441,976 2,205,041 Amounts due to other telecommunication administrations 1,657,874 1,484,563 Deferred revenue 1,216,437 987,913 Other payables 7,131,177 5,875,374

20,078,214 19,389,237

Included within non-current liabilities: Trade payables 1,046,699 1,796,728 Other payables 43,070 321,561

1,089,769 2,118,289

Federal royalty for the year ended 31 December 2010 is paid on a monthly basis to the Ministry of Finance and Industry, UAE after the first quarter of 2011.

6363


22. Borrowings

Borrowings comprise the following:

2010AED’000

2009AED’000

Bank borrowings 4,378,036 2,915,257Other borrowings 2,021,634 1,585,834

6,399,670 4,501,091

Disclosed as:Due for settlement within 12 months 1,195,071 1,079,387Due for settlement after 12 months 5,204,599 3,421,704

6,399,670 4,501,091

Analysis of total borrowings by currencyAED and US$

AED’000Egyptian Pounds

AED’000Euro

AED’000Indian Rupees

AED’000Total

AED’000

31 December 2010Bank borrowings 1,423,956 1,538,601 784,608 630,871 4,378,036Other borrowings 1,465,496 556,006 - 132 2,021,634

2,889,452 2,094,607 784,608 631,003 6,399,670

31 December 2009Bank borrowings 1,632,291 615,686 667,280 - 2,915,257Other borrowings 1,015,282 525,300 - 45,252 1,585,834

2,647,573 1,140,986 667,280 45,252 4,501,091

a) Bank borrowingsThe carrying value and estimated fair value of the Group’s bank borrowings (measured at amortised cost) are as follows:

Fair value Carrying value

2010AED’000

2009AED’000

2010AED’000

2009AED’000

Bank overdrafts 85,347 85,916 85,347 85,916Bank loans 4,608,105 3,067,850 4,292,689 2,829,341

4,693,452 3,153,766 4,378,036 2,915,257

The fair values of the Group’s bank borrowings are calculated using discounted cash flows using an appropriate discount factor that includes credit risk.

(i) Bank overdraftsThe majority of the overdraft balance (AED 72.0 million, 2009: nil) is held by the Corporation’s subsidiary, Etisalat Lanka (Pvt) Limited. Zantel has an amount of AED 2.8 million (2009: AED 24.6 million) representing a bank overdraft which is utilised for the purpose of non-operating activities. The remainder of the balance AED 10.5 million (2009: AED 61.3 million) relates to overdraft balances held by Atlantique Telecom.

(ii) Bank loansBorrowings as at 31 December 2010 are held by the Group’s subsidiary entities, as discussed below.

MisrEtisalat Misr signed an agreement for syndicated interest bearing loans on 13 December 2007, for:

• alongtermloanfacilityamountingtoLE2billion(AED1.3billion)(PortionA);• arevolvingcreditfacilityamountingtoLE1.0billion(AED0.6billion)(PortionB);and• alongtermloanfacilityamountingtoUS$300million(AED1,102million)(PortionC).

The syndicated loan bears interest at mid-corridor plus 0.5% for the Egyptian Pound Portion and LIBOR plus 0.75% for the US Dollar Portion. At 31 December 2010 Etisalat Misr had utilised an amount of AED 1,519.5 million (2009: AED 595.4 million) from Portion A and B and AED 1,102 million (2009: AED 1,102 million) from Portion C, which are included in non-current borrowings. The syndicated loan is secured by a commercial mortgage over Etisalat Misr’s property, plant and equipment, a pledge over its bank accounts, real estate mortgage and an insurance assignment.

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22. Borrowings (continued)

a) Bank borrowings (continued)

(ii) Bank loans (continued)

Misr (continued)

On 21 December 2010, Etisalat Misr re-financed and replaced the above facility with a new syndicated interest bearing loan facility amounting to LE 7.2 billion (AED 4.6 billion). As per the terms of the new loan facility, the earliest repayment date is 31 March 2012 for the long term loan facilities and 31 December 2015 for the revolving credit facility. The new syndicated loan is secured by a commercial mortgage over Etisalat Misr’s property, plant and equipment and intangible assets.

Portion Currency Total facility Total facility

AED Interest rate

A - Long term loan facility EGP 3,000,000,000 1,899,000,000 Mid-corridor +1.4%B – Long term loan facility USD 300,000,000 1,102,200,000 LIBOR + 2.9%C – Revolving credit facility EGP 2,500,000,000 1,582,500,000 Mid-corridor +1.4%

Etisalat Misr also has a loan of AED 19.1 million (2009: AED 18.7 million) which bears interest at a fixed rate of 10.0% and is repayable in 2012.

ZantelZantel has a number of loans totalling AED 244.4 million (2009: AED 499.3 million), of which AED 29.3 million (2009: 271.7 million) is due within one year. Loans obtained at fixed rates carry interest at a rate of 14.0% per annum (2009: 14.0%) (reducing balance), whereas the loans obtained at variable rates carry interest ranging from US LIBOR plus 4.5% to 5.5% per annum (2009: 4.5% to 5.5% per annum). Bank borrowings are secured by a fixed and floating charge over the company’s property, plant and equipment, both present and future, including a charge over the escrow accounts.

Atlantique SAAtlantique Telecom has Euro denominated loans of AED 774.1 million (2009: AED 667.2 million). During the year Atlantique Telecom entered into a long term loan of AED 64.1 million which bears a variable rate of interest of LIBOR +3.5%, of which AED 59.7 million is due for repayment after one year. At 31 December 2010 medium term loans were AED 77.1 million (2009: AED 30.8 million), which are subject to fixed rates of interest of 9.0% - 10.0%. Short term loans represent AED 657.7 million (2009: AED 559.0 million) which are repayable in within one year. AED 607.6 million of these loans are subject to a floating interest rate of EURIBOR plus 8.72% with the remaining short term loans subject to fixed rates of interest ranging from 9.0% – 11.0%. The remaining borrowings comprise overdrafts of AED 10.5 million (2009: AED 61.3 million) which bears a fixed rate of interest of 10% - 14.5% (2009: 11.0% – 14.8%).

Etisalat DBDuring the year, Etisalat DB entered into a long term loan of AED 630.9 million, which bears a fixed interest rate of 11.4% and is repayable in 2012.

2010AED’000

2009AED’000

Maturity of bank borrowings The borrowings are repayable as follows: On demand or within one year 806,787 956,360 In the second year 3,870,789 2,269,330 In the third to fifth years inclusive 74,211 - After the fifth year 39,610 -

4,791,397 3,225,690

The above table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

The weighted average interest rate paid on bank borrowings during the year was 7.10% (2009: 8.99%).

The US$ borrowings are aggregated with AED because the AED is pegged to the US$. At 31 December 2010, the Group had available AED 1,148.5 million (2009: AED 1,126.9 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

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22. Borrowings (continued)

b) Other borrowingsThe carrying value and estimated fair value of the Group’s other borrowings (measured at amortised cost) are as follows:

Fair value Carrying value

2010AED’000

2009AED’000

2010AED’000

2009AED’000

Loans from non-controlling interests 593,740 574,350 547,722 525,300Vendor financing 896,366 411,940 873,277 414,307Other 8,754 44,370 8,453 45,252

1,498,860 1,030,660 1,429,452 984,859

Advances from non-controlling interests 592,182 600,975

2,021,634 1,585,834

The fair value of advances from non-controlling interests is not equivalent to its carrying value due to the fact that it is non-interest bearing. However, as there is no repayment date, a fair value cannot be reasonably determined.

2010AED’000

2009AED’000

Maturity of other borrowings The borrowings are repayable as follows:On demand or within one year 384,989 56,940In the second year 904,488 1,025,360In the third to fifth years inclusive 841,648 600,975

2,131,125 1,683,275

The above table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. The weighted average interest rate paid during the year on other borrowings was 4.14% (2009: 4.13%).

(i) Loans from non-controlling interestsLoans from non-controlling interests includes the minority share of a shareholders’ loan advanced to Etisalat Misr amounting to AED 547.7 million (2009: AED 525.3 million). This loan carries interest at a fixed rate of 10.0% per annum. Of the total amount outstanding AED 285.1 million is due for repayment within one year with the remainder due in 2012.

(ii) Advances from non-controlling interestsAdvances from non-controlling interests of AED 592.2 million (2009: AED 601.0 million) represents advances paid by the minority shareholder of Etisalat International Pakistan LLC towards the Group’s acquisition of its 26% stake in PTCL, net of repayments. The amount is interest free, does not have any fixed repayment terms, and is not repayable within 12 months of the statement of financial position date and accordingly, the full amount is carried in non-current liabilities.

(iii) Vendor financingVendor financing includes AED 410.6 million (2009: AED 403.1 million) in respect of Etisalat Misr relating to the acquisition of network equipment. The financing is due to expire in 2012 and interest is payable at a variable rate of LIBOR +2.1%. The remaining vendor financing balance relates to network equipment acquired by Etisalat Afghanistan during the year. At the balance sheet date, AED 462.6 million was outstanding, which bears a fixed rate of interest of 3.6% and is repayable in instalments over a period of five years.

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23. Payables related to investments and licences

CurrentAED’000

Non-currentAED’000

TotalAED’000

31 December 2010Investments Etisalat International Pakistan LLC 2,936,654 - 2,936,654Licences Republic of Benin 19,363 19,841 39,204

2,956,017 19,841 2,975,858

31 December 2009Investments Etisalat International Pakistan LLC 2,882,060 - 2,882,060Licences Republic of Benin 20,901 42,318 63,219

2,902,961 42,318 2,945,279

According to the terms of the shareholders’ agreement between Etisalat International Pakistan LLC and the Government of Pakistan (“GOP”) payments of AED 6,612 million (2009: AED 6,612 million) have been made to GOP with the balance of AED 2,937 million (2009: AED 2,937 million) to be paid in 6 equal semi-annual instalments of AED 489.5 million each. The amounts payable are being withheld pending completion of certain conditions in the shareholders’ agreement.

All amounts payable on acquisitions are financial liabilities measured at amortised cost and are mostly denominated in either US$ or AED and thus do not result in significant exchange rate risk.

24. Obligations under finance leases

Minimum lease payments Present value of minimum lease payments

2010AED’000

2009AED’000

2010AED’000

2009AED’000

Amounts payable under finance leasesWithin one year 55,615 58,267 107,277 56,709In the second to fifth years inclusive 199,975 139,077 129,778 124,781After five years 45,130 - 1,807 -

300,720 197,344 238,862 181,490Less: future finance charges (61,858) (15,854) - -

Present value of lease obligations 238,862 181,490 238,862 181,490

Analysed as:Amounts due within 12 months 66,725 56,709Amounts due after 12 months 172,137 124,781

238,862 181,490

It is the Group’s policy to lease certain of its plant and machinery under finance leases. The average lease term is 2 years (2009: 2 years). For the year ended 31 December 2010, the average effective borrowing rate was 12.6% (2009: 5.1%). The fair value of the Group’s lease obligations is approximately equal to their carrying value.

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25. Provisions

Asset retirementobligations

AED’000

RetirementprovisionAED’000

OtherAED’000

TotalAED’000

At 1 January 2009 23,711 1,231 5,584 30,526Acquisition of a subsidiary 9,469 - 286 9,755Additional provision in the year 6,711 494 67,895 75,100Utilisation of provision - - (15,401) (15,401)

At 31 December 2009 39,891 1,725 58,364 99,980Additional provision in the year 19,684 - 123,380 143,064Utilisation of provision (8) - - (8)Release of provision - (1,725) - (1,725)Reclassification - - 28,710 28,710Unwinding of discount 484 - - 484

At 31 December 2010 60,051 - 210,454 270,505

Included in current liabilities 181,961Included in non-current liabilities 88,544

270,505

Asset retirement obligations relate to certain assets held by Atlantique Telecom and Etisalat Lanka (Pvt) Limited that will require restoration at a future date that has been approximated to be equal to the end of the useful economic life of the assets. There are no expected reimbursements for these amounts.

26. Financial instruments

Capital managementThe Group’s capital structure is as follows:

2010AED’000

2009AED’000

Bank borrowings (4,378,036) (2,915,257)Other borrowings (2,021,634) (1,585,834)Cash and cash equivalents 10,276,744 11,309,185

Net funds 3,877,074 6,808,094Total equity (42,565,325) (40,389,298)

Capital (38,688,251) (33,581,204)

The capital structure of the Group consists of bank borrowings disclosed in note 22, cash and cash equivalents and total equity comprising share capital, reserves and retained earnings as disclosed in notes 20, 28 and 29, respectively.

The Group monitors the balance between equity and debt financing and establishes internal limits on the maximum amount of debt relative to earnings. The limits are assessed, and revised as deemed appropriate, based on various considerations including the anticipated funding requirements of the Group and the weighted average cost of capital. The overall objective is to maximise returns to its shareholders through the optimisation of the net debt and equity balance.

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26. Financial instruments (continued)

Categories of financial instrumentsThe Group’s financial assets and liabilities consist of the following at 31 December 2010:

2010AED’000

2009AED’000

Financial assetsLoans and receivables, held at amortised cost: Advances to/due from associates and joint ventures (Note 16) 3,224,046 1,243,448 Finance lease receivables (Note 17) 24,753 36,268 Trade and other receivables, excluding prepayments (Note 19) 8,144,744 7,344,627

11,393,543 8,624,343Available-for-sale financial assets (Note 15) 425,290 401,657Held-to-maturity investments (Note 15) 91,850 91,850Cash and cash equivalents (Note 20) 10,276,744 11,309,185

22,187,427 20,427,035

Financial liabilitiesOther financial liabilities held at amortised cost: Trade and other payables, excluding deferred revenue (Note 21) 19,951,546 20,519,613 Borrowings (Note 22) 6,399,670 4,501,091 Payables related to investments and licences (Note 23) 2,975,858 2,945,279 Obligations under finance leases (Note 24) 238,862 181,490 Derivative financial instruments (see below) 382,145 333,134

29,948,081 28,480,607

Derivative financial instruments represent the fair value of a written put option over the equity of an overseas subsidiary.

Financial risk management objectivesThe Group’s corporate finance function has overall responsibility for monitoring the domestic and international financial markets and managing the financial risks relating to the operations of the Group. Any significant decisions about whether to invest, borrow funds or purchase derivative financial instruments are approved by either the Executive Committee or the Board of Directors of either the Corporation or of the individual subsidiary. The Group’s risk includes market risk, credit risk and liquidity risk.

Market riskThe Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and price risks on equity investments.

There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk during the year.

Foreign currency riskThe Group has limited transactional exposure to exchange rate risk as it generally enters into contracts in the functional currency of the entity. These currencies include Indian Rupee, Nigerian Naira, Egyptian Pounds, Pakistani Rupee, Indonesian Rupee and CFA Francs. The Group also enters into contracts in USD in the UAE and in Euros as the currencies of these countries (AED and CFA Francs, respectively) are pegged to the USD and Euro and therefore result in limited exposure. At 31 December 2010, the Group did have financial assets and liabilities in its Egyptian and Indian subsidiaries that were in USD and other limited financial liabilities in Tanzania that are in currencies other than its respective functional currency. In instances where the Group has a foreign currency transactional exposure, it considers whether to purchase derivative financial instruments to manage the exposure and reassess this conclusion based on the level of exposure. The Group’s exposure to transactional exchange rate risk has not historically resulted in material impacts on profitability.

In addition to transactional foreign currency exposure, the Group is exposed to risk upon the translation of the Group’s foreign subsidiaries into AED. The Group recognises the impact of the translation as a movement in equity.

Foreign currency sensitivityThe following table presents the Group’s sensitivity to a 10 per cent change in the Dirham against the Egyptian Pound, the Indian Rupee and the Nigeria Naira. These three currencies account for a significant portion of profits and losses recognised in the Group’s financial statements in respect of subsidiaries and associates whose functional currency is not the Dirham. The impact has been determined by assuming a strengthening in the foreign currency exchange of 10% occurred at the beginning of the period and was held constant throughout the reporting period. A positive number indicates an increase in profit and equity, if the AED /USD were to strengthen against the foreign currency.

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26. Financial instruments (continued)

Market risk (continued)

Foreign currency sensitivity (continued)

2010AED’000

2009AED’000

Increase in profit/(loss) for the year and increase/(decrease) in equityEgyptian pounds 33,433 (45,525)Indian Rupees (45,475) (580)Nigerian Naira (13,596) (28,308)

The Group’s sensitivity to foreign currency has increased during the year owing to the growth and roll-out of its operations in Nigeria and India.

Interest rate riskThe Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates, detailed at note 22. The Group monitors the market interest rates in comparison to its current borrowing rates and determines whether or not it believes it should take action related to the current interest rates. This includes a consideration of the current cost of borrowing, the projected future interest rates, the cost and availability of derivate financial instruments that could be used to alter the nature of the interest and the term of the debt and, if applicable, the period for which the interest rate is currently fixed.

Interest rate sensitivityBased on the borrowings outstanding at 31 December 2010, if interest rates had been 2% higher or lower during the year and all other variables were held constant, the Group’s net profit and equity would have decreased or increased by AED 79.9 million (2009: AED 18.0 million). This impact is primarily attributable to the Group’s exposure to interest rates on its variable rate borrowings.

The Group’s sensitivity to interest rate has not changed significantly during the year.

Other price riskThe Group is exposed to equity price risks arising from its equity investments. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments. See note 15 for further details on the carrying value of these investments.

The Group’s sensitivity to other prices has not changed significantly during the year.

Credit risk managementCredit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group and arises principally from the Group’s bank balances and trade and other receivables. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.

For its bank balance, the Group considers various factors in determining with which banks to invest its money including whether the bank is owned by and/or has received government support, the rating of the bank by rating agencies and the level of security by way of governmental deposit guarantees. The assessment of the banks and the amount to be invested in each bank is assessed annually or when there are significant changes in the marketplace.

At 31 December 2010, the Group’s bank balances were invested 74% (2009: 83%) in the UAE and 26% (2009: 17%) outside of the UAE. Of the amounts in the UAE, an aggregate of AED 1.4 billion (2009: AED 2.9 billion) was with banks rated A+ by Fitch, AED 1.8 billion (2009: AED 1 billion) with banks rated A by Fitch and AED 750 million (2009: AED 743 million) rated A - by Standard and Poor’s.

In relation to its trade receivables, the trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, collateral is received from customers usually in the form of a cash deposit.

The carrying amount of consolidated financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained.

Liquidity risk managementUltimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The details of the available undrawn facilities that the Group has at its disposal at 31 December 2010 to further reduce liquidity risk is included in note 22.

The majority of the Group’s financial liabilities as detailed in the consolidated statement of financial position are due within one year. Further information related to the borrowings due in more than one year is provided in note 22.

Fair value of financial instrumentsExcept for all financial liabilities classified as held at amortised cost and advances from non-controlling interests, the carrying amounts of financial assets and financial liabilities recorded in the financial statements approximate their fair values.

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27. Provision for end of service benefits

The movement in the provision for end of service benefits is as follows:

AED’000

Balance as at 1 January 2009 791,198Charge for the year 101,883Payments during the year (10,747)

Balance as at 31 December 2009 882,334Reclassification (69,665)Charge for the year 46,068Payments during the year (15,230)Release of provision (9,224)

Balance as at 31 December 2010 834,283

The above provision was based on the following significant assumptions:

2010 2009

Discount rate 3.61% 4.25%Average annual rate of salary increase 3.94% 7.27%Average period of employment 15 years 16 years

28. Share capital

2010AED’000

2009AED’000

Authorised:8,000 million (2009: 8,000 million) ordinary shares of AED 1 each 8,000,000 8,000,000

Issued and fully paid:7,906.1 million (2009: 7,187.4 million) ordinary shares of AED 1 each 7,906,140 7,187,400

Reconciliation of movement in share capitalAt 1 January 7,187,400 5,989,500Bonus issue of 718,740 (2009: 1,197,900) fully paidshares 718,740 1,197,900

At 31 December 2010 7,906,140 7,187,400

On 23 March 2010, the shareholders at the Extraordinary General Meeting approved the issue of one bonus share for every ten shares held. The Corporation has one class of ordinary shares which carry no guaranteed dividend rights.

29. Reserves

2010AED’000

2009AED’000

Development reserve 7,650,000 6,950,000Asset replacement reserve 7,822,000 7,098,000Statutory reserve 10,332 6,714Translation reserve 9,429 272,782General reserve 12,402,383 12,167,505Investment revaluation reserve 142,019 141,678

28,036,163 26,636,679

a) Development reserve, asset replacement reserve and general reserveThese reserves are all distributable reserves and comprise amounts transferred from unappropriated profit at the discretion of the Group to hold reserve amounts for future activities including the issuance of bonus shares.

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29. Reserves (continued)

b) Statutory reserveIn accordance with the UAE Federal Law No.8 of 1984, as amended, and the respective Memoranda of Association of some of the Group’s subsidiaries, 10% of their respective annual profits should be transferred to a non-distributable statutory reserve. The Corporation’s share of the reserve has accordingly been disclosed in the consolidated statement of changes in equity.

c) Translation reserveCumulative foreign exchange differences arising on the translation of overseas operations are taken to the translation reserve.

d) Investment revaluation reserveThe cumulative difference between the cost and carrying value of available-for-sale financial assets is recorded in the Investment revaluation reserve.

30. Significant acquisition of shares in subsidiary undertakings

During the year ended 31 December 2010, the Group acquired additional shares in the following subsidiaries:

a) Atlantique Telecom SAThe Group acquired additional shares representing an 18% shareholding of Atlantique Telecom SA, thus increasing the total shareholding from 82% to 100%, for a consideration of USD 75 million (AED 276 million).

b) Zanzibar Telecom LimitedThe Group acquired additional shares representing a 14% shareholding of Zanzibar Telecom Limited, thus increasing the total shareholding from 51% to 65%, for a consideration of USD 16 million (AED 58.9 million).

c) Canar Telecommunications Co. Ltd.The Group acquired an additional 8,600,000 shares (of Euro 10 each) of Canar Telecommunications Co. Limited for a consideration of Euro 86 million. At the end of the reporting period, the Group’s shareholding of Canar Telecommunications Co. Limited has increased to 89.4%.

d) Etisalat DB Telecom Private LimitedThe Group acquired, for a consideration of USD 24 million (AED 89 million), an additional 1 share in Etisalat DB Telecom Private Limited in relation to the purchase by Etisalat DB Telecom Private Limited of the share capital of Allianz Infratech Private Limited, in accordance with the Share Subscription Agreement. Furthermore, a minority shareholder of Etisalat DB Telecom Private Limited redeemed preference shares amounting to AED 48 million. The preference shares did not have any ownership or voting rights attached to them and the redemption did not result in any change to the minority interest’s stake in Etisalat DB Telecom Private Limited.

31. Commitments

a) Capital commitmentsThe Group has approved future capital projects and investments commitments to the extent of AED 4,536 million (2009: AED 6,787 million) of which AED 3,200 million (2009: AED 3,351 million) had been committed at 31 December 2010.

b) Lease commitments

The Group as lessee2010

AED’0002009

AED’000

Minimum lease payments under operating leases recognised as an expense in the year (Note 5) 545,877 94,777

At the statement of financial position date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

2010AED’000

2009AED’000

Within one year 418,781 240,268In the second to fifth years inclusive 1,835,553 1,032,605After five years 1,374,760 914,929

3,629,094 2,187,802

Operating lease payments represent rentals payable by the Group for certain of its office and retail properties. Leases are negotiated for an average term of two years and rentals are fixed for an average of two years.

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31. Commitments (continued)

b) Lease commitments (continued)

The Group as lessorProperty rental income earned during the year was AED 15 million (2009: AED 38.1 million). All of the properties held have committed tenants for the next 2-5 years.

At the statement of financial position date, the Group had contracted with tenants for the following future minimum lease payments:

2010AED’000

2009AED’000

Within one year 16,459 29,951In the second to fifth years inclusive 37,782 188After five years 21,129 -

75,370 30,139

32. Contingent liabilities

a) Bank guaranteesAt 31 December 2010, the Group’s bankers had issued performance bonds and guarantees for AED 1,053 million (2009: AED 774 million) in relation to contracts. Guarantees relating to the Corporation’s overseas investments amounted to AED 999.7 million.

b) Regulatory and other matters

Infrastructure sharing agreementDuring the year ended 31 December 2009, Etisalat DB Telecom Private Limited (“Etisalat DB”) had signed a Passive Telecom Infrastructure Sharing Agreement with Reliance Infratel Limited (“RITL”) for sharing of passive infrastructure. However, due to certain technical matters, claims totalling INR 1,952 million (AED 160.1 million) have been made by RITL in relation to this agreement, which Etisalat DB has rejected.

No provision has been made in these consolidated financial statements as the Group’s management do not believe that there is any probable loss arising from the above matter.

Licence feesEtisalat DB’s liability towards licence fees, Wireless Planning and Co-ordination charges and Spectrum charges (including interest and penalty), calculated based on the Adjusted Gross Revenue (“AGR”) comprising of interest income and other income earned in the period to 31 December 2010 totalled INR 309.1 (AED 25.3 million), of which INR 234.8 million (AED 19.3 million) has been paid to date. The amounts paid to date were made under protest to the Department of Telecommunication (“DoT”) as it included items of income that should be specifically excluded from the liability calculation.

In accordance with an Order, dated 30 August 2007, issued by the Telecom Disputes Settlement and Appellate Tribunal (“TDSAT”) income from interest, dividend and certain other heads of income have to be excluded while calculating the AGR. Based on a joint petition filed by Etisalat DB on 7 May 2010 with TDSAT, the benefit of the original TDSAT order has now been extended to Etisalat DB and other petitioners from the date the petition was filed, 30 March 2009. Accordingly, Etisalat DB has filed a refund application with the DoT with respect to the amounts paid subsequent to 30 March 2009 of INR 162.2 million (AED 13.3 million), which has been recognised in the current year income statement. The DoT has appealed against the said Order in the Honourable Supreme Court of India and the final verdict of is awaited.

No provision has been made in these consolidated financial statements as the Group’s management do not believe that there is any probable loss arising from the above matter.

Minimum Roll-out obligationsDuring the year ended 31 December 2010, the DoT served demand notices on Etisalat DB towards the imposition of liquidated damages for non-fulfillment of rollout obligations in 13 out of 15 circles totalling INR 349.0 million (AED 28.6 million). Etisalat DB has made the payment of liquidated damages for all the aforesaid notices under protest and has sought time to file a detailed response to DoT. Etisalat DB expects to file suitable replies for all notices in due course. On 19 January 2011, Etisalat DB received similar notices for the remaining two circles totalling INR 117.5 million (AED 9.6 million) towards liquidated damages.

Show cause notices on licence application eligibilityEtisalat DB has received ‘show cause’ notices from the Department of Telecommunications (DOT) seeking explanations on whether they met the eligibility criteria for the UAS (Universal Access Services Licence) Application as per the DoT guidelines. Etisalat DB is in the process of drafting its reply to present the correct factual position and will respond before the stipulated deadline. Based on management’s assessment of the facts, Etisalat DB does not expect any adverse consequences arising from these notices.

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33. Dividends

AED’000

Amounts recognised as distributions to the equity holders:31 December 2010Final dividend for the year ended 31 December 2009 of AED 0.35 per share 2,515,590Interim dividend for the year ended 31 December 2010 of AED 0.25 per share 1,976,535

4,492,125

31 December 2009Final dividend for the year ended 31 December 2008 of AED 0.35 per share 2,096,325Interim dividend for the year ended 31 December 2009 of AED 0.25 per share 1,796,850

3,893,175

A final dividend of AED 0.35 per share was declared by the Board of Directors on 23 February 2010, bringing the total dividend to AED 0.60 per share for the year ended 31 December 2009.

An interim dividend of AED 0.25 per share was declared by the Board of Directors on 19 July 2010 for the year ended 31 December 2010.

A final dividend of AED 0.35 per share was declared by the Board of Directors on 22 February 2011, bringing the total dividend to AED 0.60 per share for the year ended 31 December 2010.

34. Earnings per share

2010 2009

Earnings (AED’000)Earnings for the purposes of basic earnings per share being the profit attributable to the equity holders of the Corporation 7,630,750 8,836,346

Number of shares (‘000)Weighted average number of ordinary shares for the purposes of basic earnings per share 7,906,140 7,906,140

The Group does not have potentially dilutive shares and accordingly, diluted earnings per share equals to basic earnings per share. Earnings per share for 2009 was adjusted for bonus shares issued in 2010 as approved by the shareholders at the Extraordinary General Meeting held on 23 March 2010.

35. Subsequent events

During the year ended 31 December 2010, the Group had submitted a preliminary conditional offer to buy a 46% stake of Mobile Telecommunications Company (“Zain”) for an amount of 1.70 Kuwaiti Dinars per share. No final agreement has been reached at the date of approval of the consolidated financial statements as this offer depends on the fulfilment of specific requirements and conditions that must be met to finalise the deal. Conditions include the satisfactory completion of due diligence procedures, receipt of regulatory approvals and the lack of material changes in Zain’s business prior to acquisition.

The Corporation is currently progressing with the performance of its due diligence procedures on the transaction.

74

Notice of Meeting

Notice is hereby given that the General Annual Shareholders’ Meeting will be held at 5.00 p.m, Tuesday 22nd March, 2011 at the Etisalat Head Office Building, Abu Dhabi, for the purpose of transacting the following ordinary business;

Annual general meeting

1. To note the minutes of the Annual Shareholders Meeting held on Monday 23 March 2010.

2. To listen to the report of the Board of Directors on the Corporation’s activities and financial position and to consider and adopt the Corporations audited consolidated financial statements for the year ended 31 December 2010 as well as the external Auditors report.

3. To look into the Board of Directors recommendation on the distribution of dividends.

4. To absolve Members of the Board of Directors of liability in respect of the year ending 31 December 2010.

5. To absolve the External Auditors of liability in respect of the year ending 31 December 2010.

6. To appoint the auditors for the current financial year.

By Order of the Board

Corporation Secretary

Notes:

i. A shareholder entitled to attend and vote at the annual shareholders’ meeting is entitled to appoint a proxy to attend and vote on his/her behalf. Such a proxy need not be a shareholder of the Corporation.

ii. Proxy forms may be obtained from Etisalat offices during official working hours

iii. Shareholders are requested to notify Abu Dhabi Securities Exchange (“ADX”) of any change in address.

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